Catastrophic impact of Trump’s tariffs

Donald Trump’s recently proposed tariff regime has sent shockwaves across the global economic spectrum. While large economies like China, Canada, Mexico, and the European Union are expected to absorb the shock through strategic adjustments, countries like Pakistan – small, export-reliant, and economically fragile – find themselves at the receiving end of a disproportionate blow.

The imposition of a 29% tariff on Pakistani exports to the United States threatens not only to reduce trade flows but to deeply undermine Pakistan’s economic foundations, destabilizing its export portfolio, employment base, and poverty reduction efforts.

In 2023, the United States exported goods worth $3.07 trillion globally, while Pakistan’s entire export portfolio stood at just $35.15 billion – a scale mismatch that highlights the one-sided vulnerability.

Among Pakistan’s exports, around $5.01 billion were directed to the United States, accounting for nearly 14.3% of its total exports. With a 29% tariff now hanging over these exports, especially in textiles – Pakistan’s chief export sector – there is growing concern that these earnings could be slashed by up to $700 million annually.

The US economy is not critically dependent on Pakistan’s exports. Most of the goods from Pakistan – textiles, general merchandise, and lower-tier engineering products – are neither strategically essential nor irreplaceable.

These items often serve niche consumer segments, such as the Pakistani diaspora in the US, and are easily substitutable by similar or superior products from countries like India, Bangladesh, or Vietnam.

India in particular, holds a competitive edge due to a more favourable exchange rate, better trade agreements, and higher product quality. These factors make Indian exports more appealing and valuable to US importers, rendering Pakistan’s products vulnerable to displacement.

Beyond the direct impact of US tariffs on Pakistan’s exports, there is a significant and often overlooked indirect consequence: the cascading effect on global demand. If major economies such as China, the European Union, and Mexico experience reduced access to the US market due to heightened tariffs, their export revenues will shrink accordingly.

This contraction could lead to lower economic output and diminished purchasing power within these countries. As a result, they may reduce their own imports from developing nations or impose retaliatory tariffs.

Countries like Pakistan, which rely on exporting textiles and other consumer goods to these markets, would then face a secondary decline in demand. The interconnected nature of global trade means that Pakistan is vulnerable not only to direct policy changes from Washington but also to the economic aftershocks they produce across the broader international system.

The core issue lies in Pakistan’s elevated input costs. High energy prices, erratic utility supply, expensive water, and inefficient infrastructure inflate the cost of production, giving competitors like China and Bangladesh a decisive advantage.

China, for instance, heavily subsidizes its export-oriented sectors, including textiles and light engineering. Even Vietnam and Cambodia, smaller but efficient producers, offer lower-priced alternatives to US buyers.

These countries, with more stable policy environments and better trade facilitation mechanisms, may step in to replace Pakistan in the US market as tariffs push Pakistani products out of financial reach.

According to Pakistan Bureau of Statistics and macroeconomic data from the IMF and World Bank, Pakistan’s GDP in 2023 was approximately $338.37 billion. With the textile sector contributing nearly 8.5% to GDP and employing around 30% of the national workforce – about 16.8 million people – any shock to this sector is not just a commercial loss, but a national economic emergency.

The loss of up to $700 million in export revenue directly translates to a 2% drop in total exports, and more indirectly, a contraction of up to 0.5-0.7% in GDP depending on multiplier effects and downstream impacts.

As of December 2024, Pakistan’s foreign exchange reserves stood at only $16.41 billion – much of it borrowed or pledged against external debt – leaving the country highly vulnerable to a decline in dollar inflows from exports. This tightening of liquidity restricts the ability to finance essential imports such as food and energy, raises the risk of further devaluation of the Pakistani rupee, and intensifies inflationary pressures already burdening households.

The export shock is particularly damaging for poverty reduction efforts, with the national poverty rate climbing to 25.3% in 2024 – a seven-point increase that has pushed 13 million more citizens below the poverty line. Job losses in export-driven sectors like textiles and manufacturing, which traditionally employ low-skilled rural and peri-urban labourers, are likely to deepen this crisis further.

Simultaneously, the middle class – around 35% of the population and largely reliant on mid-tier professional services, SMEs, and export-adjacent industries – is under immense stress as falling export orders force firms to cut jobs, halt expansion, and freeze wages, thereby shrinking the middle class, curbing economic mobility, and eroding consumer confidence.

The social fallout from Pakistan’s economic contraction is both severe and far-reaching, with rising poverty and unemployment heightening the risk of social unrest, crime, and political instability.

As demand for subsidized services surges, the government – already fiscally constrained – may resort to unsustainable borrowing, painful austerity, or further IMF dependence, eroding national policy autonomy.

Job losses will hit the textile sector hardest, disproportionately affecting women who are often primary earners in low-income households, potentially reversing progress in gender equality, education, and child welfare.

SMEs in allied industries – transport, warehousing, and raw material trade – will also suffer, with the ripple effects likely reaching agriculture due to falling cotton demand.

This cascading crisis exposes deep structural flaws in Pakistan’s export model, rooted in over-reliance on low-value goods and limited trading partners. Without urgent reforms to diversify exports, cut production costs, modernize infrastructure, and pursue aggressive trade diplomacy, Pakistan risks prolonged economic marginalization.

What Pakistan needs now is a three-pronged strategy: First, diplomatic engagement with the US to seek tariff relief or exemptions, especially for value-added textile categories.

Second, a fast-tracked reform package to reduce input costs, improve ease of doing business, and introduce export subsidies of its own. Third, an accelerated diversification of export markets, especially in Africa, Central Asia, and the Middle East, where demand for mid-priced textiles and merchandise is growing.

In conclusion, Trump’s tariff war may be an aggressive attempt to reshape US global trade – but its collateral damage in countries like Pakistan is dangerously underestimated.

A drop of Pakistan’s exports may not dent the US economy, but it could push Pakistan further into economic darkness. The price will be paid not just in dollars lost, but in jobs, hopes, and futures.

Copyright Business Recorder, 2025