US tariffs will hurt Pakistani products’ competitiveness

[ghazi52]

US tariffs will hurt Pakistani products’ competitiveness, experts warn​

Biggest assault yet on global economic system' says one expert

Ali Ahmed
April 3, 2025

US President Donald Trump on Wednesday kick-started a global trade war as he announced sweeping reciprocal tariffs on over 180 countries, with significant implications for countries like Pakistan.

“For decades, our country has been looted, pillaged, raped and plundered by nations near and far, both friend and foe alike,” Trump said while speaking in the White House Rose Garden.

The announcement sent shockwaves around the world, as many countries - both allies and competitors - condemned Trump’s announcement, with some pledging counter-measures.

Among the most notable targets were US rival China (34%), the European Union (20%), and South Asian nations, including Pakistan, which now faces a 29% tariff on its exports to the US.

According to a US government website, reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the US and each of its trading partners.

“This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing. Tariffs work through direct reductions of imports,” the website stated.

Eroding Pakistan’s competitiveness

While the US remains one of Pakistan’s largest trading partners, experts noted that these new tariffs could erode the competitiveness of Pakistani products in the American market.

Analysts noted that these new tariffs could disrupt Pakistan’s trade by slowing down its exports in the US market.

Mustafa Pasha, Executive Director and Chief Investment Officer at Lakson Investments Limited, explained that the imposition of tariffs is basically a tax on American consumers, reducing their purchasing power and lowering demand for imports.

“If the demand for Pakistani goods falls, it will be a negative for the country,” Pasha told Business Recorder.

“Trump wants to reset world trade, thus, he has imposed tariffs globally. Pakistan now needs to assess its position relative to its competing countries,” he said.

“We can capture market share from China, Vietnam and Bangladesh,” said Pasha, which will depend on Pakistan’s ability to negotiate and its exporter’s adaptability.

“If the government reduces energy cost, it will give more margin to our exporters.”

“This presents an opportunity,” he said. “Since our imports from the US are negligible, we could offer concessions to negotiate better terms.”

Textile could be worst-hit

The US is among Pakistan’s largest trading partners, and experts noted that Pakistan’s exports are largely dominated by textiles, which could be among the most affected areas.

During the first seven months of FY2025, exports to the US totalled $3.6 billion, accounting for 19% of Pakistan’s total exports. Of this, 79% ($2.8 billion) consisted of textile and apparel products.

Musadaq Zulqarnain, CEO of Interloop Textiles, one of Pakistan’s largest textile manufacturers, said that the imposition of reciprocal tariffs on US trading partners worldwide is Trump’s “biggest assault yet on a global economic system he has long bemoaned as unfair”.

On a post on social media, he noted that “Pakistan will hold a cost advantage over Vietnam (17%), Indonesia (3%), Cambodia (20%), China (25%) and Bangladesh (8%)”.

“Conversely, Pakistan will face a competitive disadvantage of 3% compared to India, 19% when compared with Turkey, and 6% compared to Jordan Egypt and most Central American countries,” he added.

Trump has imposed a 29% reciprocal tariff on Pakistan, while its archrival India faces a tariff of 26%. Other countries being impacted include Indonesia (32%), Bangladesh (37%), Turkey (10%), Egypt (10%) and Jordan (20%).

Some of the nations worst hit were in Southeast Asia, including 49% for Cambodia, 47% for Vietnam and 44% for Myanmar, which was recently hit by a devastating earthquake.

“However, the final outcome will depend on how each of these countries negotiates their terms,” said Zulqarnain.

“Regardless of circumstances, sales in the US are expected to decline,” he said.

 

[ghazi52]

US criticises Pakistan’s trade policies in new report​

Ali Ahmed
April 4, 2025

The US government has raised concerns over Pakistan’s trade and investment policies, highlighting their adverse effects on American businesses, in the wake of US President Donald Trump imposing a 29% reciprocal tariff on Pakistan.

“US companies have cited concerns that Pakistan has been imposing high tariff rates and, in some cases, additional duties, on products such as automobiles and finished goods,” stated a report titled ‘2025 National Trade Estimate Report on Foreign Trade Barriers’.

As per the report, US exporters in Pakistan face non-uniform customs valuation, excessive documentation requirements, and penalties due to outdated invoicing rules, adding compliance burdens.

“US companies have reported being adversely affected by Customs Rules 389 and 391.

“Customs Rule 389 requires the placement of a physical invoice and packing list in the shipping container, while Customs Rule 391 places the responsibility of including such documents, and liability for failure to comply, on the owner of the goods and the carrier.

“Such rules pose compliance challenges for companies that use intermediaries, re-invoicing, or the storage of goods at various points during transit,” read the report.

It said that US companies face foreign exchange restrictions and bureaucratic hurdles in Pakistan, making it difficult for them to repatriate profits and dividends, “generally coinciding with the government’s focus on stemming outflows of US dollars.”

However, conditions improved in 2024 “as Pakistan’s balance of payments position stabilized”.

The report added that US companies have experienced increased pressure from the Federal Board of Revenue (FBR), Pakistan’s tax collecting authority, to prepay anticipated tax liabilities and “have expressed concern that many of their local competitors still do not pay taxes at all or engage in tax evasion”.

“The US government has repeatedly engaged with the Pakistan government on issues involving unfair and disproportionate taxation of US companies and continues to reinforce the importance of Pakistan broadening its tax base,” it said.

The report revealed that Pakistan remains on the US Special 301 Watch List due to weak Intellectual property (IP) enforcement, rising counterfeiting, and inconsistent rulings from IP tribunals.

“Although Pakistan has made gradual improvements toward better coordinating its IP enforcement efforts and updating its IP laws, serious concerns remain, particularly in the area of IP enforcement,” it said.

Moreover, the report stated that US companies also found corruption and a weak judicial system as “substantial disincentives” to foreign investment in Pakistan.

 

[ghazi52]

Short-sighted policies​

But even as the world reeled from this announcement, and leaders everywhere rushed to reckon with the fallout and fashion their strategy for the new world opening before us, we in Pakistan were treated to a show that revealed a leadership mired in ceremony and day-to-day troubleshooting.

The power tariff reductions were coming anyway, since almost two-thirds of the reduction announced is to be financed through regulatory actions, most of which are routine in nature. What mattered more than the tariff reductions themselves, was the vision for change the government was bringing to the power sector, and here the prime minister had little more to offer beyond a committee and a list of names of people who would sit on that committee.

This committee, he announced, will deliberate reduction in power losses, a move towards market pricing of electricity and privatisation of the distribution companies. It seemed odd that the government’s conversation around these foundational issues was still at the deliberative stage, but tariff cuts merited such extravagant pomp and show.

The prime minister is likely to find that any expressions of jubilation from the business community are going to be short lived. Soon the usual complaints of how difficult exports have become in this new world will return with a vengeance, and with it demands for more government support.

If Pakistan’s policy elites remain stuck in concerns about how to troubleshoot day-to-day problems, how to scramble together a “relief package” for industry or the common citizenry, and how to pass the next IMF review with no thought on what comes after stabilisation, the country will hover in a state of low growth for years to come.

The only way out of this low growth equilibrium will be to arrange a foreign bailout of the sort we availed in the middle 2000s and again in the middle 2010s and for a brief period in the years following the Covid-19 pandemic.

Watching the Trump tariffs roll in while our own prime minister congratulated himself, his team and the power of prayer for being able to pass through a power tariff cut inspired zero confidence that anyone among our policy elite understands the scale of the task before them.

 

[ghazi52]

The day of the tariffs​

Watching the Trump tariffs roll in while our own prime minister congratulated himself, his team and the power of prayer for being able to pass through a power tariff cut inspired zero confidence.

Khurram Husain
April 4, 2025

It was a strange spectacle. On the day the rest of the world was busy processing the meaning and impact of the trade tariffs announced by US President Donald Trump against almost 60 countries including Pakistan, Prime Minister Shehbaz Sharif had tariffs of his own to announce to his countrymen.

In a live televised show with ample pomp and ceremony, flanked by his cabinet and before an audience of his ministers and senior bureaucrats, Prime Minister Shehbaz Sharif took to the podium to announce a reduction in power tariffs equal to Rs7.41 per unit for all households, and Rs7.59 for industry.

These are figures for average reductions across various consumer categories and different slabs. The exact impact on household bills will vary, but for someone who consumes 1,000 units per month, the impact could be somewhere around Rs7,500.

During his speech, the prime minister laboured the point that the cuts have been approved by the IMF, telling his audience how the combined efforts of the cabinet had been marshalled up in order to make these cuts possible.

But a closer look revealed something different. What the government has actually done is assemble together a raft of price adjustments that have just been made under various heads, and packaged them together as some sort of a government mandated tariff relief for the country.

The math behind the cuts​

A senior source with knowledge of how these cuts are going to be financed gave Dawn.com the breakdown. According to the source, Rs1.70 of the total tariff cut will be financed with funds raised from not reducing fuel prices at the pump due to recent oil price declines, and absorbing that fuel price cut into the Petroleum Development Levy (PDL) instead.

Another Rs1.90 is from the quarterly tariff adjustment for the second quarter of FY25, that the power regulator (Nepra) has already approved and will be notified any day now. Another Rs0.90 cut has already been ordered by Nepra under Fuel Cost Adjustment, a routine matter. And Rs1.45 per unit will be financed from the funds saved from the tariff reduction via revisiting IPP agreements.

After these reductions, the government estimates a reduced tax incidence on power bills which will contribute the remainder of the estimated cut adding up to Rs7.41 for households of Rs7.59 for industry.

The source confirmed to Dawn.com that the IMF has been informed of this cut before Eid, but added that, to his knowledge, the Fund had merely received the information and not given a response so far. “These are all routine, regulatory adjustments in power tariffs; they do not require prior IMF acceptance, and the government told them that it will be packaging all of these together for political mileage and making an announcement,” the source said. “We do not think there will be any reason for the Fund to object”.

A global shakeup​

And so while in Pakistan, we were busy processing a cut in power tariffs and its possible impact on the ongoing IMF programme, the rest of the world was reeling from tariffs of an altogether different variety.

President Donald Trump had already announced a raft of tariffs on trade with America’s bilateral partners, in which products from Pakistan have been slapped with an additional 29 per cent tariff. Pakistan ran a $3.567 billion trade surplus with the US last fiscal year, second in size only to the European Union.

The size of the tariff increase is large and it will undoubtedly impact Pakistan’s external trade adversely, though it can be debated how large the impact will be given all competitor countries have been slapped with similar, and in some cases, larger tariffs as well.


The important thing is how rapidly and profoundly the world is changing around us. Trump’s tariffs are similar to the Smoot Hawley Tariff that were signed into law by President Hoover in June 1930, which broke the world economy and aggravated the Great Depression. With these tariffs, the age of globalisation has ended definitively and along with it, also the near total hegemony of neoliberal thinking in economic affairs.

There were a number of preparatory crises that paved the way to this pass — the Great Financial Crisis of 2008, the Euro Crisis and the default of Greece, as well as the first trade war between the United States and China during Trump’s first term — but with these tariffs, the era of the single world market ends once and for all.

How Trump’s tariff’s impact Pakistan’s exports is difficult to determine. Tariffs for countries that compete with Pakistan’s textile exports are higher still, so there will be some benefit from there. But the tariffs will also fuel inflation in America, perhaps even pushing that economy into recession, leaving their consumers worse off and hurting demand for Pakistani exports.