The August 1st US Tariff Realignment: Analyzing the Trade Destruction and Diversion on Selected Asian Economies

The Trump administration published a new list of additional tariff rates in a document titled “Further Modifying the Reciprocal Tariff Rates” on July 31^st 2025. Pakistan and Thailand face additional tarrifs of 19%. Vietnam and Bangladesh face additional tariff rates of 20%. India faces additional tariff rates of 25% and China faces additional tariff rates of 30%. The previous data story on US tariffs published by EAG explains the likely pattern in the tariff rates. Apart from the additional tariffs on countries, Trump administration over the course of the past few months has imposed higher tariff rates on several products in different categories such as metal, machinery and transportation equipment. Further, it is important to mention that the tariff rates are likely to evolve with each new executive order. For instance, India has been hit with further tariff increases in early August 2025. However, this change is not considered in the analysis below. The analysis takes into account trade destruction, which is the loss in trade value due to higher tariff rates imposed by a trading partner and trade diversion, which is gain or loss in trade value due to the differences in the tariff rates between the exporting country and other trading partners of the reporting country. The reporting country in this analysis is the United States[1].

[1] Data is borrowed from Trade Intelligence and Negotiation Advisor (TINA) developed by the United Nations ESCAP. The country-level and product-level data and the description of the indicators are available at: https://tina.trade/app/tariff-simulation-generator

Figure 1

The level of trade destruction and the trade diversion as a result of the US tariffs is presented in the above figure. Pakistan will lose about $2.3 billion (45% of total imports from Pakistan into the US) in the form of trade destruction but will gain $52 million as exports from other sources to the US are diverted from Pakistan to the US. India is likely to lose $25 billion (28% of total imports) of its exports to the US in the form of trade destruction and lose $4 billion in the form of trade diversion as exports to the US are diverted to partners with lower tariff rates. Bangladesh will lose $4.6 billion (53%) in the form of trade destruction and $74 million in the form of trade diversion.  Thailand will lose $16 billion (28%) in the form of trade destruction and $92 million in the form of trade diversion. Vietnam will lose $37 billion (31%) in the form of trade destruction and $45 million in the form of trade diversion. It is interesting to note that more exports to the US from India will be diverted towards other countries due to the differences in tariff rates, while exporting countries facing lower tariff rates such as Pakistan, Bangladesh, Thailand and Vietnam will face limited levels of trade diversion as compared to the loss of exports from trade destruction. Although, the values for China are not reported due to their scale, it will lose $168 billion worth of exports (38%) and $28 billion due to trade diversion. Approximately 5% of exports from India to the US and 6% of exports from China to the US will be diverted to other countries that likely face lower tariff rates.

Figure 2

The original tariff rates, or the lowest applied bilateral tariff rates, and the additional tariff rates published on July 31^st are presented in the above figure. The original tariff rates, both simple and trade-weighted, were the highest for Bangladesh, while the other countries had similar levels of simple average tariffs (average tariff rates across all products). Pakistan has the second highest trade weighted tariff rates, primarily due to the high concentration of textile products, which typically face higher tariffs than other products. Trade-weighted tariffs on imports from Thailand were virtually zero. With the new additional tariffs, India and Bangladesh will have similar levels of tariffs despite the 5% difference in the additional tariff rate as Bangladesh reported higher tariffs rates on its exports to the US. China will face the highest tariff rates, while Thailand will face the lowest. Tariff rates on the imports from Pakistan will be about 3%-5% lower than the tariff rates faced by India and Bangladesh as the latter reported higher original tariff rates than Pakistan.   

Figure 3

Pakistan is likely to lose about $2 billion in the textile sector in terms of trade destruction from the 19% additional tariffs imposed by the Trump administration. However, Pakistan will also gain $71 million in terms of trade diversion as it gets lower tariffs rates relative to the regional competitors. India will lose about $5 billion, Bangladesh will lose about $4.2 billion and Vietnam will lose about $7 billion in textile sector due to trade destruction. Bangladesh will lose $87 million due to trade diversion and India will lose an upward of $500 million. India, Thailand and Vietnam will lose more than $4 billion in the exports of machinery to the US in terms of trade destruction and more than $240 million in trade diversion. India will lose up to $12 billion in all other sectors in terms of trade destruction, Vietnam will lose more than $20 billion and Thailand will lose more than $8 billion. It is again important to mention that Vietnam faces significantly low levels of loss due to trade diversion. Even though, it faces higher tariffs than its regional neighbors, it reports lower levels of losses due to trade diverting away from it and towards other countries. Vietnam is either exporting a different range of products than other countries or products exported by Vietnam report lower import demand elasticities than those typically exported by other countries.

Figure 4

The products with positive levels of trade diversion outweigh the products with negative level of trade diversion in the textile sector in Pakistan. Approximately $105 million worth of textile exports to the US is likely to divert to Pakistan and $35 million will divert to other countries. Vietnam will also report a positive value for the textile sector with $208 million diverting towards it from other countries and $168 million diverting away from it. Therefore, the new additional tariffs may provide opportunities for relocation. However, the trade destruction from the additional tariffs has a much larger effect on total exports than the benefits from relocation.

Figure 5

The total trade-weighted import tariffs imposed by the US are the highest in the textile and agricultural sectors across all countries. All the listed countries originally faced approximately 10% tariff rates on their exports of textile products to the US. Even though the additional tariff rates are similar, the original tariff rates are higher in these sectors, resulting in higher overall tariff rates. Bangladesh is likely to face tariff rates of more than 60% in its exports of agricultural products to the US. The US had almost negligible tariffs on the imports of machinery. Now, major suppliers of machinery will face higher additional tariff rates.  

Table 1: Imports from Pakistan into the US facing the largest trade destruction (brief product description in bracket below product HS code)

The table highlights the products with the largest value of trade destruction. The top two products are likely to lose all their value as the additional tariffs make it prohibitive to import. HS 630260 (toilet and kitchen linen) and HS 611020 (jerseys) are two products out of five that will not face complete destruction and diversion in their value.

Table 2: Imports from Pakistan into the reporting the highest increase in trade value after tariff change (brief product description in bracket below product HS code)

The indicators for the products imported from Pakistan into the US reporting the highest increase in trade value after the imposition of the addition tariffs are presented in the above table. Three of the five products are different forms of bedlinen. China is a major exporter of the three aforementioned products and is likely to not only face significant trade destruction due to the tariffs but will also find its trade diverted to other countries. Pakistan is likely to be a major beneficiary, particularly of the aforementioned products for which it has relatively comparative advantage in their production. Pakistan receives concessionary tariffs on the imports of HS 940490 and HS 821192[1]. China is also the largest exporter of the two products to the US. The tariffs imposed on China will lead to trade diversion of exports, allowing countries such as Pakistan to increase their exports. Therefore, the fact that China, a major exporter of the products listed in the above table, is hit with higher tariffs, it can benefit Pakistani exporters in products in which they have relative comparative advantage. However, unfortunately, this may reduce the chances of export diversification and structural transformation that has often been cited as a major challenge in previous reports by the Economic Advisory Group.

In conclusion, the US tariff realignment on August 1st, 2025, is projected to cause significant economic repercussions for major Asian economies, particularly in the form of trade destruction with the US. The US is one of the most import export destinations for all the countries listed in this analysis. While Pakistan is set to lose approximately $2.3 billion due to these new tariffs, predominantly in its vital textile sector, it stands to gain marginally from trade diversion as higher tariffs on competitors like China and India shift some trade in its favor, particularly in products like bedlinen and certain apparel. However, this small silver lining is overshadowed by the substantial overall losses. For other regional players, the impact is even more severe; India, for instance, faces a staggering $25 billion loss from trade destruction alongside a $4 billion loss from trade diversion with 25% additional tariff. Ultimately, while the new tariff structure may create opportunities for Pakistan, the policy poses a considerable threat to export revenues and may create future challenges if the country does not undertake much needed reforms. Pakistan will need to undertake a holistic approach towards reforms that are necessary to take advantage of changes in the international trade landscape.

[1] According to International Trade Centre’s Trademap.org, the US is by far the most important export destination for exports of HS 821192 from Pakistan and China contributes to more than 40% of global exports.