Pakistan Faces Tariff-Induced Economic Contraction

Published on 4.23.25

  The proposed 29% tariff by the Trump administration on Pakistani exports has sent shockwaves through the country's economy, with estimates suggesting that it could reduce Pakistan's exports to the US by 20-25%, resulting in a potential loss of $1 billion to $1.5 billion. This development is particularly concerning given that Pakistan's textile exports to the US are worth around $2 billion, generating a trade surplus of approximately $3 billion. In an effort to mitigate this impact, Pakistani exporters are working with US buyers to negotiate tariff reductions and carve-outs from the 29% levy. One potential solution lies in the US tax provision that allows for a tariff offset based on the value of American content in Pakistani exports. For instance, companies like Pakistan's textile giant, Nishat Mills Limited, which has significant investments in the US, may be able to leverage this provision to reduce their tariffs. The Pakistani government has also been exploring alternative markets, such as China and Turkey, to reduce its reliance on the US market. However, some experts suggest that importing essential goods like Boeing aircraft and F-16s could be a viable option for Pakistan to mitigate the impact of the tariffs. In the long term, Pakistan's strategy should focus on developing labor skills, leveraging technology, and innovating products and services to gain a competitive edge in the global market. This will enable the country to diversify its exports and reduce its dependence on the US market.

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