Tariffs, textiles, and timing

Argentina once attempted to revive its domestic industry through tariffs and trade restrictions. It succeeded, albeit briefly. Appliance and auto manufacturing industries kick-started, but were soon thwarted by price inflation and decreasing competitiveness.

President Trump’s tariff frenzy is much more ferocious, but its eventual return on investment is uncertain. What is already apparent, however, is that a seismic shift in global supply chains is imminent, and Pakistan must act soon.

More than 70 nations approached the White House to discuss tariff exemptions this week, seeking to bypass US protectionism. The initial financial shock was sharp; on the morning of April 9, Japan’s Nikkei 225 dropped along with London’s FTSE 100.

But markets staged a stunning recovery by day’s end after President Trump announced a 90-day pause on additional reciprocal tariffs for all countries except China. For nations such as Pakistan, the message is clear: this pause is not a pardon; it is a window.

Trump’s new tariffs include a 10% flat duty on all imports and steep retaliatory tariffs on trade surplus countries. Pakistan, which sent $5.4 billion worth of exports to the US against $2.4 billion in imports during the last year, had been facing a 29% rate, which now reverts to the 10% baseline for the duration of the pause. With 76% of Pakistan’s exports to the US in textiles, the impact is still targeted and significant.

A delegation under the leadership of the Ministry of Commerce is set to leave for Washington soon. It is a good start. But given the circumstances, diplomacy alone might not suffice.

While all countries except China now face a 10% baseline tariff under Trump’s 90-day pause, this is only a temporary breather. Countries that were already in the 10% bracket before the pause – such as the UAE, Türkiye, Saudi Arabia, and Australia – were never hit with steep retaliatory duties; as a result, they have a critical head start after the pause.

Some of them have already begun implementing investment incentives, fast-track customs procedures, and streamlined export channels to attract shifting supply chains. Pakistan, by contrast, is only just beginning to respond. If we do not act with strategic urgency, we risk entering the race long after the podium has already been claimed.

Let’s look at fundamentals first. Industrial electricity tariffs in Pakistan range from Rs. 31.85 to Rs. 44.46 per kilowatt-hour, nearly double those in China and more than triple the Rs. 8 to Rs. 12 range seen in India and Bangladesh, placing Pakistani exporters at a severe cost disadvantage.

Man-made yarns – a sector of increasing international demand – are non-competitive owing to cumulated import, anti-dumping, and regulatory levies on PSF. Although a federal committee has, in principle, agreed to eliminate the 18% sales tax on local cotton and yarn, subject to IMF approval, more such measures are required.

Pakistan’s customs procedures remain painfully outdated. While India has taken strides in digitizing its customs system through initiatives like Turant Customs and Faceless Assessment, clearance times still average 1–2 days at major ports like Nhava Sheva.

Pakistan, by contrast, continues to rely on manual documentation; the system remains prone to delays, corruption, and high trade costs. US exporters have identified Pakistan’s Customs Rules 389 and 391 as trade barriers. These rules mandate physical invoices and packing lists to be inserted within containers and impose full liability on the shipper for non-compliance. Food, machinery, and consumer goods exporters have experienced delays and valuation disputes under these antiquated procedures. Regional rivals have already moved ahead.

Yet Pakistan holds negotiating power. Its export model is based on value addition, not dumping. Pakistan is one of the world’s largest importers of US cotton, and it re-exports this input as finished apparel. This bilateral integration is rare and must be highlighted.

Dr. Hafiz A. Pasha has pointed out that, despite Pakistan’s vulnerabilities, it still enjoys a relative edge over Bangladesh and Vietnam due to a lower reciprocal tariff rate. “Pakistan will gain a significant competitive edge over Bangladesh with an import tariff in the USA, 8 percentage points lower (Pakistan 29% vs. Bangladesh 37%),” he writes.

At the same time, Pakistan’s rising cotton imports from the US – the highest globally in 2024 – present a mixed blessing. On one hand, these imports demonstrate Pakistan’s role in adding value to American raw materials, an argument negotiators can make in favor of tariff relief.

On the other hand, if the government withdraws the 18% sales tax on local cotton, as planned, textile mills may reduce their reliance on US cotton. That could lower Pakistan’s imports from the US, widening the trade surplus – and under Trump’s formula, triggering even higher tariffs. In game theory terms, Pakistan risks losing leverage if it doesn’t act quickly to anchor its position as both a value-adder and a reciprocal trade partner before the data turns against it.

This is a textbook case of economic game theory in motion. First movers, those who recalibrate fastest, will secure the most favorable positions in a reordered trade world. India has already begun executing this pivot. Despite being branded the “tariff king,” it has avoided retaliation; it is negotiating quietly, securing key supply chain relocations, and positioning itself as a “China Plus One” destination.

Apple now plans to route up to 50% of US iPhone demand from its India plants, shielding itself from China’s 54% tariff exposure. Unlike China or the EU, India is not retaliating; it is adapting. In contrast, Pakistan still has the timing advantage – but that edge is perishable. Without swift reform on tax, customs, and energy, we risk watching others take off while we idle at the gate.

For its part, China – the old world factory – is gradually pivoting from its former role. Instead of clinging to low-margin exports, it is doubling down on competing directly with the US in high-tech sectors via brands like BYD, Huawei, and DeepSeek.

Meanwhile, the tariff war between the US and China has reached new heights: the US has imposed cumulative tariffs of up to 145% on Chinese goods, including steel, electronics, and autos. In response, China has levied up to 84% in tariffs on American exports, targeting agricultural and industrial goods. The conflict is now deeply entrenched and spilling beyond trade into data, finance, and even cultural diplomacy.

This vacuum in labour-intensive manufacturing opens a door for countries like Pakistan—if they can position themselves as stable, cost-effective, and geopolitically balanced players. The world is no longer trading under a single dominant system. Pakistan must navigate a shifting trade order: the US is building tariff-protected alliances, China is doubling down on state-led tech dominance, and the EU is anchoring around green subsidies and strict compliance. Our edge lies in engaging all three without over committing to anyone.

One promising avenue has already emerged. During a high-level visit to Islamabad in April, a senior US official emphasized Pakistan’s untapped mineral potential and its importance for American supply chain security. “President Trump has made it clear that securing diverse and reliable sources of these materials is a strategic priority,” said Eric Meyer of the US State Department. This is not just about rare earths—it is a signal. Pakistan must treat the critical minerals engagement as the opening move in a broader diplomatic-economic play.

There are also opportunities for diversification. The American leather and footwear market, once the monopoly of China and Vietnam, is now open. Pakistan can fill the gap. So can technical textiles, work wear, and intelligent fabrics, particularly if produced using US inputs. Meanwhile, IT exports can bypass tariffs and are increasing. Pakistan’s digital services industry hit $3.2 billion last year and has space to expand if nurtured.

This is a turning point – not just a temporary distortion. It is an uncommon moment of international rebalancing. Pakistan has the commodity, the narrative, and the geographical location. Now it needs to demonstrate that it has the pace and seriousness to act.

Copyright Business Recorder, 2025