Trump’s tariff blitz: Reshaping global trade, sparing India (for now)

KARACHI: US President Donald Trump’s obsession towards slapping tariffs on imports to curtail America’s trade deficit is poised to disrupt the global market. As soon as he assumed charge, Trump signed executive orders imposing a 25 per cent additional tariff on imports from Canada and Mexico and a 10 per cent additional tariff on imports from China -- three out of the Top 10 countries with which the US had a trade deficit in 2024, according to data from the World Population Review (WPR).

The data also shows that despite maintaining a fairly large trade deficit with India, the US has mostly spared the South Asian country so far when compared to countries like Canada where Trump has adopted an aggressive approach. Does the US want India to be happy to have more room to counter China? The News reached out to experts to find out. Former adviser to the Ministry of Finance Dr Khaqan Najeeb says the US markets view India as “an alternative to China” in Asia, and by avoiding aggressive tariffs, “they can aim to secure supply chains”.

He adds that India’s role in diversifying supply chains away from China “makes it a needed partner, and this could be a reason for the US to tolerate the trade deficit to foster cooperation in critical sectors.”

The US faces a significant trade imbalance, with the trade deficit reaching $773.4 billion in 2023, according to the Bureau of Economic Analysis (BEA). While total US imports stood at $3.83 trillion, exports lagged at $3.05 trillion, driven by a persistent gap in goods trade.

On the US president’s apparent leniency towards India, Head of the Sustainable Development Policy Institute (SDPI) Dr Abid Qaiyum Suleri believes that the “China factor” could be one of the reasons, however, he adds, “India is not as reliant and dependent on the US as Canada is. Hence the Trump Administration used tough measures against Canada.”

He also points to India’s attempts at maintaining good ties with Trump. Recalling Indian Prime Minister Narendra Modi’s meeting with Trump at the White House in February, he says that Modi has shared how MAGA (Make America Great Again) was an inspiration behind India’s very own “MIGA or ‘Make India Great Again’. On top of it, India has signed deals for military equipment from the US in a move to appease Trump.”

China remains the largest contributor to the US trade deficit in 2024, accounting for $270.4 billion, according to data published by the WPR. The bulk of imports from China include electronics, clothing and machinery.

Mexico follows as the second-largest trade partner with a $157.2 billion deficit. The US imported $466.6 billion worth of goods from Mexico, mainly vehicles and auto parts. Canada and India are the ninth- and eleventh-largest trade partners of the US, with trade deficits of $54.8 billion and $41.5 billion, respectively.

Trump recently announced that it would impose ‘tit-for-tat’ tariffs on imports from India on April 2 in response to the latter’s tariffs on American goods -- a move that could severely impact India’s pharmaceutical industry; the country exports goods worth over $8 billion annually, according to India’s news outlet ‘The Economic Times’.

Macroeconomist Ammar Habib Khan pins this inequality to the nature of trade between India and the US. He says that America’s trade deficit with India “is mostly services oriented; with Canada and China, it is goods oriented. Maybe this is why the difference.”

President of the Lahore Chamber of Commerce and Industry Mian Abuzar Shad explains that the US’s trade approach towards India and Canada is influenced by “strategic and economic considerations”. He says that the US values its trade and diplomatic ties with India “as part of a broader vision for economic cooperation in the Indo-Pacific region. Supporting India’s economic expansion aligns with the US’s interests in maintaining balance and fostering development in South Asia. While the US-Mexico-Canada Agreement (USMCA) negotiations led to a reassessment of trade terms with Canada, India’s role in key sectors like technology and pharmaceuticals has helped maintain strong trade relations.”

PAKISTAN IN THE LOOP

Among the 100 countries with which the US maintains a trade deficit, Pakistan stands on the 33rd position. Can the axe of Trump’s tariffs fall on Pakistan? The experts largely disagree.

Ammar Habib says Pakistan is “too small for any of this to matter. We export low value-add goods. The focus of the Trump Administration is currently on higher value-add goods.”

Suleri explains further: “One thing is quite clear: Trump’s tariffs are causing significant harm to its allies and closest friends or to its opponents like China. Generally, the more a country relies on the United States, the more it is affected by Trump’s tariffs.”

Pakistan, he says, falls under the category of “countries that are neither considered a close ally of the US nor are they perceived as a threat to the US, so Trump has so far not taken any adverse steps against such countries.” He believes that Trump is using the tariffs as a bargaining chip for broader geopolitical purposes. “Pakistan will have to show flexibility in negotiations if any such situation arises.”

While experts see no apparent threat to Pakistan, they caution the country to be prepared. Khaqan Najeeb says, “Pakistan can adopt a multi-faceted approach to guard against unfavourable measures from the US administration’s tariff policies. First, diversifying its export basket beyond textiles is crucial, as this sector is susceptible to tariff hikes.”

Pakistan can explore high-potential sectors like IT and ITES, pharmaceuticals and agricultural products to reduce reliance on textiles, says Khaqan, adding that “strengthening diplomatic and trade diplomacy efforts is essential; advocating for preferential trade status or a bilateral free trade agreement could secure tariff exemptions. Pakistan should monitor US policy shifts closely and prepare contingency plans, such as diversifying export markets to the EU or the Middle East. Addressing domestic challenges of productivity and competitiveness remain extremely important.”

Abuzar Shad agrees and adds: “Pakistan would have to take proactive steps to maintain strong economic ties with the US besides expanding global trade partnerships. By strengthening trade relationships with Africa, the EU, Middle East, China and ASEAN countries, Pakistan can create a diverse and stable export base.”

TARIFFS AN OPPORTUNITY?

Pakistan’s exports to the United States surged to nearly $3 billion in the first six months of the current fiscal year 2025, reflecting strong growth of 12 per cent, according to the Trade Development Authority of Pakistan (TDAP). Can Pakistan claim the space opened up by Trump’s import tariffs?

Suleri is not optimistic: “Theoretically yes, but pragmatically speaking no. We have a limited export basket. Pakistan does not export the commodities most affected by US tariffs -- aluminium and steel [according to data by TradingEconomics, Pakistan’s iron and steel exports to the US were a small $25.5 million] or auto vehicles.”

Ammar Habib adds that the tariff situation does provide an opportunity as other countries will be losing business, “providing Pakistan with an opening to ramp up its exports”.

Khaqan Najeeb shares what the country could do to make the most of the situation: “Pakistan could capitalise on this by positioning itself as an alternative supplier for goods previously imported from countries [hit by tariffs] to the US. By increasing the quality and competitiveness of its products, particularly in sectors like textiles, agriculture and manufactured goods, Pakistan can attract US importers looking for reliable substitutes.”

The former adviser to the Ministry of Finance adds that “engaging in targeted marketing and trade promotion initiatives in the US can help Pakistani exporters penetrate new segments of the market. The ongoing trade negotiations and shifting supply chains may also provide opportunities for Pakistan to strengthen its presence in the US market by aligning its export strategies with the changing dynamics and demands in the global trade landscape.”

Abuzar Shad says, “Enhancing product standards, adopting modern technologies and ensuring competitive pricing is a must to make Pakistani exports more attractive.” Pakistan’s exports to the US largely include textile and apparel articles. The country’s total textile exports from July-January FY2025 stands at $10.29 billion, according to the SBP.

The LCCI president adds that “as a leading textile producer, Pakistan is well-positioned to capture a larger share of the US market by maintaining high-quality standards and competitive pricing. With demand shifting, Pakistan can increase exports of rice, seafood, fruits and other agricultural products to the US.”

“Pakistan’s growing IT sector can benefit as US companies seek alternative software development and outsourcing partners. Pakistani leather products can gain greater market share in the US as importers look for reliable and cost-effective alternatives. The shifting global supply chain provides Pakistan with an opportunity to attract businesses looking to diversify their production hubs.”