Pakistan opts for diplomacy on Trump's tariff war

ISLAMABAD:

Pakistan on Thursday decided to take a reconciliatory path against the United States trade war and would seek a review of its decision to impose 29% additional tariffs, as Washington was already charging higher trade-weighted average tariffs compared to Islamabad.

Unlike many countries that decided to escalate trade war by importing counter tariffs, Pakistan's government decided to secure a meeting with the US trade representative to explain its position, said the authorities.

The Pakistan embassy in Washington would immediately seek a meeting with the US trade representative, according to a decision taken during a high-level meeting chaired by Finance Minister Muhammad Aurangzeb.

The meeting was attended by Pakistan's representative in the World Trade Organization (WTO) and other key government functionaries. Pakistan's ambassador in Washington and its trade minister would try to meet with the US authorities this week, according to the government officials.

President Donald Trump on Wednesday imposed additional tariffs on 60 countries, including Pakistan, to raise revenues, shift trade balance and promote made-in-America goods by discouraging imports.

The decision was surprising for Pakistani authorities who were not expecting the inclusion in the list on the grounds that the US trade weighted average tariffs were already higher than Pakistan. The country was also on the 33rd number on the list of the nations with whom Washington had a trade deficit.

Pakistan's trade weighted average tariffs on the US goods were 7.3% compared to 9.9% that the US charges on imports from Pakistan, according to the Ministry of Commerce's work that is based on trade data.

During the July-March period of this fiscal year, Pakistan exported $3.9 billion goods to the US compared to $933 million imports, according to the official statistics. There was a 15% increase in Pakistan's exports to the US, giving it $700 million additional benefit compared to the last year.

Islamabad has a $3 billion trade surplus with the US but this is low compared to 32 other nations that have large trade surpluses. The US has not worked the additional tariffs on the basis of the goods specific tariffs. Rather it has applied a unique formula of trade deficit to impose additional tariffs.

The US assumes that trade deficits entirely reflect trade policy and divides the US goods deficit for each country by that country's exports. Dividing the number by two generated so-called reciprocal tariffs, which in the case of Pakistan is 29%.

Pakistani authorities were hopeful that they can build a good case for review of the US decision of imposing 29% additional tariffs. Due to the US government's decision, the tariffs on Pakistani goods have gone as high as 49% in the case of garments, one of its main exports.

Pakistan imports Soybean, cotton and meat from the US, while its exports are mainly of textile and leather. There are zero duties on import of cotton, 5 to 10% on meat and about 3.25% on soybean imports.

However, the iron and steel imports has higher tariffs of over 20% due to a protection available to the local factories. Except for agriculture-related goods, Pakistan has limited potential of increasing imports from the US, as the US imports are mostly of energy, machinery, arms and services.

The Pakistani authorities said that despite higher tariffs the country has an opportunity to increase textile exports due to higher tariffs imposed on China, Vietnam, Cambodia and Sri Lanka. But it might face competition from Vietnam, Egypt, India and Turkey.

President Donald Trump's decision pushed oil prices down 7% and yield on US 10-year treasury bills to 4%, as the world feared both inflation and recession. The global stocks fell on the fears that Trump's sweeping new tariffs left the global economy on the brink to a full-blown trade war.

Vietnam is among the worst-hit nations whose exports are the main source of earnings and economic growth. India's gem and jewellery exports will be hit by the new tariffs. China said on Thursday that it would take retaliatory measures against the US tariff war.

The European Union was also contemplating counter tariffs but the United Kingdom took a cautionary approach. The governments across the globe started holding meetings with their businessmen to gauge the impact of the tariff war on their companies.

Pakistan's total exports are in the range of $32 billion per year, which along with remittances are the main source for import financing. Due to the nation's narrow export base, largely comprising textile goods, it has remained unable to take full benefit of the European Union's tariff-free GSP plus scheme.