When tensions rise and tariffs bite

#tensions #rise #tariffs #bite

LAHORE: India will feel more involved in the Trump tariff war because it is far more connected to the US economy. Pakistan, which exports to the United States overall (mainly textile), will also suffer losses to sensitive buyers from prices after reducing global trade pressure, which will potentially damage Pakistan’s textile margin.

The combat hysteria born in the region will be detrimental to the economies of both countries. India recorded a trade deficit of $ 21.94 billion in December 2024, which in November 2024 has reduced a record of $ 37.84 billion. However, its trade deficit with China reached a record $ 99.2 billion in 2024/25 fiscal year, which has increased import of electronics and consumer goods. India’s services sector continues to record an additional record of $ 171.69 billion between April 2024 and February 2025, which was $ 149.34 billion during the same period a year ago. Combining goods and services, India’s total trade deficit was about $ 94.26 billion in 2024.

It is India’s services sector that will be the most trouble if the United States imposes additional taxes. The bilateral trade between India and the United States was $ 129.2 billion in total, with US exports to India $ 41.8 billion and about $ 87.4 billion imports from India, resulting in the US trade deficit with India about $ 47.7 billion.

Pakistan’s trade deficit fell $ 13.2 billion in the first seven months of the financial year 2024, a 33 percent decline over the previous year. However, in December 2024, the monthly trade deficit exceeded $ 5 billion for the first time in two years. Pakistan recorded an additional 9 699 million in the current account in the first quarter of 2025, indicating some improvement in external balance.

In 2024, the total bilateral trade between the United States and Pakistan was $ 7.3 billion. The United States exported about $ 2.1 billion worth of goods to Pakistan, while its imports from Pakistan had about $ 5.1 billion, resulting in the US trade deficit about $ 3 billion. Pakistan’s trade surplus with the United States is primarily driven by textile and apparel export, which is an important part of its export portfolio.

When stress increases, after uncertainty. Both local and foreign investors generally treat uncertainty. Investment is slow. People wait instead of putting money in new projects. Stock markets become volatile, and shares prices can only fall faster on rumors or threats.

Currency pressure for Pakistan will be more tough. With thin external reserves, the rupee can weaken, making imports more expensive.

Although Pakistan India’s trade is lower than its total global trade (about $ 2-3 billion annually), informal trade and strategic commodities (such as chemicals, pharmaceuticals and cotton) can be discouraged. Trump’s actions will hurt Asian exporters more widespread.

As far as Pakistan and India are concerned, tensions and prices will have a common impact. Local tensions frighten investors, while global prices mean that even if production continues, selling abroad becomes difficult. Risk premium increases, and borrowing both countries internationally can be more expensive.

If stress persists, governments are likely to prioritize the military budget over development costs, which causes a shock to education, health and infrastructure. Pakistan is relatively more at risk because its economy is small, less diverse, and its external accounts are weak. India, while also affected – especially in stock markets and exports – has a large internal market, which provides some extent.