Arshad Mahmood Awan

In a bold and controversial move, the U.S. administration under Donald Trump announced a sweeping tariff initiative in April 2025 that has sent shockwaves through international markets. The initiative, branded as the “Liberation Day” policy, introduces a baseline ten percent universal tariff on all imported goods. However, the true impact lies in the additional layer of “reciprocal tariffs”—extra duties aimed at countries deemed to have historically imposed unfair trade barriers on U.S. exports. These tariffs are designed to mirror the protectionist policies of exporting nations, further escalating tensions in global trade.

For Pakistan, the consequences of this new policy are severe. As a result of the “Liberation Day” initiative, Pakistan now faces a total tariff of 29 percent on its exports to the U.S. This includes the universal 10 percent tariff and an additional 19 percent reciprocal tariff in response to Pakistan’s own tariff on American goods. Other countries in Asia are also reeling from the tariffs, with Vietnam hit with a staggering 46 percent tariff, China at 44 percent, Bangladesh at 37 percent, India at 26 percent, and Cambodia facing a 49 percent levy. Southeast Asian nations like Malaysia and Indonesia are also impacted, with tariffs ranging between 17 and 25 percent.

This aggressive shift in U.S. trade policy echoes historical precedents, such as the 1930 Smoot-Hawley Tariff Act, which exacerbated the Great Depression by triggering global retaliation and decimating world trade. The more recent U.S.–China trade war (2018–2020) also disrupted global supply chains, leading to higher consumer prices and stunted global growth. For Pakistan, which exported $5.1 billion worth of goods to the U.S. in 2024—primarily textiles and apparel—these new tariffs are potentially disastrous. The higher duties threaten to undermine Pakistan’s competitiveness in the U.S. market, leading to order cancellations, factory slowdowns, and a decline in overall exports. While countries like Vietnam and Bangladesh are facing even higher tariffs, the cumulative effect of lower global demand and tighter profit margins will severely impact all exporting nations.

The broader implications of this policy are far-reaching, signaling a potential turning point in the global trading system. The forces of de-globalization, which had already gained momentum in the wake of the COVID-19 pandemic, are now likely to accelerate as countries shift towards regional trade blocs and adopt strategies of economic self-reliance. Consumers worldwide could face higher prices in sectors such as electronics, apparel, and automobiles, contributing to inflationary pressures, even in countries that are not directly affected by the tariffs. Furthermore, global corporations are now rethinking their supply chain strategies, considering relocating production to lower-tariff countries or investing directly in the U.S. to bypass the tariffs.

The risks of escalation are mounting. Major economies like China and India are already contemplating retaliatory tariffs targeting U.S. agricultural exports. India, Japan, and Vietnam are exploring diplomatic channels to negotiate tariff relief, possibly offering trade concessions in other sectors. This tit-for-tat approach could spiral into a full-scale trade war, further destabilizing global markets and reducing investor confidence. In such a scenario, global organizations like the World Trade Organization (WTO), which have long served as arbiters of international trade disputes, may find their influence waning as countries act unilaterally to protect their economic interests. The result would be a weakening of the long-established international trading system that has governed world commerce for decades.

Despite the grim outlook, experts have begun to sound the alarm on the long-term consequences of these tariffs. Major financial institutions like Goldman Sachs and S&P Global have downgraded U.S. growth forecasts, citing the inflationary risks and the potential for retaliatory measures from other countries. The Economist has even referred to the tariffs as a “twenty-first-century Smoot-Hawley,” warning that they could lead to global economic losses in the trillions of dollars. Former U.S. Treasury Secretary Larry Summers has also voiced concerns, predicting widespread economic disruption and a decline in global growth.

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However, amid the doom and gloom, some analysts believe that countries like Pakistan, Bangladesh, and others could turn their vulnerabilities into opportunities, provided they act quickly and strategically. For Pakistan, this situation presents both significant challenges and potential opportunities for much-needed economic reform. While the immediate impact of the tariffs will likely be painful, the crisis could serve as a catalyst for long-overdue reforms aimed at enhancing competitiveness and reducing dependency on external markets.

The key to navigating these turbulent waters will be for Pakistan to focus on improving its economic fundamentals. In the short term, the country should prioritize negotiations with the U.S. to seek exemptions or reductions in the tariff rates. Diplomatic efforts, possibly including a commitment to reduce Pakistan’s own tariffs on American goods or other trade concessions, could help mitigate some of the damage. In the medium to long term, however, Pakistan must pivot towards market diversification and greater economic resilience. This means identifying new export markets beyond the U.S., investing in quality improvements, and exploring cost efficiencies to make its goods more competitive globally, even in the face of higher tariffs.

One potential avenue for growth lies in the diversification of Pakistan’s export portfolio. While textiles and apparel have long been the backbone of Pakistan’s exports, the country must look beyond these sectors to sustain long-term growth. Developing new industries, such as technology, pharmaceuticals, and agricultural products, could help reduce reliance on traditional markets and shield the country from the effects of punitive tariffs. Additionally, focusing on improving product quality and adopting international standards could make Pakistani goods more appealing to buyers in alternative markets.

Furthermore, Pakistan must work to improve its domestic economic conditions, particularly in areas like energy costs, infrastructure, and regulatory frameworks. Streamlining these areas could lower the cost of doing business, making Pakistani goods more attractive even with higher tariffs. Additionally, Pakistan could explore regional trade agreements, especially within South Asia, to bolster its economic ties with neighboring countries and reduce reliance on markets that are subject to volatile tariff changes.

The tariff war also presents an opportunity for Pakistan to invest in domestic industries that can meet both domestic and international demand. By encouraging local entrepreneurship and fostering innovation, Pakistan can reduce its dependence on foreign exports and become more self-sufficient in critical sectors such as manufacturing, agriculture, and technology. Building a robust industrial base would not only help Pakistan weather the impact of the new tariffs but also enhance its global competitiveness in the long run.

In conclusion, while the U.S. “Liberation Day” tariff initiative poses a significant challenge for Pakistan, it also offers a crucial opportunity for reform and diversification. The country’s response will determine its future trajectory in the global economy. By strategically navigating the pressures of higher tariffs, focusing on market diversification, and implementing domestic economic reforms, Pakistan can not only survive the immediate impact of these tariffs but emerge stronger and more resilient in the face of future challenges. The road ahead may be difficult, but it is not without opportunity for those willing to adapt and innovate.