The cat is finally out of the bag. All Pakistan’s exports to the US will now be facing a flat tariff of 19 per cent. The new tariff rate is 10 percentage points lower than the one (29 per cent) announced, but shelved, by Washington for Pakistan earlier in April this year. However, it’s many times higher than the rates that Pakistan’s exports have so far faced in the US.
The new tariff rate for Pakistan, as for most other trading partners of the US, has come following negotiations between the two sides and forms part of a broader trade deal. The details of the other components of the trade agreement, including the tariff rate or rates that American products will be facing in Pakistan, have not yet been officially made public. However, President Trump, in his characteristic style, has from time to time spoken of joint oil exploration in Pakistan by the enterprises of the two countries.
Is Pakistan better off after the trade deal? At present, given the missing details of the bilateral agreement in question, only a tentative answer can be given. And the answer is in the negative.
The Trump administration unleashed the current global tariff war primarily to bring down the US trade deficit, bordering on one trillion dollars a year. As seen by Team Trump, the massive trade imbalance, notwithstanding America being the globe’s largest and the most sophisticated economy, was underpinned by the asymmetry in tariffs imposed by the US and the rest of the world against each other’s exports.
Several factors undergird the US trade deficit; the tariff asymmetry is just one of these. However, what counts is how Washington sees it. From Washington’s perspective, the principal, if not the only, way to correct its trillion-dollar-a-year trade imbalance is to remove the asymmetry by raising tariffs that foreign products face in the huge American market – the world’s largest in terms of consumer spending.
Hence, on April 2 this year, Donald Trump announced what he called ‘the Liberation Day’ tariffs, indicating unequivocally that the US would no longer allow other countries to ‘rip it off’. The announcement made no distinction between friends and foes, as some of Washington’s staunchest of allies – such as Japan, South Korea, Israel and Taiwan – were slapped with much higher tariffs. The tariff escalation was based on a two-fold criterion: the reciprocal tariffs maintained by another country on the US exports, and the US trade deficit with that country. The higher these two variables, the higher will be US tariffs on imports from a particular country.
The implementation of the new tariff rates was put off for three months, allowing other countries to reach out to Washington with the offer to cut their tariffs on American products and commit themselves to taking other measures to scale down their trade imbalance. Thus started a series of negotiations between the US and its trading partners, culminating in several bilateral agreements, including one with Pakistan.
The new US tariffs sort its trading partners into four categories: One, the countries with which the US enjoys a trade surplus. US imports from these countries, which include the UK and Australia, will be facing 10 per cent tariffs – the lowest for any country – each. The second category comprises the economies with which the US faces a trade deficit and with which it has been able to strike an agreement. These countries will be facing flat tariffs between 15 and 41 per cent in line with the above-referred two-fold criterion.
In the third category are included the countries, such as China and Mexico, with which the US is in the process of finalising a trade deal. For these countries, new tariffs have not been announced. The final category comprises nations which either didn’t enter into negotiations with Washington or the talks broke down. These countries have been slapped with higher tariffs. For example, Brazilian exports to the US will pay 50 per cent tax at the point of entry.
Pakistan and several other South or East Asian nations, together with the European Union (EU) countries, Turkey and Israel fall into the second category. The lowest tariff of 15 per cent in this category has been announced for the EU countries, Japan, South Korea, Turkey and Israel. All these countries have a trade surplus with the US, which is many times greater than that of Pakistan. For example, the EU has a $236 billion trade surplus with the US, whereas Japan and South Korea have trade surpluses of $68 billion and $66 billion, respectively. Perhaps these countries were able to negotiate more effectively with Trump’s team.
Cambodia and Thailand will be facing the same tariff rate as Pakistan – 19 per cent. Both these countries have a higher trade surplus ($46 billion in the case of Thailand, and $11 billion in the case of Cambodia) with the US than Pakistan ($3 billion) has. Not only that, but compared with the tariffs announced in April, both these countries have been able to bring down tariffs on them by a greater margin than Pakistan. For Thailand and Cambodia, the April tariffs were 36 and 49 per cent respectively, higher than Pakistan’s 29 per cent.
Yes, some regional competitors have been slapped with higher tariffs than Pakistan. These include India (25 per cent) and Vietnam, Bangladesh and Sri Lanka (20 per cent each). Except for Sri Lanka, all these countries enjoy much higher trade surpluses with the US than Pakistan does ($123 billion in the case of Vietnam, $46 billion in the case of India, and $6 billion in the case of Bangladesh). In April, the US tariffs announced for Vietnam, India and Bangladesh were 46, 26 and 37 per cent, respectively.
The US is the single largest export destination for Pakistan, accounting for nearly 17 per cent of the country’s total exports. In 2024, Pakistan’s exports to the US amounted to $5.46 billion. Pakistan had nearly $3 billion in trade surplus. Pakistan’s major exports to the US include articles of textiles and clothing (T&C), leather products, furniture and mattresses, surgical equipment, sports goods and sugar.
Valuing $4.18 billion, T&C products account for nearly 75 per cent of Pakistan’s total exports to the US. Previously, the T&C products faced tariffs between 8.0 and 14 per cent in the US market. The tariffs for the T&C products for Pakistan have now been escalated to 19 per cent, which represents a substantial hike. Pakistan mostly exports to the price-sensitive segment of the American market. Given the US’s significant textile industry, T&C exports from Pakistan will likely struggle to compete with cheaper local products.
After T&C, the leather sector accounts for Pakistan’s second-largest export product to the US. Previously, leather exports from Pakistan faced 4.0 per cent tariffs, which have now been raised more than four times. The remaining exports to the US faced tariffs between 0 and 2.0 per cent, which henceforth will rise to 19 per cent.
It remains to be seen what concessions Pakistan has made to ease tariffs and other trade measures for US-based enterprises. Only then will it be possible to make a thorough assessment of the trade deal.
The writer is an Islamabad-based columnist. He tweets/posts @hussainhzaidi and can be reached at: hussainhzaidi@gmail.com
