US trade diplomacy

Pakistan, under the ‘euphoria of triumph’, swiftly walked out, having made a deal with the United States with 19 percent US tariffs on its exports. This drew comparison with India — still embroiled in tariff conflict with US with no settlement in sight. Nevertheless, the comparison is not realistic. India got on the wrong side of Donald Trump who reprimanded it for supplying cheaper procured Russian oil to Europe at a high premium, thereby fuelling the Ukraine war. Additionally, India’s engagement with BRICS, as its founding member, is looked upon with suspicion by the Trump administration. Whereas, historically, India’s case stems from longstanding trade tensions: data localization rules, price caps on pharmaceuticals, and high tariffs on US imports — specially on its automotive industry.

Pakistan, in contrast, has no such baggage. It does not restrict American tech firms, nor does it block market access. The flat 19 percent US tariffs are being quietly absorbed by Pakistan’s export sector but should not be overlooked by policymakers. While this is a reduction from the earlier proposed 29 percent tariffs — ironically for Pakistan’s struggling exporters, the difference between 19 percent and 29 percent is merely academic when compared to the 0-8 percent range they previously operated under — especially for core products like textiles, surgical goods, and sports equipment. The country’s exporters, particularly small and medium enterprises (SMEs), operate on razor-thin margins.

With rising energy costs at home and political instability feeding currency volatility and a country fighting for every export dollar, this is not an encouraging development. These blanket tariffs erode Pakistan’s competitiveness, particularly in labour-intensive and price-sensitive sectors such as textiles, surgical instruments, sports goods, and leather products. These sectors are economic engines and critical to employment, particularly in vulnerable regions across Punjab, KP, and Sindh.

Pakistan uncompetitiveness could reroute US buyers toward countries like Bangladesh, Jordan, Vietnam, or even Mexico, many of whom enjoy more favourable trade terms through Free Trade Agreements (FTAs) or GSP+ schemes.

To preserve a healthy trade relationship and support Pakistan’s economic stability, an optimal and friendly tariff would fall between 0 percent and 5 percent, at least for priority export categories like textiles and garments, surgical instruments and medical devices, sports goods, leather products and IT services (via digital trade facilitation).

This would mirror the preferential access already offered to other developing or strategic allies. The US has mechanisms for this — whether through restoring GSP benefits, or negotiating product-specific concessions under bilateral economic frameworks.

Pakistan has long been a strategic ally during the Cold War and the war on terror; more recently, the countries have made efforts aimed at obtaining regional stabilization. That alliance should be reflected in trade policy, not just security dialogue.

This 19 percent tariff may seem like a routine trade adjustment, but its implications are far-reaching at a time when Pakistan’s economy can least afford it.

Political goodwill, unless translated into economic terms, quickly turns into irrelevance. It is now a time for proactive trade diplomacy.

Copyright Business Recorder, 2025