Pakistan Business Council urges regulatory duty cuts amid U.S. tariff dispute

The Pakistan Business Council (PBC) has urged the government to reduce regulatory and customs duties to counter the ongoing tariff dispute with the United States, arguing that imposing additional duties would not be a viable option nor provide geopolitical leverage.

The PBC issued its recommendations following the imposition of duties by the U.S. on Pakistan’s Liberation Day.

The United States is Pakistan’s largest single-country export destination and the source of its largest trade surplus. In 2024, the U.S. imported $5.46 billion worth of goods from Pakistan, accounting for 17% of Pakistan’s total exports. That year, Pakistan recorded a trade surplus of $3.33 billion with the U.S.

In the first two months of 2025, Pakistan exported $1 billion to the U.S. If this trend continues without the impact of higher tariffs, exports could reach $6 billion by year-end.

Despite the significance of trade for Pakistan, its exports to the U.S. represented just 0.16% of total U.S. imports in 2024. Even Pakistan’s largest export sector, textiles and apparel, accounted for only 3% of U.S. textile imports. China leads the textile exports to the U.S. with 26%, followed by Vietnam (14%), India (9%), and Bangladesh (6%). However, textile goods represent 75% of Pakistan’s total exports to the U.S.

While the U.S. has levied a 29% reciprocal tariff on Pakistan, tariffs on Pakistan’s key textile competitors are higher—China faces a 54% tariff, Vietnam 46%, Bangladesh 37%, and Indonesia 32%. Meanwhile, India’s tariff stands at 26%, Turkey at 10%, and Egypt and Jordan at 23%.

In 2024, the U.S. exported $2.13 billion worth of goods to Pakistan, comprising 0.1% of its total exports. Cotton accounted for 36% of U.S. exports to Pakistan, followed by iron scrap (19%) and machinery and aircraft parts (11%). Soybean exports, which totaled $240 million in 2022, were virtually absent in 2024 due to concerns over genetically modified food, though these issues have now been resolved.

The PBC noted that a decline in demand due to higher tariffs is inevitable, and Pakistan must brace for the impact on exports.

In the short term, altering Pakistan’s export mix to capitalize on tariff differentials with China, Vietnam, Bangladesh, and Indonesia is unlikely. Even when facing Most Favored Nation (MFN) tariffs, these countries exported higher volumes, often at higher unit prices, indicating a qualitative gap that Pakistan needs time to address. Despite duty-free access under the EU’s GSP+ program, Pakistan’s exports, including textiles, lag behind China and India, which pay full duties. Textile exporters should focus on closing this quality gap.

With U.S. exports vulnerable to increased tariffs, Pakistan must strengthen efforts to maintain duty-free access to the EU under GSP+. Pakistan’s exports to the EU surpass those to the U.S., necessitating government actions to ensure compliance with human rights, labor rights, environmental protection, and governance standards. Authorities must demonstrate adherence through monitoring and reporting, and exporters must remain committed to ESG and DEI principles, even if U.S. buyers deprioritize them under the current administration.

A potential upside to U.S. tariffs is that American consumers may shift toward lower-cost textiles from Pakistan.

The government must also ensure that policies on energy and taxation support exports. The ongoing review of the Export Facilitation Scheme should not disrupt exporters’ ability to import inputs duty- and sales tax-free, while allowing local industries to supply inputs free of GST, as was the case before the last budget.

The U.S. aims to balance trade relations. Pakistan already imposes zero duty on U.S. cotton imports, while soybeans, mechanical machinery, and aeronautical parts face a 3% tariff. However, Additional Customs Duty (ACD) and Regulatory Duty (RD) on some imports, alongside GST, inflate duty-paid values. The government must reassess ACD and RD to address U.S. concerns.

The U.S. seeks improved market access for its meat and dairy products, which currently face duties of up to 58% to protect local agriculture. However, frozen U.S. meat is unlikely to compete with domestic supplies.

Washington is expected to push for parity duty rates with China, though it remains uncertain whether U.S.-made products could compete, even under equal tariff conditions.

Pakistan’s major imports, aside from machinery and fuel, include palm-based edible oils. Given the geographical distance, U.S. fuel is unlikely to be cost-effective, and palm is not cultivated in the U.S., limiting prospects for diverting approximately $3 billion in imports to American suppliers. The U.S. has shown little interest in investing in major infrastructure projects, such as railway electrification or ML-1. Additionally, Pakistani airlines are unlikely to purchase new aircraft, and surplus energy generation negates the need for turbines.

U.S. officials have indicated that imports incorporating at least 20% American-origin content, such as cotton in textiles, may be taxed at a lower rate. However, U.S. cotton currently costs 10–12 cents per pound more than Brazilian cotton, prompting exporters to weigh the costs and benefits. Additionally, global demand is shifting toward man-made fibers.