Pakistan’s recent success in securing the lowest tariff rate in South Asia through a trade agreement with the United States stands out as a rare economic win. By lowering tariffs from 29% to 19%, Islamabad has positioned itself as a more competitive exporter in an American market where costs often dictate survival.

“By lowering tariffs from 29% to 19%, Islamabad has positioned itself as a more competitive exporter in the American market.”

The announcement by Minister of State for Finance Bilal Azhar Kayani highlights a turning point in Pakistan-US economic relations, one that carries significant implications for exports, job creation, and foreign exchange earnings.

This breakthrough is not simply a number on a tariff sheet. It represents a careful alignment of diplomacy and economic pragmatism. High-level engagements, from Chief of Army Staff Field Marshal Asim Munir’s meeting with President Donald Trump to Deputy Prime Minister Ishaq Dar’s discussions with US officials, demonstrate that diplomacy and economics are moving hand-in-hand. For a country struggling with fiscal challenges, the ability to translate political will into tangible economic outcomes is notable.

Lowering tariffs is expected to expand Pakistan’s export base, particularly in textiles, agriculture, and manufactured goods, sectors where Pakistan already has strong capabilities. Reduced export costs mean Pakistani goods can compete more effectively against rivals from Bangladesh, India, and Vietnam. This development, when paired with domestic reforms to cut energy costs, enhances the broader competitiveness of the economy.

The government’s move to reduce energy tariffs and upgrade production infrastructure complements this tariff reduction, potentially creating a multiplier effect. As manufacturing costs decline, firms will not only benefit in the US market but also build resilience in global trade chains. This is crucial at a time when protectionist policies and supply chain disruptions continue to unsettle international trade.

Beyond economics, this agreement signals a diplomatic thaw with Washington. The US has historically been both a critical partner and a skeptical observer of Pakistan’s politics and policies. Opposition voices argue that closer US ties may compromise sovereignty or fuel dependency. By focusing on pragmatic trade outcomes, the Sharif administration has demonstrated that engagement with Washington can yield measurable benefits rather than remain mired in rhetoric.

“This breakthrough represents a careful alignment of diplomacy and economic pragmatism.”

Diplomatic capital gained from this success can also be leveraged in multilateral platforms, potentially opening doors for foreign investment and development financing. In an era of strategic competition, Pakistan’s ability to balance relationships while securing economic wins enhances its standing as a more credible regional player.

Amid this trade breakthrough, Pakistan is also experimenting with US oil imports, raising the question of whether this policy is as beneficial as the tariff deal. On the positive side, sourcing crude from the US strengthens Pakistan’s energy security by diversifying suppliers and reducing dependence on geopolitically sensitive regions. It also bolsters Pakistan-US ties, making the relationship multidimensional.

The downsides are clear. American crude is relatively expensive, $65-68 per barrel, compared to discounted Russian supplies. Transporting it across oceans adds freight costs and delivery delays. Moreover, the current deal is limited to a one-million-barrel trial shipment, leaving its long-term viability uncertain. Unless volumes increase and costs fall, US oil may prove an expensive experiment rather than a sustainable policy.

A balanced view, however, sees US oil as a potential “bridge fuel” in Pakistan’s energy transition. Under its Alternative and Renewable Energy Policy, Pakistan targets 20 percent renewable energy by 2025 and 30 percent by 2030. Light, sweet US crude could serve short-term needs in transport by producing Euro-V fuels, thereby cutting emissions as the government scales up electric vehicles.

However, in the power sector, the focus must remain on renewables, grid upgrades, and storage technologies as outlined in the Indicative Generation Capacity Expansion Plan. US oil imports should therefore be kept limited and time-bound, supporting refinery upgrades and transport fuels only until 2030. Beyond that, the real strategy lies in scaling renewables and embedding Pakistan in the clean energy future.

“American crude is relatively expensive, $65-68 per barrel, compared to discounted Russian supplies.”

The tariff deal with Washington is an unequivocal win, boosting exports, improving competitiveness, and strengthening diplomatic ties. In contrast, the US oil deal carries mixed prospects: strategically useful in the short run, but costly and uncertain over the long term. Together, these moves reflect Pakistan’s attempt to navigate a fragile global economy by securing immediate gains while positioning itself for longer-term transitions.

The challenge now is execution. By pairing trade facilitation with disciplined energy reforms, Pakistan can turn these agreements into stepping stones for deeper integration into global markets and cleaner energy futures. The path ahead is not without risks, but with careful calibration, Pakistan can seize this moment as both a diplomatic and economic turning point.

Disclaimer: The opinions expressed in this article are solely those of the author. They do not represent the views, beliefs, or policies of the Stratheia.