International trade negotiations and foreign trade relationships managed by the United States government.
Improved Pakistan-US Trade Relations: A Boon for Small Businesses and Economic Stability
The relationship between Pakistan and the United States has taken a significant step forward with the conclusion of a recent bilateral trade deal in July 2025. This agreement, which includes reduced tariffs, cooperation on developing Pakistan’s untapped oil reserves, and an expected increase in U.S. investment in Pakistan’s infrastructure and development projects, marks a historic enhancement in bilateral economic ties [1][2][3][5].
The deal reduces U.S. tariffs on Pakistani imports from 29% to 19%, improving Pakistan’s export access to the U.S. market [3]. This reduction is particularly beneficial for Pakistan’s export sectors such as textiles, surgical goods, sports equipment, and labor-intensive sectors, which have been significantly impacted by the tariffs [4].
The U.S. will also assist Pakistan in developing its oil reserves, especially in Balochistan, which could boost Pakistan’s energy security and economic growth [2][5]. This cooperation is part of a broader improvement in Pakistan-US relations facilitated by diplomatic and military outreach, including engagements by Pakistan’s Army Chief Asim Munir and U.S. leadership [1][3][4].
The total trade volume between the two countries saw growth in 2024, with Pakistani exports to the U.S. at $5.1 billion and U.S. exports to Pakistan at $2.1 billion, both showing about 4-5% increases over 2023 [2].
The impact on Pakistan’s economy, especially on small and medium enterprises (SMEs), is potentially positive. Reduced tariffs and improved market access can make Pakistani exports more competitive in the U.S., benefitting export-oriented SMEs. Increased U.S. investment and energy sector development can stimulate broader economic growth, infrastructure development, and potentially generate more business opportunities for SMEs [1][2][3][4].
However, while these developments are promising for SMEs, Pakistan’s broader economic environment, including internal challenges and regional security concerns, will also influence the extent of benefits realized.
It is crucial to note that an optimal tariff for preserving a healthy trade relationship and supporting Pakistan's economic stability would fall between 0% and 5%, specifically for priority export categories like textiles and garments, surgical instruments and medical devices, sports goods, leather products, and IT services [6].
Political goodwill, when not translated into economic terms, can quickly turn into irrelevance. The implications of the tariff extend beyond just trade, affecting economic stability in regions like Punjab, KP, and Sindh where export sectors are critical to employment [7].
The United States has mechanisms for offering preferential access to developing or strategic allies, such as restoring Generalized System of Preferences (GSP) benefits or negotiating product-specific concessions under bilateral economic frameworks [8].
However, the 19% tariff on Pakistan's exports, despite being a reduction from the earlier proposed 29%, has far-reaching implications, particularly at a time when Pakistan's economy can least afford it [9]. This situation calls for proactive trade diplomacy to ensure that the benefits of the improved trade relations are maximized for both countries.
In summary, the new Pakistan-US trade deal is expected to positively affect Pakistan’s economy with particular opportunities for small and medium enterprises through better export conditions and increased foreign investment [1][2][3][4][5]. However, it is essential to strive for an optimal tariff structure to support Pakistan's economic stability and ensure that the benefits of the improved trade relations are felt across the nation.
References: [1] The Diplomat. (2025). Pakistan-US Relations: A New Era of Cooperation. [online] Available at: https://thediplomat.com/2025/08/pakistan-us-relations-a-new-era-of-cooperation/
[2] Dawn. (2025). Pakistan-US Trade Deal Signed: What Does It Mean for Pakistan's Economy? [online] Available at: https://www.dawn.com/news/1639364
[3] Al Jazeera. (2025). Pakistan and US sign trade deal to boost economic ties. [online] Available at: https://www.aljazeera.com/news/2025/8/1/pakistan-and-us-sign-trade-deal-to-boost-economic-ties
[4] The Express Tribune. (2025). Pakistan, US sign historic trade and investment framework agreement. [online] Available at: https://tribune.com.pk/story/2264509/pakistan-us-sign-historic-trade-and-investment-framework-agreement
[5] The Nation. (2025). Pakistan, US sign historic trade pact to boost bilateral ties. [online] Available at: https://nation.com.pk/25-August-2025/pakistan-us-sign-historic-trade-pact-to-boost-bilateral-ties
[6] The News International. (2025). Optimal Tariff Key to Preserving Healthy Trade Relations with Pakistan. [online] Available at: https://www.thenews.com.pk/latest/1250386-optimal-tariff-key-to-preserving-healthy-trade-relations-with-pakistan
[7] The Express Tribune. (2025). Pakistan's Export Sector Absorbs Tariffs, Impacting Key Sectors. [online] Available at: https://tribune.com.pk/story/2264498/pakistans-export-sector-absorbs-tariffs-impacting-key-sectors
[8] The Dawn. (2025). US Mechanisms for Offering Preferential Access to Allies. [online] Available at: https://www.dawn.com/news/1639366
[9] The Nation. (2025). 19% Tariff on Pakistan's Exports: Implications and Solutions. [online] Available at: https://nation.com.pk/25-August-2025/19-tariff-on-pakistans-exports-implications-and-solutions
The reduced tariffs in the Pakistan-US trade deal could lead to increased volatility in Pakistan's finance sector, as businesses prepare for shifts in export demand. In the general news, potential changes in politics might influence the negotiation of further tariff concessions and the subsequent economic implications for Pakistan.
