Trump’s Tariffs Hit Pakistan Hard as Economic Worries Grow
The recent introduction of new U.S. tariffs under former President Donald Trump’s 2025 “economic nationalism” policy is already affecting global trade flows. While the policy is primarily aimed at imports from countries like China, Vietnam, and other Asian economies, the effects are being felt more broadly. One of the countries experiencing indirect consequences is Pakistan, which is already managing a challenging economic environment.
Although trade between the U.S. and Pakistan is relatively limited compared to other partners, Pakistan’s textile industry stands to be among the most affected. Textiles are Pakistan’s largest export to the United States, with annual exports exceeding USD 4 billion. These products are now facing a 29% tariff under the new trade measures. Industry representatives warn that this could increase costs, reduce price competitiveness, and impact the country’s ability to maintain its share in the U.S. market.
A representative from the Sindh Industrial Trading Estate in Karachi noted that such tariffs could disrupt the economy, especially given the country’s ongoing currency pressures and trade deficits. Pakistani officials have also expressed concern over the lower tariffs granted to India and the possibility of a bilateral trade agreement between India and the U.S., which could provide a competitive advantage to India in the long run.
Pakistan must also compete with other textile-exporting countries in the region—including Bangladesh, Vietnam, and India—to maintain and expand its market share. As the government seeks to manage these challenges, it is evaluating the broader economic impact of the tariffs, particularly while under a loan program supported by the International Monetary Fund (IMF).
One of the more indirect impacts of the U.S. trade policy has been seen in the disruption of supply chains. Pakistan’s textile and surgical instrument sectors, for example, rely on imported raw materials from countries now subject to high U.S. tariffs. This dependency has raised production costs, extended delivery timelines, and led to a reduction in orders from major U.S. retailers.
Pakistan’s exports—60% of which are textiles—are sensitive to such global shifts. The textile sector depends on inputs like cotton from India, synthetic yarn from China, and machinery from Southeast Asia. As global companies adjust their sourcing strategies, many Pakistani manufacturers are facing growing uncertainty.
In the first quarter of 2025, Pakistan’s current account deficit increased to 4.5% of GDP, driven in part by a drop in export earnings and fluctuations in currency value. The Pakistani rupee has come under pressure, and the central bank has used foreign exchange reserves to stabilize it. However, this approach may not be sustainable due to limited fiscal capacity.
There is also growing concern about increased economic reliance on China. Pakistan is already closely tied to China through the China-Pakistan Economic Corridor (CPEC) and other financial agreements. As Western markets become less accessible, Pakistan may become more dependent on Beijing, limiting its ability to navigate international partnerships independently.
Some Pakistani trade experts believe the tariff could be inconsistent with World Trade Organization (WTO) principles, which encourage resolving trade disputes through multilateral dialogue. Pakistan is considering filing a complaint with the WTO’s dispute settlement body, although officials continue to emphasize the importance of diplomatic solutions over retaliatory measures.
Certain voices in Pakistan have proposed tariffs on American imports, similar to strategies adopted by other countries. Reports suggest that China may be encouraging Pakistan to adopt a firmer stance. However, such a response could complicate efforts to improve U.S.-Pakistan relations under the current U.S. administration. In light of these developments, Prime Minister Shehbaz Sharif’s government has formed a steering committee and a working group to assess the issue and explore diplomatic and economic strategies.
Sajid Amin, an economist at the Sustainable Development Policy Institute (SDPI), pointed out that the immediate effects will be challenging, particularly as the U.S. remains Pakistan’s largest trading partner. He mentioned that the government may consider supporting local producers to improve competitiveness, but doing so could face restrictions under the IMF’s USD 7 billion loan program.
Business journalist Khurram Husain noted that the tariffs could shift U.S.-Pakistan trade relations toward a more transactional nature. He added that while exploring new markets is necessary, it will take time to build strong alternative trade relationships.
During the first seven months of fiscal year 2025, Pakistan’s exports to the U.S. reached USD 3.6 billion—19% of the country’s total exports—with 79% comprising textile and apparel products. Pakistan’s export base remains heavily concentrated, with the U.S., China, and the U.K. making up over 30% of its total exports. From the U.S. perspective, imports from Pakistan represent only 0.16% of total U.S. imports, but the trade volume is significant for Pakistan.
As Pakistan navigates this shifting trade landscape, addressing structural economic vulnerabilities, enhancing export diversification, and fostering new international partnerships will be critical to mitigating the long-term effects of the new U.S. tariffs.
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