Following Trump's tariffs, Pakistan is not prepared for the new trade order
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President Trump's tariffs regime signals a shift toward economic nationalism. While the merits of this approach are hotly debated, its implications for developing economies like Pakistan, a country reliant on the US market, are undeniable. This move by the US administration, surprisingly underdiscussed within Pakistani policy circles, marks the beginning of a new trade order for which the country's public and private sector is not so well prepared. The knock-on effects, far exceeding mere trade figures, could threaten job losses, eroding export competitiveness and exacerbating Pakistan's already precarious external account.
The problem Pakistan faces is multifaceted. It is a country reliant on low value-added exports to the US, a market likely to see inflation, and thus decreased demand. The micro, small and medium (MSME) firms – the backbone of Pakistan's exports, could face reduced orders and potential closure in some cases. Pakistan's lack of diversification, and weak compliance with global standards, leaves it vulnerable. The potential for a foreign exchange shortfall threatens debt servicing and essential imports. Simultaneously, US tariffs, while impacting competitors, present an opportunity for supply chain shifts and market diversification.
However, amid this challenge lies potential opportunity. Reduced import costs in the case of some commodities, a consequence of global trade disruption, could alleviate Pakistan's balance-of-payments pressure even though at a limited scale. The search for alternative suppliers by US importers offers a chance to expand exports in sectors where Pakistan holds a comparative advantage. Furthermore, the possible relocation of manufacturing facilities from China and the EU (as a result of trade disruptions) presents an avenue for industrial growth. Pakistan can also advocate for leveraging currently dormant regional trade partnerships, particularly South Asian Free Trade Area (SAFTA), and capitalize on the demand for alternative supply chains. However, for SAARC member countries to rekindle their vision and effectively promote intra-regional trade, India must take the lead.
This move by the US administration, surprisingly underdiscussed within Pakistani policy circles, marks the beginning of a new trade order for which the country's public and private sector is not so well prepared.
-Dr Vaqar Ahmed
To navigate this evolving landscape, Pakistan must adopt a multi-pronged approach. Firstly, it must diversify its export portfolio, focusing on high-growth sectors incentivized through targeted fiscal policies. Secondly, compliance with international standards, particularly in product quality, safety and labor, must be prioritized to access alternative markets. Thirdly, modernizing key industries through automation, AI, and emerging tech is crucial for competitiveness. Fourthly, Pakistan must engage in diplomacy, seeking bilateral tariff relief and offering strategic investment opportunities, particularly in its tech sector.
Multilateral institutions, particularly the Multilateral Development Banks (MDBs) and relevant UN agencies, have a vital role to play. They should integrate trade resilience into foreign assistance programs, finance trade-related infrastructure development, and provide technical assistance for labor and environmental standard reforms. Regional partners, including the GCC economies, China, and Turkiye, will need to rethink economic cooperation models with countries like Pakistan — home to the world's fifth-largest population — through not only goods trade, but also increased investment, cooperation in the services sector, preferential market access, and technology transfer.
The future of work and the green transition may follow a different trajectory. US tariff policies necessitate a re-evaluation of labor market dynamics, requiring new skill sets and adaptability. The potential slowdown in green technology adoption, currently being discussed in the EU market, calls for a concerted effort to promote sustainable practices and promote international environmental cooperation, even if the US is not proactive in this area.
Think tanks in both Pakistan and the US must collaborate to promote balanced research and advocacy, bridging the knowledge gap and promoting a mutually beneficial trade relationship. Pakistan's ability to adapt, diversify, and engage strategically will ultimately determine its resilience in the new era of global trade. Previously, Track 1.5 and Track 2 engagements in the trade and investment space were sponsored by USAID, an agency that no longer exists. As a result, alternative funding sources must be found, possibly through the private sector and its foundations, consumer interest groups, and developing country governments that stand to benefit from a more balanced tariff regime.
A key suggestion would be for the Prime Minister's Office to convene a high-level working group of leading international and local trade economists to guide Pakistan's trade trajectory. This group should assess Pakistan's own tariff regime, analyze how trading partners are reacting to US tariffs, and evaluate the implications of ongoing trade and currency wars among major economies.
The working group should explore Pakistan's strategic options, including revising the national tariff policy, updating the Strategic Trade Policy Framework, and shaping the forthcoming industrial policy. It should also ensure that sector-specific regulations for various export commodities including agriculture and services are aligned with global trade dynamics to enhance Pakistan's competitiveness in an increasingly uncertain economic environment.
Pakistan's private sector will also need to step up. The Overseas Investors Chamber of Commerce and Industry, Pakistan Business Council, and Federation of Pakistan Chambers of Commerce and Industry (FPCCI) should provide in-depth research and insights to guide city-specific and sector-specific business associations, small business chambers, and MSMEs, helping them prepare, adapt, and identify new opportunities in this rapidly changing trade landscape.
-Dr. Vaqar Ahmed is an economist and former civil servant.
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