Tariffs erode price advantage; study asks Islamabad to trade with regional states
ISLAMABAD:
The United States’ import tariffs have caused billions of dollars of capital outflow from India and eroded the price advantage of Pakistani exports, which could dent Islamabad’s exports to Washington by 30% and cause thousands of layoffs, says a regional report.
Tariff restrictions can also undermine Indian exports to the US by up to 40%, according to the assessment by two regional bodies.
The Trading beyond Borders report has been released by the Saarc Chamber of Commerce & Industry (SCCI) – the apex regional trade body – and the South Asian Federation of Accountants (SAFA).
The report has recommended regional countries, particularly India and Pakistan, to trade with each other to offset the impact of US tariffs, particularly Islamabad can increase its exports by up to $3 billion through trading with regional countries.
US President Donald Trump has imposed a 10% baseline tariff on all imports and additional country-specific tariffs ranging from 11% to 50% on South Asian nations. The report underlined that South Asia has faced disproportionate consequences due to its reliance on US markets for labour-intensive exports, notably textiles, garments and manufactured goods.
“Pakistan’s textile exports remain vulnerable, with potential declines in export revenues of up to 30%” due to US tariffs, according to the report. It noted that the new tariff structure, ranging between 20% and 35%, has increased the landed cost of Pakistani textiles and apparel by up to 18%, eroding price competitiveness and potentially triggering a decline in export volumes of 20% to 30%.
It underlined that Pakistan initially faced a 29% tariff, which was later reduced to 19% following diplomatic efforts. As the US market represents a major destination for Pakistan’s labour-intensive industries, these tariffs are also likely to result in annual revenue losses of up to $490 million, constraining foreign exchange reserves and pressuring the current account balance, the study said.
It stated that at the domestic level, the tariff shock poses profound implications for Pakistan’s industrial employment and production cycles, particularly within the textile hubs of Faisalabad, Karachi and Lahore, where thousands of workers could face layoffs. The two regional apex bodies on trade and accountancy urged these countries to take advantage of the situation and integrate with each other.
Pakistan’s diversification into regional and emerging markets such as India, Bangladesh, Sri Lanka and the Gulf Cooperation Council could unlock an additional $2-3 billion in exports annually, said Ashfaq Tola, President SAFA.
To capitalise on these prospects, Pakistan must enhance value addition, adopt sustainable production standards, and strengthen logistics and export financing mechanisms.
Pakistan’s trade relations with the US under the Trade and Investment Facilitation Agreement are hindered by rigid tariffs, import SROs and non-tariff measures, including inconsistent customs valuations, restrictions on genetically engineered products and prohibitive requirements for halal certification, according to the report.
Pakistan’s designation on the US Special 301 Watch List due to weaknesses in intellectual property rights enforcement further complicates market access, it added.
Pakistan’s exports to the US have shown steady growth over the past decade, increasing from $3.7 billion in 2014 to the peak of $4.3 billion by 2025, driven mainly by textiles, apparel and leather goods.
US complaints
The report stated that despite tariff reductions by Pakistan over a decade ago, US firms have noted that additional duties are sometimes imposed on items such as automobiles and finished goods. Pakistan issues Statutory Regulatory Orders (SROs) that grant exemptions or impose duties without prior stakeholder consultation or sufficient lead time for implementation, it said, adding that the government has not committed to permanently removing these SROs.
US exporters have reported inconsistencies in customs valuation practices, including instances where minimum benchmark values are applied instead of the declared transaction values.
It said that SRO 237 of 2019 stipulates halal certification, prohibits placing stickers or overprinting, requires a minimum of 66% shelf-life remaining and was initially not notified to the WTO. The US has pressed Pakistan regarding this measure.
Pakistan also continues to prohibit US beef imports, however, in February 2023, Pakistan and the US reached a preliminary agreement to reopen beef trade contingent upon the issuance of an export certificate, which is still pending final approval, it added.
Impact on India
The report noted that among Saarc nations, India is most severely impacted by US tariffs. India faces a cumulative 50% tariff on several exports, including textiles, jewellery and pharmaceuticals. This has resulted in capital outflows exceeding $15.5 billion and a notable depreciation of the Indian rupee, according to the report.
The imposition of a 100% tariff on non-generic drugs and films further exacerbated losses for Indian industries, it added.
For India, trade tensions with the US have escalated following the withdrawal of the Generalised System of Preferences (GSP) and the implementation of retaliatory tariffs.
The report stated that the imposition of 50% tariff also threatens to reduce export competitiveness, particularly for high-value products such as smartphones and photovoltaic cells. This could lead to short-term declines of up to 40% in exports, exposing India’s vulnerability to external policy shocks and underscoring the urgent need for diversification towards Europe, Asean and South Asia.
The declaration of a 100% tariff on certain branded drugs in 2025 underscores India’s heavy reliance on the US market, where 34% of pharmaceutical exports are concentrated, it added.
The US tariffs has also resulted in waning investment confidence with multinational corporations reconsidering production bases in South Asia to mitigate tariff exposure.
Saarc remains one of the least economically integrated regions globally, with intra-regional trade constituting only 5-6% of total trade, contrasted with Asean’s 22-25% or the European Union’s 60%.
