Pakistan cheers ‘better’ US tariff deal even with likely fiscal risks

ISLAMABAD — Pakistan has secured a relatively favorable trade deal with the U.S., settling on a tariff rate of 19%, down from the initially threatened 29% in April, with sources revealing that President Donald Trump’s personal interest in Pakistan’s oil, mineral and cryptocurrency potential paved the way.

“The agreement enhances Pakistan’s access to the U.S. market and vice versa,” Pakistan’s Ministry of Finance said in a press statement on Thursday. “Additionally, the deal is expected to spur increased U.S. investment in Pakistan’s infrastructure and development projects.”

The ministry issued another statement on Friday, praising the deal again as stating, “In particular, this tariff level is expected to support Pakistan’s export potential, especially in key sectors such as textiles, which remain the backbone of the country’s export economy.”

Experts also welcome the relatively favorable rate even though the level is higher than before.

“Pakistan’s new 19% tariff rate compares with the 10% rate that was applicable till last year on Pakistan’s imports into USA. So, that is still a doubling,” said Niaz Murtaza, an independent economist based in Islamabad.

Still, the trade deal for the country is favorable compared to other Asia countries, such as India’s 25% and Vietnam’s 20%. “[Pakistan] did better than many other countries due to its evolving ties with USA on other economic issues like crypto, investments in minerals,” he told Nikkei Asia.

A government official told Nikkei on condition of anonymity that Trump’s interest in Pakistan’s untapped oil reserves, mineral resources, and potential crypto regulation played a major role in the deal.

Usama Nizamani, executive director of CREST Consultancy, a policy advisory company based in Islamabad, explained that the government was able to secure a favorable deal because of flexibility on trade negotiations with the U.S. “Pakistan also didn’t ruffle feathers on the geopolitical front such as not procuring oil from Russia after the Russia-Ukraine war,” he told Nikkei comparing Pakistan’s approach with India.

Pakistan also made some trade-related concessions to secure this deal. The country has exempted U.S. companies from a 5% tax under the Digital Presence Proceeds Tax Act 2025, imposed on foreign digital platforms that do not have a physical presence in the country. Secondly, government sources told Nikkei that Islamabad also agreed to allow U.S. firms total access to its market with zero tariffs, which the South Asian country has not officially confirmed.

Murtaza said that if reports of tariff exemption for American business are true, it will reduce customs duty revenues, negatively impacting Pakistan’s fiscal position. “It will also make some of our local products exposed to foreign competition and also increase frictions from other countries which export the same goods that Pakistan will now import from USA,” he said.

“Those countries may also ask for zero tariffs and further reduce our tax revenues from customs duties,” he told Nikkei.

In his trade deal announcement, Trump made special reference to oil in Pakistan.

“We have just concluded a Deal with the Country of Pakistan, whereby Pakistan and the United States will work together on developing their massive Oil Reserves,” he posted on Truth Social on Thursday.

Experts and officials, however, express doubt over the existence of huge oil reserves.

Nizamani said that while there are reports about Pakistan possessing gas reserves in Sindh and Khyber Pakhtunkhwa provinces, including shale gas deposits, “there is not much known on the untapped oil reserves.”

Murtaza, the economist, also agrees, saying, “While some initial studies show the possibility of large reserves in Pakistan, actual physical exploratory missions in 2019 did not find off-shore oil.”

“Even if future explorations find large oil reserves, Pakistan will have to resolve the security issues in minerals areas,” he added.

Oil reserves and most of the country’s natural resources are located near the coastal Balochistan province, which has faced a separatist insurgency for the last two decades.

However, Qamar Cheema, executive director of Sanober Institute, an Islamabad-based think tank, considers that U.S. companies’ investment in the region could play a positive role. “American corporate presence, particularly in Balochistan, would lead to a significant decline in the insurgency in the province,” he told Nikkei.

The article appeared in asia.nikkei