Lahore: The United States’ decision to impose a 39% tariff on imports from Pakistan could result in a significant reduction in the country’s export revenues, potentially leading to a $0.8 billion decline in 2024 alone, according to a policy note released by the Lahore School of Economics on Wednesday. Over the next five years, the cumulative losses could reach $4.22 billion if the tariffs are passed entirely onto American consumers.

The report from the Lahore School highlights that the actual impact could be mitigated if Pakistani exporters absorb some of the tariff costs or negotiate with US buyers to share the burden. If only part of the tariff is reflected in consumer prices, the immediate losses in 2024 might decrease to $0.6 billion or $0.4 billion, depending on whether 29% or 19% of the tariff is absorbed.

The imposition of these tariffs comes amid rising global trade tensions, with the United States under President Donald Trump increasing duties on several countries, including China, Bangladesh, and Vietnam. These countries, which are direct competitors of Pakistan in sectors like textiles and apparel, face even higher tariffs, potentially creating an opportunity for Pakistan through trade diversion.

According to the Lahore School, international buyers aiming to avoid increased costs from other countries might consider shifting their orders to Pakistani suppliers. This shift could help offset some of the negative impacts of the US tariffs on Pakistan’s exports, particularly in the textile industry, which is a cornerstone of the nation’s export economy.

Despite this possibility, the broader economic outlook remains challenging. The global economy is already strained, and a prolonged trade war could exacerbate the situation. The policy note warns that a 1% decline in foreign income growth could reduce demand for Pakistan’s exports by 1.445%, potentially leading to additional losses of $55.5 million to $92.5 million in 2024 alone. Over five years, slower global growth could further decrease Pakistan’s export revenues by $0.29 billion to $0.49 billion, compounding the impact of US tariffs.

The manufacturing sector, especially textiles, is projected to suffer the most from the tariffs. A 39% tariff could lower textile exports by $0.66 billion in 2024, with a five-year loss of $3.48 billion. However, if exporters successfully negotiate to lessen the tariff’s impact on prices, the losses could be reduced to $0.49 billion or $0.32 billion in the first year.

While trade diversion and cost-sharing might mitigate the short-term effects of the tariffs, long-term risks remain significant. If the US continues these tariffs indefinitely, Pakistan’s export sector could face ongoing challenges. Nevertheless, this situation also offers Pakistan an opportunity to present itself as a viable alternative to competitors with higher tariffs. As protectionism reshapes global trade, Pakistan must navigate both risks and potential opportunities.