Current US tariff policies are dealing a substantial blow to South Asian economies, with India and Pakistan bearing the brunt. While new, reciprocal tariffs have caused billions of dollars in capital outflows from India, they have eroded Pakistan’s price advantage in the US, says a recent report.

The report prepared by the South Asian Chamber of Commerce and Industry and the South Asian Federation of Accountants estimates that Pakistan’s exports to the US could drop by 30 per cent. India’s exports are likely to plunge up to 40pc. It underlines that South Asia has faced disproportionate consequences due to its reliance on US markets for labour-intensive exports, notably textiles, garments and manufactured goods.

In April, the US imposed a 10pc base tariff on all imports, followed by an additional 11–50pc country-specific surcharge on South Asian nations. Additional US tariffs on Pakistani goods were initially set at 29pc before being reduced to 19pc, but even this level places disproportionate pressure on Pakistan’s labour-intensive export industries. The report estimates that US tariff measures could cost Pakistan around $0.5 billion in annual export revenues and strain the current account.

South Asia typically exports labour-intensive products that are likely to be price sensitive and of lower quality than products exported by the more developed regions,” says Adil Nakhuda, a leading trade economist. “Structural vulnerabilities amplify the effect because Pakistani exporters are less able to absorb price and tariff shocks than countries where financial and economic structures may better support exporters. Pakistani firms already report high costs associated with firm management, tax compliance, and borrowing costs, as well as difficulty in obtaining certifications and standards that would allow them to diversify their range of products.”

A report estimates that US tariff measures could cost Pakistan around $0.5bn in annual export revenues and strain the current account

Pakistan Textiles Exporters Association secretary-general Azizullah Gohir says textile exporters operate on tight margins and “will bear the brunt of the added cost.” He acknowledges the external shock of US tariffs but says domestic inefficiencies remain central to the export downturn. “When your buyer[s] add substantially to the landed price, you lose competitiveness. So export volumes will be hit. But before blaming tariffs alone, we must fix our own cost structure — energy prices, logistics bottlenecks, and inconsistent policies — to lower vulnerability to external shocks.”

Washington now imposes combined duties of 20–35pc on Pakistani textile products that form three-quarters of the country’s US shipments. This pushes their landed cost up by about 18pc. As a result, textile export volumes could fall by 20–30pc, with potential declines in export revenues of up to 30pc, the report notes.

“The full effect of the tariffs will not unfold before February or March due to the way US export orders are structured. While the tariff has increased the landed cost of Pakistani goods, it has not eliminated Pakistan’s competitive edge. In fact, Pakistan currently enjoys the lowest tariff rate in South Asia, with US duties on India and Bangladesh set higher,” says a financial analyst at a broking firm.

There is likely to be a decline in exports as tariffs have increased, says Mr Nakhuda. “However, specific numbers are difficult to allocate to the total decline in exports, as different studies using various methodologies make different predictions,” he argues. There are certain products where Pakistan is competing directly against India and China, and it may be able to extract certain advantages in those products while losing out in several other products where the landed costs may increase substantially.

“Interestingly, the 25pc decline is more than the tariffs that have been allocated, suggesting that Pakistan may lose substantial market share even in products that could otherwise do well against countries that are facing higher tariff rates than Pakistan. This suggests structural issues that could lead to the lowering of any competitive advantage that Pakistan might obtain with relatively preferential tariff rates.”

The tariff shock has already rippled through the industry, severely affecting employment and production cycles. “In key textile hubs such as Faisalabad, Karachi, and Lahore, thousands of workers are at risk of losing their jobs,” the report says.

Mr Nakhuda emphasises business reforms that could lower the cost of doing business, in addition to continuously negotiating for better market access and trade linkages with US businesses. “Low-hanging fruits, for instance, could be improving the quality of access to financial markets for firms by ensuring that the businesses have better financial ability to invest and procure inputs necessary to ensure the quality of products exported to the US.

“Other measures would include ensuring that exporters have the licences, certifications and conformity assessments to boost export sales in markets where such measures are commonly adopted. Finally, it is imperative to ensure that exporters do not face delays and barriers in the day-to-day running of the businesses so that they can fulfil their orders in a timely manner.”

The report notes that among the South Asian Association for Regional Cooperation (Saarc) nations, India, facing a cumulative 50pc tariff on several exports, including textiles, jewellery and pharmaceuticals, is most severely impacted by US tariffs. A 100pc tariff has been placed on non-generic drugs and films.

Currently, US trade policies are prompting multinational companies to reassess their production footprints across South Asia. Regional economic integration is emerging as a key strategy for South Asian countries to cushion external shocks, according to the report. But meaningful progress is needed in tariff harmonisation and the removal of non-tariff barriers for the region to effectively mitigate external trade pressures and support stable economic growth.

Economically, Saarc remains one of the least integrated regions, with intra-regional trade constituting only 5–6pc of total trade, compared with the Association of Southeast Asian Nations’ (Asean) 22–25pc and the European Union’s 60pc, indicating that substantial integration potential remains untapped.

To offset the negative impact of US tariffs, Pakistan could expand trade ties with South Asian neighbours as well as Gulf nations, generating an additional $2–3bn in annual exports. “Achieving this, however, would require Pakistan to move up the value chain, adopt sustainable production standards, and strengthen its logistics networks and export-financing mechanisms,” the report maintains.

On regional integration, Mr Nakhuda argues that the region needs to be more open to regional integration, as it involves lower logistics costs than are involved in trading with neighbouring countries. “Unfortunately, with India and Pakistan failing to trade in significant volumes, it is unlikely that regional integration will ever become more than a pipe dream.

Therefore, regional integration to the level of Asean will become possible when economic issues between the two countries are separated from political issues, and trade is allowed to take place regardless of the geopolitical situation.”

Published in Dawn, The Business and Finance Weekly, December 22nd, 2025