Amir Saeed

The 29 percent US tariff on Pakistani exports may threaten the growth of the IT sector once the 90-day pause, announced by the Trump administration, concludes.

Talking to WealthPK, Ahad Nazir, Associate Research Fellow at the Sustainable Development Policy Institute (SDPI), said the hike in tariff may increase costs and reduce competitiveness, necessitating strategic adaptation and innovation. “With the US being a major market for Pakistan’s IT and IT-enabled services, contributing over $1 billion in exports in 2024, the tariffs may make Pakistani services less competitive by increasing costs for the US clients.

This could result in an immediate decline in contracts and revenue streams, creating cash flow challenges for the IT firms and limiting their ability to invest in the ongoing projects,” he highlighted. “In the medium term, Pakistani IT companies may attempt to offset these losses by entering alternative markets or enhancing service quality to justify higher costs. However, these strategies require significant investments and carry risks, as establishing a client base comparable to the US market is a time-intensive process with uncertain outcomes.”

He warned that long-term implications could be even more severe if alternative markets fail to compensate for the loss of US business, potentially leading to a downsizing of the sector, job losses, and diminished contributions to the national economy. Ahad stressed that the country must adopt a multi-faceted approach to address these challenges. Negotiating tariff reductions or exemptions with the US, improving domestic infrastructure, offering tax incentives, and streamlining regulatory processes could help reduce production costs and enhance competitiveness.

“Additionally, prioritizing education and skill development aligned with the global market demands will ensure a workforce capable of driving innovation. Diversifying trade relationships can also mitigate reliance on any single market, safeguarding Pakistan’s economic interests amid evolving global policies.” Talking to WealthPK, Awais Ahmad, Director at Tech Solutions Pro, highlighted that while tariffs primarily target tangible goods, they may indirectly affect the IT services by shrinking the US companies’ budgets due to the higher operational costs.

This could reduce outsourcing opportunities for Pakistani firms, particularly in software development and IT-enabled services. Ahmad also highlighted the risks of increased protectionism, such as stricter visa policies and outsourcing regulations, which may limit Pakistani professionals’ ability to work on-site in the US or expand operations. Additionally, he emphasized competitive dynamics in the global outsourcing market, suggesting that Pakistan could potentially benefit if countries like India face cost pressures due to the trade restrictions.

However, this would require Pakistani firms to offer high-quality, cost-effective solutions to attract US clients. He advised diversifying export markets and strengthening the domestic IT ecosystem as strategic measures to mitigate risks and reduce reliance on the US market.

Credit: INP-WealthPk