The transformation of the global economic landscape has made international tariff policy a key determinant of national economic stability. On April 2, 2025, U.S. President Donald Trump enacted an executive order establishing a “minimum benchmark tariff” of 10% for trading partners, along with the imposition of elevated tariffs on specific partners. Global and American public sentiment views the U.S. tariff policy as a perilous political tool that imposes a “U.S. priority” agenda on other nations, undermining global trade norms. The U.S. imposed a 10% minimum tariff on nations with which it has trade deficits, allegedly to protect domestic industries.
The Trump administration implemented a comprehensive tariff escalation on international trading partners under the guise of “reciprocal tariff.” Pakistan, a major supplier of U.S. textiles, leather goods, and other commodities, was confronting severe declines in exports and industrial chain disruptions. The U.S. Trade Representative’s Office released the “Reciprocal Tariff Administrative Order,” indicating that the tariff rate on Pakistani items shipped to the U.S. has increased from an average of 7% to between 11% and 50%. The tariff on textile and apparel products was increased to 29%, which directly affected the fundamental industries of Pakistan’s economy.
The Labor Force Survey (LFS) from the Pakistan Bureau of Statistics (PBS) indicates that in the fiscal year 2020-2021, the unemployment rate in Pakistan was 6.3%, comprising 4.7% for males and 10.4% for women. In February 2025, Pakistan’s unemployment rate was 11%, with 18.73 million individuals unemployed. Notably, Pakistan’s 7 billion U.S. dollars loan agreement with the IMF is contingent on economic reforms, including tax policy reforms and energy sector restructuring. In its April 2025 report, the IMF revised Pakistan’s unemployment rate prediction for fiscal year 2025 (July 2024-June 2025) from 8% to 7.5%, and subsequently to 7.2% for 2026.
The effects of U.S. tariffs have triggered unemployment across four key sectors in Pakistan. The textile industry has suffered the most significant impact. Pakistan’s textiles, agricultural products, and other industrial goods have historically relied on the U.S. market, and the increase in tariff rates has directly eroded the international competitiveness of these goods. Small and medium-sized textile firms were forced to reduce production capacity due to falling orders, leaving workers with the choice of wage cuts or unemployment. The textile sector constitutes 59.57% of Pakistan’s overall exports. It is both the cornerstone of Pakistan’s exports and the primary driver of employment. The All Pakistan Textile Manufacturers Association (APTMA) issued an industry warning in March 2025, indicating that the hike in U.S. tariffs will result in a 35% year-on-year decline in orders to the U.S. in June 2025.
Second, the port and logistics sector has seen a reduction in activity due to U.S. tariff hikes. Karachi Port, Pakistan’s principal trading hub, experienced a year-on-year decline in container throughput due to falling textile orders, leading to job losses in ancillary sectors like storage and freight forwarding.
The unemployment rate in agriculture has risen. Pakistan is a major agrarian nation in South Asia. Agriculture is a significant contributor to Pakistan’s economy, accounting for 19.3% of GDP and including primary crops such as wheat, rice, maize, and cotton. In June 2024, unprecedented monsoon rainfall in Pakistan inflicted severe damage on crops along the Panjkora River. The floods caused over 2.3 billion U.S. dollars in direct crop losses, leading to a significant increase in agricultural unemployment.
The subsequent U.S. tariffs hindered the steady recovery of Pakistan’s agricultural sector. Pakistan ranks as the fourth largest exporter of rice globally, with rice exports totaling 3.6 billion U.S. dollars in the 2023-2024 fiscal year, predominantly comprising Basmati kinds. The U.S. market predominantly imports Pakistan’s premium basmati rice. In 2024, the United States imported approximately 52 million U.S. dollars worth of Pakistani rice, or almost 2% of Pakistan’s total rice exports. High tariffs will compel the U.S. market to seek low-priced suppliers like India, so hindering Pakistan’s agricultural exports and exacerbating agricultural unemployment.
In response to the escalating unemployment crisis, the Pakistani government has adopted a range of strategies. Prime Minister Shehbaz Sharif, via diplomatic mediation, addressed a letter to U.S. President Trump, emphasizing that the tariff measures “contravene the WTO principle of non-discrimination” and advocating for the resolution of issues through discussion. Pakistan’s Foreign Ministry has also initiated WTO proceedings, alleging that the U.S. violated the most-favoured-nation clause (Article 1) of the General Agreement on Tariffs and Trade (GATT).
The government has initiated the “Export Diversification Plan” to increase the export share to non-traditional markets to 45% by 2025, focusing on the Middle East, Africa, and Central Asia. The State Bank of Pakistan (SBP) has raised the overall export tax rebate rate from 5% to 8%, with 8% for high-value-added items and 5% for low-value-added products. SBP has established a 100-billion-rupee fund (approximately 350 million U.S. dollars) to support corporate restructuring and employee retraining.
Meanwhile, various sectors in Pakistan have responded vehemently to the tariff hikes. The textile trade union initiated a national strike, urging the government to exert pressure on the United States. Laborers at Karachi Port initiated protest marches to protect their jobs. Conversely, the business sector, via media outlets like Dawn, advocated for “a decrease in tariff reliance and a hastening of industrial advancement.”
China’s Ambassador to Pakistan, Jiang Zaidong, stated on April 17 during a dialogue with Pakistani think tank scholars that China would assist Pakistan in boosting exports to China and alleviating U.S. tariff pressures through industrial cooperation within the China-Pakistan Economic Corridor (CPEC) framework. Nonetheless, despite government and civil society initiatives, Pakistan’s rising unemployment rate continues to give rise to multiple socioeconomic challenges. The World Bank’s “Poverty and Equity Briefing,” published in April 2025, anticipates that the poverty rate in Pakistan will attain 42.4% in FY2025 (July 2024-June 2025), resulting in an additional 1.9 million individuals living in poverty.
A 2024 study by the International Labour Organization (ILO) shows that Pakistan’s textile sector directly employs over 3.5 million people, accounting for 25% of the manufacturing workforce. The increased U.S. tariffs will result in a loss of 564 million U.S. dollars in FY2025-26. The persistent rise in unemployment has exacerbated social unrest. Crime rates in cities like Lahore and Karachi have risen annually, while youth unemployment has sparked frequent street protests. Concurrently, the government has been forced to reduce social welfare spending in the budget due to cuts in education and healthcare investments, thus further eroding livelihood security.
Amid these challenges, the international community has turned its attention to Pakistan. On April 10, 2025, the World Bank announced plans to allocate 300 million U.S. dollars for the Reko Diq copper and gold mining project. The International Labour Organization (ILO) strongly urged the U.S. to reassess its tariff policy, warning that “unilateral protectionism will jeopardize global supply chain stability.”
As a steadfast strategic ally of Pakistan, China explicitly articulated in the “Joint Statement of the People’s Republic of China (PRC) and the Islamic Republic of Pakistan” (released on February 6, 2025) that both parties will advance the establishment of an “upgraded version” of the China-Pakistan Economic Corridor (CPEC), concentrating on the enhancement of five principal sectors: growth corridor, livelihood corridor, and innovation corridor, while promoting Chinese enterprises to invest and develop within Pakistan’s Special Economic Zones (SEZs). Chinese-funded enterprises not only alleviate unemployment in Pakistan through their operations but also support local public welfare initiatives, facilitate non-governmental exchanges, and promote social stability.
Student exchange programs, the Chinese language acquisition initiative, and the promotion of drama and arts under the Sino-foreign joint venture in Pakistan are all praiseworthy. In the last decade, cultural and culinary connections between China and Pakistan have flourished significantly. The number of Chinese workers in Pakistan has grown significantly. To foster bilateral harmony, citizens are encouraged to deepen their understanding of each other’s cultures and languages.
Given the geopolitical significance of CPEC, Chinese is now taught in Pakistani schools alongside major European languages. China and Pakistan will foster “shared sentiments” between their peoples, advance the sustained development of CPEC, and work together to mitigate the adverse effects of rising unemployment in Pakistan.
Currently, Pakistan is undergoing a pivotal phase of economic development amid tariff challenges and global economic uncertainties. U.S. tariffs present both a burden and an opportunity for Pakistani industry to diversify and enhance competitiveness. The Pakistani government must expedite the “Uraan Pakistan” economic transformation strategy and progressively reduce its reliance on any single market. The international community must stand together to oppose protectionism, uphold the WTO-centered multilateral trading system, and foster sustainable stability in the global economic recovery.·
Authors: *Qian Zhu, Pengling Li & Zhiyue Dong are scholars at Southwest University of Political Science and Law, China.*