In the latest development impacting global trade, Pakistan is seeking special incentives for its key economic sectors following the imposition of steep U.S. tariffs. These sectors, which include textiles, leather, sports goods, and surgical instruments, form the backbone of Pakistan’s export economy and are now facing serious challenges in the wake of new trade barriers introduced by the United States.
The move comes after U.S. President Donald Trump signed an executive order on April 2, 2025, declaring a national emergency and implementing a sweeping tariff regime.
The new tariffs—ranging from 10% to 50%—are being applied to imports from all trading partners, with Pakistan-specific tariffs reaching 29% in a reciprocal move. This drastic escalation has prompted urgent diplomatic and economic responses from Islamabad.
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Background: What Triggered the US Tariffs?
In an effort to protect American industries and reduce the U.S. trade deficit, the White House initiated a new wave of protectionist policies. Labeling certain trade practices by other countries as “unfair,” President Trump’s administration cited national security concerns as the legal basis for declaring a national emergency and imposing tariffs under the Trade Expansion Act of 1962.
While this policy has drawn criticism from several countries, the impact on developing economies like Pakistan is disproportionately severe. Unlike larger economies that can absorb or counter tariffs, Pakistan relies heavily on exports to maintain its foreign reserves, stabilize the rupee, and drive economic growth.
Pakistan’s Response: Seeking Special Trade Concessions
Recognizing the severity of the situation, Pakistan’s Commerce Minister Jam Kamal Khan has formally sought the support of Prime Minister Shehbaz Sharif to initiate negotiations with the United States and other key international partners. The minister has emphasized the need for “handholding” incentives—targeted relief measures aimed at supporting industries affected by the tariff hike.
According to credible government sources, the Commerce Ministry is preparing a detailed case to present to the U.S. trade authorities. The proposal will likely request:
- Tariff exemptions or reductions for key export sectors
- Increased market access under preferential trade agreements
- Technical assistance and trade facilitation support
- Fast-tracking of pending bilateral trade discussions
Key Sectors Affected by US Tariffs
Let’s explore which sectors are most vulnerable to the new U.S. tariffs and why they matter for Pakistan’s economy:
1. Textile and Apparel Sector
Accounting for over 60% of Pakistan’s total exports, the textile industry is the most affected. The U.S. is one of the largest buyers of Pakistani textiles, especially cotton yarn, garments, and home textiles. With tariffs as high as 29%, the price competitiveness of Pakistani goods in the American market is expected to plummet, giving rival exporters like India, Bangladesh, and Vietnam an advantage.
2. Leather Industry
Leather and leather goods—including jackets, footwear, and gloves—are Pakistan’s second-largest export category to the U.S. These products already face stiff competition and low profit margins. The new tariffs could render Pakistani leather exports unviable in the U.S. market.
3. Surgical Instruments
Sialkot’s surgical instruments industry, a global niche leader, exports millions of dollars’ worth of precision tools to the U.S. annually. A sharp tariff hike can cripple the industry, especially as many small and medium enterprises lack the capital to absorb additional costs or shift to alternate markets.
4. Sports Goods
Pakistan is a global hub for sports goods manufacturing, particularly footballs and cricket gear. U.S. retailers and brands rely on Pakistani suppliers for affordable, high-quality products. With the new tariffs in place, order volumes may decline significantly.
Economic Ramifications for Pakistan
1. Trade Imbalance
Pakistan already faces a chronic trade deficit, and reduced export volumes to the U.S. could exacerbate the issue. In FY2024, Pakistan’s exports to the U.S. stood at $6.5 billion, representing around 20% of total exports. A decline in this segment could hit both GDP and foreign reserves.
2. Currency Pressure
A drop in exports would reduce dollar inflows, potentially weakening the Pakistani rupee further. A depreciating rupee, in turn, raises the cost of imports, fuels inflation, and destabilizes macroeconomic indicators.
3. Employment Crisis
Key sectors like textiles and leather employ millions of workers, particularly women. Layoffs and factory closures due to shrinking U.S. demand could lead to a surge in unemployment and social unrest, further burdening an already fragile economy.
4. Investor Confidence
International investors closely monitor a country’s export performance and trade relations. The tariff hike, if not addressed proactively, could deter future investments in Pakistan’s manufacturing and export sectors.
Strategic Options for Pakistan
1. Bilateral Diplomacy with the U.S.
Pakistan’s Foreign Office and Ministry of Commerce are expected to initiate diplomatic engagement with Washington to negotiate relief or exemptions. Previous GSP (Generalized System of Preferences) benefits and strategic cooperation may be leveraged to gain temporary reprieve.
2. Engagement with WTO
Pakistan can raise the issue at the World Trade Organization (WTO), potentially filing a complaint or seeking mediation under dispute settlement mechanisms. However, this process can be lengthy and politically complex.
3. Diversification of Export Markets
To reduce over-reliance on the U.S., Pakistan could explore alternative markets in Europe, the Middle East, and Asia. This includes fast-tracking Free Trade Agreements (FTAs) with regional blocs like ASEAN and the African Continental Free Trade Area (AfCFTA).
4. Incentives and Subsidies for Exporters
The government can offer tax rebates, subsidies, or reduced utility rates for industries affected by tariffs to maintain competitiveness and encourage retention of export volumes.
5. Promoting Value-Added Exports
Instead of focusing on low-margin raw materials, Pakistan can invest in value addition. For example, shifting from exporting raw cotton to finished apparel or from surgical blanks to precision instruments can improve margins and offset tariff impacts.
Role of Prime Minister Shehbaz Sharif
As head of government, Prime Minister Shehbaz Sharif is being urged to intervene personally. His track record of industrial development and infrastructure focus gives stakeholders hope that he can help navigate this crisis. By prioritizing tariff mitigation in upcoming diplomatic engagements, he could help protect Pakistan’s export economy from severe disruption.
Public and Industry Reactions
The news of the U.S. tariffs has triggered concern across Pakistan’s business community. Leading trade bodies such as:
- Pakistan Business Council (PBC)
- Federation of Pakistan Chambers of Commerce and Industry (FPCCI)
- All Pakistan Textile Mills Association (APTMA)
…have issued joint statements urging the government to take immediate and robust action.
Industry leaders argue that without quick intervention, Pakistan risks losing long-standing buyer relationships in the U.S. market.
International Context: Is Pakistan Alone?
Pakistan is not the only country affected. The U.S. tariff regime has disrupted trade with several major exporters, including China, Mexico, Turkey, and the European Union. However, most of these countries have either stronger negotiating leverage or diversified export portfolios. For a developing economy like Pakistan, the stakes are much higher and the safety nets much weaker.
What Happens Next?
The coming weeks are critical. The following developments are being closely watched:
- Diplomatic outreach by Pakistan’s foreign ministry
- Trade negotiations or tariff exemption talks
- Relief packages announced by Pakistan’s Ministry of Commerce
- Statements from the U.S. Trade Representative (USTR)
- Market reactions and export data trends for Q3-Q4 2025
Failure to act decisively could cost Pakistan billions in export earnings, while swift action could not only cushion the blow but also signal resilience to the international market.
Frequently Asked Question
Why did the United States impose new tariffs affecting Pakistan?
The U.S., under President Donald Trump’s executive order dated April 2, 2025, declared a national emergency and imposed broad tariffs on imports from all trading partners. These include a base tariff of 10% and additional tariffs of up to 50%, with Pakistan-specific tariffs reaching 29%, as part of a reciprocal trade policy.
Which Pakistani sectors are most affected by the U.S. tariffs?
The sectors most impacted include:
- Textiles and apparel
- Leather goods
- Surgical instruments
- Sports goods
These industries rely heavily on exports to the U.S. and now face significant price competitiveness challenges due to higher import duties.
What is Pakistan doing in response to these tariffs?
Pakistan’s Commerce Minister Jam Kamal Khan has sought Prime Minister Shehbaz Sharif’s support to secure “handholding” incentives for affected sectors. These include tariff relief, subsidies, technical support, and potential bilateral negotiations with U.S. trade officials.
How could these tariffs affect Pakistan’s economy?
If unresolved, the tariffs could:
- Shrink exports to the U.S.
- Widen Pakistan’s trade deficit
- Cause job losses in key sectors
- Weaken the Pakistani rupee
- Undermine investor confidence
This poses serious risks to an already fragile economy.
Is Pakistan seeking help from international trade organizations like the WTO?
While not officially confirmed, Pakistan may raise the issue at the World Trade Organization (WTO) under its dispute resolution framework. However, WTO proceedings are typically slow and complex, making bilateral diplomacy a more immediate option.
Can Pakistan reduce its dependence on the U.S. market?
Yes. Pakistan is exploring diversification through:
- New trade deals with regional markets (e.g., ASEAN, Africa)
- Strengthening ties with the EU and China
- Encouraging domestic value addition to improve product competitiveness globally
What are “handholding” incentives, and why are they important?
“Handholding” incentives refer to temporary government support measures—such as tax rebates, subsidies, or concessional loans—designed to help businesses survive external shocks. In this context, they aim to keep Pakistani exports viable despite high U.S. tariffs.
Conclusion
The imposition of U.S. tariffs has placed Pakistan’s key export sectors at a critical crossroads. While the situation poses significant challenges, it also presents an opportunity for Pakistan to rethink its trade strategy, diversify markets, and invest in value-added exports. With proactive diplomacy, internal reforms, and strategic planning, Pakistan can weather this storm—and possibly emerge stronger. The next few months will test the country’s ability to respond to external shocks. All eyes are now on Islamabad and Washington as both sides navigate this high-stakes trade episode.