WASHINGTON, DC – Less than two weeks into his second term, US President Donald Trump has reignited trade tensions by imposing new tariffs, raising concerns about global market shifts and their impact on Pakistan's trade sector.
On February 1, 2025, the new US administration announced a 25% tariff on imports from Canada and Mexico and a 10% tariff on Chinese imports, citing concerns over illegal immigration and drug trafficking. Although a temporary policy adjustment has suspended tariffs on Canada and Mexico for 30 days, tariffs on Chinese goods have taken effect, excluding low-value packages until a collection system is implemented.
In response, Beijing has retaliated with:
15% tariffs on US LNG and coal
10% tariffs on crude oil and farm equipment
Export controls on rare earth minerals
Trump has also hinted at possible tariffs on the European Union (EU) and reciprocal tariffs on multiple countries, raising concerns about Pakistan’s trade prospects in an evolving global economic landscape.
How Will Pakistan’s Trade Sector Be Affected?
The shifting trade dynamics have raised critical questions for Pakistan’s export sector. With rising prices on tariffed goods, US and Chinese buyers may seek alternative suppliers—a phenomenon known as trade diversion.
During Trump’s first term, the US-China trade war resulted in nations like India and Bangladesh increasing exports to the US by 39% and 50%, respectively. Meanwhile, Pakistan’s exports to the US fell by 3%, highlighting its struggle to capitalize on new market opportunities.
Pakistan’s Export Profile: Strengths and Challenges
Textiles and textile articles – Over 50% of total exports (SBP data)
Vegetable products (mainly cereals) – 15% of total exports
Unlike India, which has a diverse export profile spanning textiles, pharmaceuticals, petroleum products, and electronics, Pakistan and Bangladesh rely heavily on the textile industry. However, Bangladesh holds a stronger global presence in apparel manufacturing, making it a preferred alternative when trade shifts occur.
2. Structural Issues in the Textile Sector:
High energy costs and infrastructural inefficiencies raise production costs.
Withdrawal of sales tax exemptions for local supplies has further strained manufacturers.
Scalability and reliability concerns limit Pakistan’s competitiveness in global trade.
3. Dependence on Few Trade Partners:
The US, China, and the UK account for over 30% of Pakistan’s exports.
A slowdown in the American or Chinese economies could negatively impact Pakistan’s trade volumes.
If the US imposes reciprocal tariffs on Pakistan, export losses could escalate.
Potential Silver Linings for Pakistan
Despite the challenges, Pakistan could find opportunities amid the trade shifts:
How Pakistan Can Navigate the Changing Trade Landscape
To safeguard its economic interests, Pakistan must take a proactive approach:
1. Launch a ‘Global Trade Branding Initiative’
Position Pakistani exports competitively in international markets.
Increase participation in trade expos and diplomatic outreach.
Utilize digital marketing for textile, manufacturing, and agricultural products.
2. Reduce Export Reliance on Few Markets
Expand trade partnerships beyond the US, China, and the UK.
Seek new buyers in emerging markets to counter potential losses.
3. Strengthen Domestic Industry
Support exporters with policy incentives and subsidies.
Improve energy infrastructure to reduce production costs.
Ensure consistent regulatory policies for foreign investors.
Develop manufacturing capabilities beyond textiles to electronics and pharmaceuticals.
4. Maintain a Business-Friendly Environment
Streamline bureaucratic processes for exports.
Enforce global quality standards to attract international buyers.
Offer incentives to foreign firms considering relocation.
What’s Next?
As Trump’s trade policies unfold, Pakistan must be prepared for both challenges and opportunities. The government, business community, and exporters must act swiftly to mitigate risks and leverage emerging trade opportunities.
Pakistan’s economic future depends on policy stability, strategic global engagement, and rapid industry adaptation. How effectively Pakistan navigates these changes will shape its role in global trade for years to come.
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