Export revenue under pressure from policy risks

ISLAMABAD: Pakistan is losing substantial export earnings because of uncertainty created by domestic policymaking rather than external trade disputes, according to a new study by Lahore School of Economics economists Azam Chaudhry and Gul Andaman.

The study said Pakistan’s trade policy uncertainty index rose to 185 during the 2018-19 tariff conflict between the United States and China, against a baseline of 100. It found that the Finance Act 2024 pushed the same index to 348, almost double the level seen during that global trade confrontation. By 2025, the index had climbed to three and a half times its historical average. The researchers said the index was the first of its kind for Pakistan and was built using archives from four major English-language newspapers covering the period from 2013 to 2026.

Export hit measured in hundreds of millions

According to the study, a shock equivalent to the US-China trade war reduces Pakistan’s monthly goods exports by around 10% immediately and by about a quarter at the worst point eight months later. Based on average monthly exports of $2.2 billion in the sample, the immediate loss works out to roughly $230 million from a single episode of uncertainty. The researchers said the Finance Act 2024 shock was twice as large, implying losses that could approach half a billion dollars a month at the lowest point.

The study measured the elasticity of exports with respect to trade policy uncertainty at minus 0.16 on impact, deepening to minus 0.41 after eight months before partially recovering to minus 0.16 by 12 months. It drew on 5.3 million product-level bilateral trade observations covering 4,954 products and 228 destinations over 193 consecutive months.

Existing markets retained, but volumes and investment fall

The researchers said the decline does not mainly come from exporters abandoning products or foreign markets. Instead, firms continue selling garments, leather goods and home textiles to existing buyers, but ship lower volumes at unchanged prices. The study said companies also postpone machinery purchases needed for expansion.

Using capital goods imports as a proxy for equipment investment, the study found that these imports fall by nearly half after an uncertainty shock. It put the elasticity for capital goods at minus 0.46, around three times larger than the fall in exports, with the decline bottoming out one month before the export trough at seven months. Vehicle imports, described in the study as the most deferrable capital purchase, showed an elasticity of minus 0.50, while electrical machinery posted minus 0.22.

Services exports show more persistent weakness

The study said software, information technology and other services exports react differently. It found no immediate response to uncertainty, but said that once services exports start falling about three months after a shock, they do not recover within the 12-month period examined. The 12-month elasticity for services was put at minus 0.36, matching the trough value, while goods exports had already partly recovered by that stage. The researchers said this pointed to longer-lasting losses for a country that is increasingly relying on services-led export growth.

Missed gains during global trade shifts

The study also examined how Pakistan fared during the US-China trade war, when countries such as Vietnam, Mexico and Bangladesh absorbed US import demand moving away from Chinese suppliers. It said Pakistan captured virtually none of that broader opportunity despite having established textile links with American buyers.

The exception, according to the study, was textiles. It said the US textile export differential rose to plus 0.335 in 2019 when List-4 tariffs affected Chinese apparel, and reappeared at plus 0.258 in 2024 and plus 0.212 in 2025, indicating that part of the shift may have developed into more durable supplier relationships. Outside textiles, however, the study said Pakistan failed to secure new gains because domestic policy uncertainty was discouraging the capital investment needed to enter new product lines.

Researchers point to structural causes

The study identified recurring changes in trade rules as a structural source of uncertainty. It said the Federal Board of Revenue issued more than 300 Statutory Regulatory Orders in 2024 alone, altering tariffs, duties and customs procedures through executive notifications that took immediate effect without a parliamentary process. It also cited the annual Finance Act, which revises the trade tax structure each June after months of speculation, and IMF programme negotiations, which the study said had repeatedly put the trade tax regime under review during most of the sample period.

The researchers concluded that policy stability should be treated as a tool of export competitiveness. They said consolidating authority over SROs, announcing trade measures ahead of the budget, and protecting exporters’ tax treatment from annual legislative changes could reduce a measurable source of export losses that market access negotiations alone cannot offset.