The stock market of Pakistan experienced complete breakdown on April 8 2025. A single trading session led the benchmark KSE-100 index to plummet 7.31% which sent the market safety breakers into effect to prevent destabilizing sell-offs. The market recovered some ground yet these events demonstrated that financial investors had distrust in state officials’ ability to manage the trade war stemming from President Donald Trump’s “reciprocal” tariff policies. Finance Minister Muhammad Aurangzeb attempted to comfort investors through positive remarks about the trade crisis yet his optimism failed to silence the financial markets’ alarms and asset flight. The occurrence revealed how Pakistan remains dangerously exposed in today’s environment featuring both the disintegration of multilateralism and rising protectionist sentiment and requiring smart economic maneuvering to persist.
The Context: US Tariffs and Pakistan’s Trade Realities
The Trump administration applied 2025 tariff policy against trade surplus nations which disrupted worldwide market activities. Pakistan exported textiles (67%) and leather and agricultural products worth $5.2 billion to the US during 2024 but these products now face 15–25% increased import tariffs. Bangladesh together with Vietnam maintains an advantage since they hold access to larger markets at lower export prices because of their superior levels of scale and quality standards and their relationship status within preferential trade agreements.
The trading connection between Pakistan and the US has consistently operated in favor of the United States. The volume of Pakistani exports to the United States constitutes 18% of total Pakistanian shipments although US exports to Pakistan remain limited at $2.1 billion in machinery and pharmaceuticals along with aircraft parts. Due to its $3.1 billion surplus Pakistan became an effortless target through Trump’s deficit reduction focus. At present the proposals presented by the finance minister including tariff reductions for US imports and increased acquisitions of American energy products fail to solve the trade imbalance. Worsening matters is the risk of Pakistan’s import bill increasing while its current account deficit stays negative at -$12 billion in 2024 along with diminishing foreign exchange reserves valued at $8.3 billion in March 2025.
The Illusion of Optimism: Textiles, Competition, and Structural Weaknesses
The expectation expressed by Minister Aurangzeb that Pakistan should take market share from its trading competitors does not address fundamental industrial problems. These two nations operated their textile industries deliberately to create vertically linked manufacturing complexes together with foreign direct investment while meeting demanding US requirements for quality and sustainability requirements. The Pakistani textile sector must overcome its energy shortages and outdated equipment and innovation scarcity to compete successfully. Textile exports from Vietnam to the US reached $16 billion during 2024 but Pakistan maintained its exports at $3.4 billion.
The industry suffers because Pakistan faces multiple economic challenges. Textiles compose 60% of Pakistani exports thereby rendering the economy at risk from changes in commodity prices and demand variations. The efforts to expand into IT pharmaceuticals and engineering goods present limited gains because they contribute only 12% to Pakistan’s export generation. Bangladesh shifted its garment production toward luxury clothing while Vietnam executed free trade pacts with both the EU and the CPTPP in order to lower their dependence on the U.S. market.
Global Protectionism and the Collapse of Multilateralism
The WTO’s declining relevance exacerbates Pakistan’s challenges. Since the 2020s the United States has chosen to implement bilateral arrangements along with tariff penalties instead of using WTO framework. Under such “might is right” paradigms greater economies have minimal options available to Pakistan and other smaller economic entities. Research indicates that world trade growth predictions for 2025 show a significant decline to 1.3% compared to 3.4% during 2023 due to rising trade barriers in supply chains.
The existence of Pakistan depends on this situation. The nation depends on foreign imports to meet its requirements of petroleum products at 80 percent and fertilizers at 50 percent and pharmaceutical medications at 30 percent. The inflation rate is currently at 28% year-on-year and could increase because of a weaker Pakistani rupee that decreased by 23% versus the US dollar since 2023 combined with rising tariff policies. The Nishat Mills (-11%) along with Engro Corporation (-9%) textile companies appear as the market leaders whoagnized a huge stock price decline which demonstrates investor worry about earnings losses and financing stability problems.
Policy Responses: Between Pragmatism and Wishful Thinking
The government’s strategy hinges on two pillars: negotiating tariff exemptions and boosting US imports. Proposals include purchasing Boeing aircraft for PIA and importing LNG from US suppliers. However, these plans face hurdles:
- Financial Constraints: Pakistan’s public debt stands at 85% of GDP, limiting its capacity for large-scale imports.
- Geopolitical Tensions: Strained US-Pakistan relations over Afghanistan and nuclear proliferation complicate negotiations.
- Domestic Opposition: Industries reliant on protectionism, like agriculture, resist opening markets to subsidized US goods.
Meanwhile, business leaders advocate for “tariff engineering”—shifting exports to lower-tax product categories. For instance, exporting finished garments instead of raw cotton. But this requires investment in design and manufacturing tech, which the cash-strapped private sector cannot fund without state support.
Learning from History: The US-China Trade War Precedent
The 2018–2020 US-China trade war offers lessons. China absorbed $250 billion in tariffs but retaliated strategically, targeting politically sensitive US sectors like agriculture. It also accelerated its “dual circulation” policy, reducing export dependency through domestic innovation. Pakistan lacks China’s economic heft, but targeted measures could help:
- Diversifying Export Markets: Pivoting to the Middle East, Africa, and Central Asia under CPEC.
- Leveraging GSP+: Enhancing EU exports under the Generalized Scheme of Preferences, which grants tariff concessions for human rights compliance.
- Boosting Regional Trade: Reviving SAARC agreements to access India’s $3 trillion market—though political tensions remain a barrier.
The Path Ahead: Survival in an Arbitrary World
To avoid becoming collateral damage in the US-China rivalry, Pakistan must confront hard truths:
- Fix the Basics: Stabilize the economy through IMF-backed reforms: tax expansion, energy sector restructuring, and privatization of loss-making SOEs.
- Invest in Innovation: Allocate 3% of GDP to R&D (up from 0.9%) to modernize textiles and nurture tech startups.
- Lobby Strategically: Partner with other tariff-hit nations to pressure the US for exemptions, citing Pakistan’s role in regional counterterrorism.
- Prepare for the Worst: Build forex reserves through diaspora bonds and remittance incentives, while securing currency swap lines with China and Saudi Arabia.
Conclusion: Optimism Alone Won’t Sufficient
The market’s drastic downward trend provided a severe wake-up call to the nation. Pakistan’s economic survival needs more than optimistic statements as displayed by Minister Aurangzeb despite his positive outlook. The nation needs fast action to create economic diversity and establish new agreements both with structural problems within Pakistan and outside powers such as the United States. The protectionist storm has arrived and how Pakistan manages it will determine its economic destiny for many generations forward.
