A celebratory — and hopeful — tone has been raised over the reduction announced by the United States in its so-called Liberation Day reciprocal tariffs on Pakistani goods to 19 per cent from the previous 29pc. The additional duties were revised just a day after US President Donald Trump announced on social media that he would help Pakistan develop its ‘vast oil reserves’.
The new trade deal — reached with the US just a day before the extended pause in the implementation of the global reciprocal tariffs was to end on August 1 — gives Pakistan a big duty advantage over India, which is hit with 25pc valorem duties and a slight edge over other competitors like Bangladesh, Sri Lanka and Vietnam who have been slapped with 20pc import duties.
President Trump had announced his higher ad valorem duties — in addition to a universal 10pc base tariff — on dozens of countries running a trade surplus with America on April 2. In his executive order, he had stated that the “large and persistent annual US goods trade deficits constitute an unusual and extraordinary threat to the national security and economy of the United States that has its source in whole or substantial part outside the United States”.
Pakistan ran a trade surplus of $5.2 billion in 2024, with its total goods exports totalling $5.1bn and imports $2.1bn. The trade surplus showed an increase of 5.2pc over the previous year.
The additional tariffs were, however, suspended, initially until July 9 and later until July 31, in less than a week of their announcement to give the affected countries time to renegotiate new trade deals with the US.
Some of the peer countries like Bangladesh, Vietnam, Sri Lanka and Thailand, which were at a much higher bracket before, got better treatment by Trump’s tariffs and are almost at par with Pakistan now
Commenting on the conclusion of the trade agreement with the US, Pakistan’s finance ministry said the deal gives the country a major opportunity to expand its footprint in the American market.
“In particular, this tariff level is expected to support Pakistan’s export potential, especially in key sectors such as textiles, which remain the backbone of the country’s export economy,” the ministry highlighted. The statement noted that the decision reflected a “balanced and forward-looking approach by the US authorities, keeping Pakistan competitive relative to other South and Southeast Asian countries”.
The Pakistan government, it went on, “looks forward to further positive engagements and close cooperation with the United States in the areas of investment, artificial intelligence, cryptocurrency, mines & minerals, energy, and other emerging sectors.”
Trade and investment have to go hand in hand, said the country’s finance minister. He said that the bilateral and strategic partnership has come up prominently, adding, “I think we are in a good place today… in terms of where we have arrived before August 1.”
There is also satisfaction locally that Pakistan’s tariff rate is much lower than arch-rival India’s, CNN noted. Fears in Islamabad that India was trying to isolate Pakistan financially have been somewhat tempered by the 25pc tariff rate that the Trump administration hit New Delhi with after talks bogged down over access to its agriculture sector. On top of that, India also faces an unspecified penalty for its purchases of Russian oil.
Adviser to the finance minister Khurram Schehzad noted that the “deal signals a strategic deepening of economic ties and shared growth. The way Pakistan has been treated compared to different countries in this region, very encouraging and important,” he said, referring to the higher levy imposed on India. He also wrote on X that Pakistan is possibly the only country to which the US has offered its investments, as well as a competitive trade deal.
Nevertheless, some textile exporters like Interloop’s Musaddiq Zulqernain cautioned against attaching too many hopes to the reduced tariff. “It, indeed, is a good development, given the fact that a higher tariff could have hit us. That we got a deal on par with our peers is absolutely an advantage.”
However, he said, “the higher tariff on India will not help us increase our goods exports to the US because Indian industry is way more competitive than ours. If we want to capture India’s market share in the US, we would have to work on enhancing our competitiveness.”
Then, he pointed out, India is still negotiating a new deal with Washington in spite of the initial setback. “What if it succeeds in clinching a better deal than ours, say, in the next few weeks or even a couple of months?” That’s not all.
“We don’t yet know if our agreement is final and aligns with the US on economic and national-security matters (as demanded by President Trump)”. Pakistan falls in the category of countries which, according to the July 31 executive order of President Trump, have agreed to, or are on the verge of agreeing to, meaningful trade and security commitments with the United States.
“The order states that the countries failing to reach an agreement on security commitments with the US could face a higher tariff. The situation remains a bit uncertain even if the revised duty structure provides us with some sort of clarity for the next few months,” he argued.
President Trump’s executive order says “… some trading partners have agreed to, or are on the verge of agreeing to, meaningful trade and security commitments with the United States, thus signaling their sincere intentions to permanently remedy the trade barriers that have contributed to the national emergency declared in (the previous executive order of April 2), and to align with the United States on economic and national security matters.”
It goes on: “other trading partners, despite having engaged in negotiations, have offered terms that, in my judgment, do not sufficiently address imbalances in our trading relationship or have failed to align sufficiently with the US on economic and national-security matters.”
According to the executive order, if a trading partner fails to take “adequate steps” to address the tariffs or retaliates against the US, Washington could take additional action. It says the countries failing to conclude meaningful trade and security commitments with the US could face 10pc and ad valorem duties on top of reciprocal tariffs.
In a note, Topline Security maintains that the trade deal with the US is largely neutral. “Unlike the market vibes and perception after the US president tweeted about the signing of a deal with Pakistan, the pact seems to be less exciting for Pakistan.” It also points out that some of the peer countries like Bangladesh, Vietnam, Sri Lanka and Thailand, which were at a much higher bracket before, got a better treatment and are almost at par with Pakistan now.
Vietnam was initially imposed with tariffs of 46pc and Bangladesh was hit with a tariff of 37pc. Others like Sri Lanka and Thailand have also got better terms than previously proposed.
Textile comprises 75-80pc of Pakistan’s exports to the US, the brokerage said. In textiles and clothing, it said, Pakistan largely competes with China, India, Vietnam, Cambodia, Indonesia, and Bangladesh. “The duties imposed on China, Cambodia, Indonesia, Vietnam and Bangladesh were much higher than those on Pakistan initially. However, the revised duties are more or less equal to Pakistan, thus leaving no competitive edge to Pakistan, in our view, except for cheaper labour.
“This deal will nonetheless help the country to remain competitive with direct competitors, without giving it any significant advantage over its peers.” It further states that China’s talks will further determine the competitiveness of Pakistan and other countries facing a deadline of August 12, since Beijing is the US’s largest supplier.
The US is Pakistan’s single largest export market. Recently, Pakistan’s goods exports to the US have consistently increased. In the first 11 months of FY25, exports to the US rose by 11.06pc to over $5.5bn from nearly $5bn a year earlier. In FY24, Pakistan’s textiles exports to the US reached $5bn, representing 92pc of its overall exports to that country.
Khurram Mukhtar, former chairman of the Pakistan Textile Exporters Association, says the country’s exports to the US are already rising. “The American buyers are very bullish on Pakistan at the moment because we have the entire supply chain here. But if we want to take advantage of the lower tariff than our competitors, we will have to improve our competitiveness by reducing our cost of doing business.”
Published in Dawn, The Business and Finance Weekly, August 4th, 2025
