Trump trade war may hit remittances: experts

KARACHI: Experts have warned that US President Donald Trump’s trade war, which intensified after China increased its retaliatory tariffs on US goods to 125 per cent and which could lead to a global recession and drop in oil prices, is highly likely to result in lower remittances to Pakistan.

Government officials, analysts, economists, bankers and think tanks in Pakistan are evaluating the economic impact of the new sweeping tariffs imposed by the US on imports from its trading partners, which includes a 29 per cent tariff on imports from Pakistan. Some experts predict a potential loss of $2-$3 billion in the country’s exports and remittances.

The Pakistan Business Council (PBC) highlights that the US is Pakistan’s largest single-country export destination, contributing to the largest trade surplus for the country. In 2024, the US imported $5.46 billion worth of goods from Pakistan, representing 17 per cent of Pakistan’s total exports. That same year, Pakistan recorded a trade surplus of $3.33 billion with the US.

When asked if Pakistan’s remittance flows are vulnerable to the expected global economic downturn caused by the new US tariffs, experts said that remittances could be indirectly affected. Tariffs may lead to reduced industrial output in key economies, potentially resulting in job losses or wage reductions for Pakistani expatriates. These decreased earnings abroad would likely result in lower remittance amounts sent back to Pakistan.

Remittance inflows increased 32.5 per cent to $24 billion in the first eight months through February. The government’s efforts to curb illegal foreign exchange trades, the increase in citizens employed overseas, the economic stability bolstered by the International

Monetary Fund (IMF) loan programme, and the convenience of the Roshan Digital Account have collectively boosted the remittances sent home by migrant workers to support their families. These cash transfers help the nation’s economy, which is struggling to navigate the recovery. In an economy like Pakistan’s, remittance flows are vital as they consistently support the current account.

Group Head of Investment and International and Transaction Banking at JS Bank Limited Syed Jafar Raza said that while there is no direct correlation between US tariff decisions and remittance flows, two factors could potentially impact home remittances to Pakistan.

The expected rise in inflation in the US could squeeze the disposable incomes of the working-class diaspora, resulting in reduced savings to send back home, Raza said. To restrict the outflow of dollars from the US, steps may be taken to impose charges and taxes on cross-border payments. Since countries like China, India (to some extent Pakistan, which receives approximately 12-15 per cent of its total remittances from the US), and South American nations are among the largest recipients of such amounts, they may feel the pinch. It carries broader economic implications, he added.

“For instance, tariffs may indirectly affect remittance flows by altering employment opportunities for Pakistani workers in the US. If industries employing non-resident Pakistanis face higher costs due to tariffs, layoffs or wage reductions could occur, further impacting remittances,” Raza said.

In response to a question about whether trade tensions affect Pakistan’s migration flows to major sources of remittances, including the Gulf states, the US, and Europe, he said that in the short term, there is no impact. But the long-term implications deserve attention. Trade tensions could lead to stricter immigration policies or reduced demand for migrant labor in affected regions. For example, Gulf states might prioritise local employment during economic downturns, while the US and Europe could impose tighter visa restrictions. These factors could gradually reshape migration patterns and remittance flows over time.

The Gulf region, known for its oil wealth, is the primary source of remittances for Pakistan. Pakistani citizens working in Saudi Arabia and the UAE send significant remittances back home, averaging over $700 million and $600 million each month, contributing to a total of around $3 billion.

“I believe if the world experiences a significant drop in oil prices, Gulf countries would try to restrict their supplies to jack up fuel prices. This would potentially result in redundancies in the sector, and hence we may see layoffs and reduced compensation to the blue-collar labour force in those countries,” Raza said.

Ibrahim Amin, a banking expert and chairperson of Dellsons Group, noted that trade tensions create uncertainty in labour-intensive sectors such as construction and logistics. Gulf countries may tighten their budgets and reduce hiring due to financial pressures. Additionally, Western economies might implement stricter immigration policies driven by economic nationalism. As a result, both new migration and the stability of existing migrants could be negatively impacted.

“GCC economies are heavily dependent on oil and other commodities. Falling prices lead to austerity, public spending cuts, and delayed infrastructure,” Amin said.“Pakistani migrant workers are often the first affected in such downturns. Employment and income reductions directly flow with lower remittance,” he added.

A note from Topline Securities indicates that lower oil prices are not expected to significantly affect remittances, as current oil prices remain well above the levels seen in 2016. During that year, when oil prices fell below $40 per barrel, remittances from Gulf countries were impacted with a lag of 6-12 months, decreasing by 5-6 per cent.