The economy of Pakistan is going through a very tough time today when a 29% duty is applied by the United States on the country’s exports, which may cost the country around $1.4 billion annually.
On the other hand, a simultaneous drop in crude oil prices around the world may provide a cushion against the approaching economic strain.
U.S. Tariffs Threaten Key Export Sectors
Pakistan’s export-oriented economy has recently come increasingly under pressure from new tariffs, which are part of President Donald Trump’s aggressive trade policy. The textile industry, which makes up 55 percent of Pakistan’s exports to the U.S. arguably faces the highest impact.
Analysts from the Pakistan Institute of Development Economics (PIDE) warn that the imposition of these tariffs is likely to induce a 20-25 percent fall in exports to the U.S., translating into an annual loss of between $1.1 billion and $1.4 billion.
“The textile sector is the backbone of our exports, and these tariffs could be a severe blow,” put forth in PIDE policy brief. In addition, the think tank pointed towards macroeconomic instability, job losses, and a far-reaching drop in foreign exchange earnings as possible drawbacks.
The Study Conducted by Analysts
Dr. Muhammad Zeshan, Dr. Shujaat Farooq, and Dr. Usman Qadir collectively analyzed out-turn of the proposed 29% reciprocal tariff on Pakistani exports to the US. After adding to the existing 8.6% Most Favored Nation (MFN) tariff, the duty could be calculated somewhere around 37.6% altogether.
“Trade is not a zero-sum game. It’s about shared value—about building connections that make both economies stronger. These proposed tariffs risk severing those ties,” said Dr. Nadeem Javaid, PIDE Vice Chancellor “At PIDE, we see this moment not just as a threat, but as a catalyst—for course correction toward a more resilient, diversified, and strategic export future for Pakistan.”
Government’s Diplomatic Efforts and Economic Outlook
In reply to the tariffs, the Pakistani government has launched diplomatic efforts seeking softening of U.S. tariff policy grip. A high-powered delegation is said to be on its way to Washington to negotiate terms and diminish the fallout on the economy of Pakistan. “We expect an overall positive impact from the U.S. tariffs,” Ahmad said, adding that the impact should remain contained. Despite the numerous difficulties facing him, SBP Governor Jameel Ahmad is cautiously optimistic and is expecting the recent downturn in global oil prices to some degree to offset the adverse impacts of the tariffs.
Oil Price Decline: A Silver Lining
Recent drops in global oil prices have been dramatic: Brent crude fell over 20% in a week to a four-year low before making a tentative recovery to $66 per barrel. The causes for the decline are many: increased oil production and some uncertainty in the market.
For a net oil-importing nation like Pakistan, declining oil prices could translate into reduced import costs, lessening inflationary pressures, and improving the current account balance.
Governor Ahmad thinks reserves could be $14 billion by June as a result of growing remittances and the current account surplus.
Call for Diversification and Structural Reforms
According to economists and industry stakeholders, Pakistan is in great need of diversifying its export base and markets to reduce vulnerability to external shocks. Textiles now account for the lion’s share of Pakistan’s exports, and the largest contribution of these exports goes to the U.S.
Majid Shabbir, policy adviser at the Islamabad Chamber of Commerce and Industry, emphasized that avoidable trade deficits can be minimized by proactive policies, better infrastructure, and innovation.
In addition, it was found that high tariffs and outdated regulations were preventing exports from getting to the end of the line. The Pakistan Institute of Development Economics recommends reforms in the business environment so as to create a conducive space for economic growth.
What Can Be the Way Forward?
Although the tariffs imposed by the United States pose a serious threat to the export sector of Pakistan, especially textiles, the concurrent dip in global oil prices provides a sort of good news.
With diplomatic efforts being made by the government and supportive comments from the SBP, it seems that a multi-pronged approach is available to handle these economic challenges.