In a diplomatic win for Pakistan, the United States of America has cut the reciprocal tariff rate on Pakistani goods from 29% to 19% after direct negotiations between the Government of Pakistan and President Donald Trump’s administration.
Pakistan was initially to be hit with a hard 29% tariff under the April policy draft, but weeks of backchannel diplomacy enabled Pakistani officials to get a reduction consistent with regional neighbors such as the Philippines, Indonesia, Malaysia, and Thailand.
Pakistan is one of 69 countries covered in the updated bilateral tariff agreement, in which duties currently range between 10% and 41% based on strategic partnership and trade correlation with the U.S.
America is among Pakistan’s biggest export destinations, and this adjustment of tariffs will have a direct impact on major industries such as textiles, leather, surgical equipment, rice, and sports goods.
Decreased tariffs lower the cost of landing Pakistani goods in the US market, which can make them more price-competitive.
This 29% tariff has already resulted in an estimated 20–25% decrease in exports to America, costing the economy $1.1–1.4 billion per year.
The exporters would be able to recover half of this loss with the new rate, resulting in increased foreign exchange earnings and some stability for the economy.
Export centers like Karachi, Faisalabad, and Sialkot that are dependent on U.S. orders would experience advantages in terms of job retention and continuity of production.
This relief is particularly important to Pakistan’s textile and clothing sector, which hires millions of workers and operates on tight profit margins.
By keeping factories open and orders coming, the tariff reduction gives room to breathe to small and medium exporters as well as to niche industries like leather, rice, and surgical instruments. In addition, the action indicates a new boost in the U.S.–Pakistan trade relationship, which could eventually lead to more sectors like IT services, foodstuffs, and minerals, particularly as the nations further pursue expanded trade and energy cooperation.
Pakistan and US Trade Deal
Earlier, Pakistan and the United States finalized a trade agreement aimed at boosting bilateral trade, expanding market access, attracting investment, and fostering cooperation in areas of mutual interest.
The accord was achieved during an interaction between the Federal Minister for Finance, Senator Muhammad Aurangzeb, U.S. Secretary of Commerce, Howard Lutnick, and United States Trade Representative Ambassador Jamieson Greer in Washington, D.C.
Trade agreement is expected to enable Washington to assist in developing Pakistan’s largely untapped oil reserves and reducing tariffs on the South Asian nation, officials from both countries stated on Thursday.
Officials were not clear where the drilling would occur, but the majority of Pakistan’s reserves are thought to be in the volatile southwestern province of Balochistan, where separatists claim the province’s natural resources are being taken advantage of by the central government in Islamabad.
The deal will lead to a lowering of bilateral tariffs, particularly of Pakistani exports to the United States, it further added.
This agreement is the start of a new era of economic cooperation, particularly in energy, mines and minerals, IT, cryptocurrency, and other areas.
The agreement complements Pakistan’s ongoing efforts to expand the scope of Pak-US economic cooperation and to include partnerships at the U.S. state level.
Will Buying Oil from the US Benefit Pakistan?
Purchasing oil from America can be beneficial for Pakistan, primarily through diversification of energy sources, less dependence on Middle Eastern exporters, and enhanced bilateral trade relations with the U.S.
It can also present a chance for concessional pricing or credit and access to refined products and energy technology. Despite this, there are significant impediments.
U.S. oil is accompanied by higher transport and insurance costs because of long routes, and Pakistan’s refineries are also designed to process Middle Eastern crude, which might need to be adjusted or blended for U.S. oil.
Oil imports are also dollar-denominated, which might put extra pressure on foreign reserves in Pakistan, and world price volatility may impact cost stability.
On the whole, importing American oil could prove to be strategically valuable, but its economic value will hinge on cost, transportability, and whether Pakistan can sustain foreign exchange and refining needs.
US Tariff Reduction for Other Countries
According to the latest data, the US has reduced tariffs by 15% for Japan and Turkey, and a 19% reduction was announced for Pakistan, Thailand, and Indonesia.
Whereas, a 20 per cent tariff cut was announced for Vietnam, Bangladesh, and Sri Lanka. In comparison to other countries, India got the maximum reduction of up to 25 percent.
Will It Benefit Pakistan?
But the actual influence of this tariff relief on the economy of Pakistan is not as clear-cut. The United States has also reduced tariffs on Bangladesh, Vietnam, and China, Pakistan’s direct rivals for textiles and industry.
This whole relief diminishes the threat of market share expansion via trade diversion because American consumers now have several low-cost source alternatives.
Vietnam and Bangladesh both have more advanced production systems, greater export capacity, and more developed value-added chains, so they should capture a considerable share of any additional demand. Even with rising labor costs, China has a gigantic scale and supply chain advantage.
Structural Vulnerabilities
Pakistan also has structural vulnerabilities that could restrict the gains of the tariff reduction. Energy deficiencies, rising costs of production, old machinery, and logistical inefficiencies hinder the ability of Pakistani exporters to increase production rapidly to capture new orders.
The export base of the country continues to be reliant on low-value textiles and basic products, subjecting it to price competition and international market volatility. Without substantial improvement in diversification, branding, and shifting to high-value exports, the benefit of this tariff cut may be short-lived.
In summary, the U.S. move to cut tariffs from 29% to 19% is a diplomatic and economic blessing for Pakistan, providing short-run relief in the form of export competitiveness, a possible revenue increase, and saving employment in key sectors.
But it is not a sure-shot long-term fix. The concurrent reduction in tariffs for Bangladesh, Vietnam, and China waters down Pakistan’s competitive advantage, and unless it tackles its internal structural issues, its gain is also likely to be confined.
Converting this relief into long-term economic growth will involve making strategic investments in production efficiency, export diversification, and value addition, so that this short-term advantage is turned into long-term gains for the economy.