Trump’s Tariff Bombshell which can Boost Pakistan’s Economy!

US Tariff Hikes: A Game-Changer for Pakistan’s Economy?

The recent tariff impositions by the United States on major trade partners—including China, Mexico, and Canada—are expected to create ripples across the global economy. While these policies pose challenges for some nations, Pakistan stands to benefit significantly. A report by AKD Securities suggests that Pakistan’s import-driven economy may experience relief as falling commodity prices reduce import costs and improve macroeconomic stability.

Why US Tariffs Matter for Pakistan

On February 1, 2025, US President Donald Trump enacted sweeping tariff increases:

• 25% tariff on imports from Mexico and Canada, with some exemptions on energy and oil.

• 10% tariff on imports from China.

• These tariffs will remain in place until these countries address US concerns regarding migration and drug trafficking, particularly fentanyl.

Pakistan’s Economic Gains from US Tariff Moves

The key driver behind Pakistan’s potential economic boost is the anticipated drop in global commodity prices, particularly oil and raw materials. As the US dollar strengthens due to higher interest rates and global economic slowdown, prices of key imports may decline, leading to:

• Lower energy and raw material costs, benefiting industries such as textiles and manufacturing.

• Improved trade balance, as import costs shrink and export competitiveness rises.

• Strengthening of the Pakistani Rupee, backed by enhanced foreign inflows and a declining import bill.

Trade Implications for Pakistan: No Direct Tariff Impact

Pakistan currently enjoys favorable trade relations with the US, which remains its largest export market, accounting for 19% of its total exports in 1HFY25. Unlike China, Mexico, and Canada, Pakistan’s export volume to the US is minimal (0.1%), making it unlikely to face direct tariffs.

AKD Securities notes that Pakistan’s textile and technology sectors, which heavily rely on imported raw materials, will benefit from cheaper global commodities. This could improve export margins and enhance foreign exchange reserves.

Concerns Over US Aid Reduction and Remittance Tariffs

Despite the economic gains, concerns have surfaced regarding the potential reduction in US financial aid. However, AKD Securities clarifies that the impact will be negligible:

• Pakistan budgeted only $21 million in USAID grants for FY25, a fraction of the $26 billion external financing requirement.

• No bilateral loans from the US were projected for FY25.

A bigger concern is the possibility of remittance tariffs on Pakistani workers in the US. Although speculative, any increase in transfer costs could slightly impact Pakistan’s external account.

Stock Market Outlook: Rising Confidence Amid Global Shifts

The Karachi Stock Exchange (KSE) has already started reflecting improved investor confidence. The report suggests that:

• Interest rates in Pakistan are expected to decline by 250 basis points throughout 2025, fostering investment growth.

• A stable rupee and declining global commodity prices will support corporate profitability, particularly in:

  • Banking

  • Energy

  • Fertilizer

  • Cement

  • Oil Marketing

  • Autos

  • Textiles

  • Technology

While these sectors are expected to perform well, AKD Securities maintains a neutral stance on the power sector and an underweight position in chemicals.

The Geopolitical Angle: Canada and Mexico Strike Last-Minute Deals

Mexico and Canada have already taken steps to mitigate US tariffs:

• Mexican President Claudia Sheinbaum has pledged to deploy 10,000 National Guard officers to curb illegal migration and drug trafficking.

• Canadian Prime Minister Justin Trudeau secured a 30-day tariff pause by agreeing to enhanced border enforcement measures.

These diplomatic maneuvers highlight the evolving global trade landscape and the potential for future policy adjustments.

Final Thoughts: A Strategic Shift in Global Trade Benefits Pakistan

While the US tariffs may disrupt major economies like China, Mexico, and Canada, Pakistan finds itself in a unique position to gain. A combination of cheaper imports, stable currency, and a supportive stock market outlook positions Pakistan well amid these changes.

As global trade policies continue to evolve, Pakistan’s strategic economic policies and diversification efforts will be key to maximizing these benefits. Investors and policymakers should closely monitor these developments to leverage opportunities in an increasingly interconnected global economy.

Source: Tribune