“The Force is on Pakistan’s side”, we often hear in politics. There finally seems to be some grain of truth in it, at least for the time being. The trade war between US and China may leave both economic giants at an economic loss, but it is expected to benefit Pakistan’s textile sector. China is the second largest buyer of US raw cotton, as per trademap.org, an online repository of international trade by International Trade Centre. As China imposed 25 percent retaliatory duty on US goods and commodities, global commodity prices for cotton have been on a downward trend.
US is one of the largest producers of cotton and imposition of tariffs is expected to put downward pressure on its raw cotton export. Already, cotton prices have declined by 75 cents per pound during last week’s future trading.
The obvious beneficiaries of supply glut are net importers such as Bangladesh, Turkey and Vietnam who continue to rely heavily on imported long staple cotton for higher thread count yarn. Exporters like India will also gain some benefit, as Chinese textile manufacturers look elsewhere for raw material. Cotton Association of India has raised its FY18 estimate for annual cotton export by an additional million ton to 6.5 million tons, based solely on orders booked over the past one month.
Back at the home turf, cotton cultivation has suffered during current Kharif season as Sindh province’s output is expected to decline by 15 percent over last year. Sowing in Sindh has suffered badly on account of shortage of water and changing climate pattern, and experts predict that crop quality will suffer as a result.
It is in this context that US-China trade war has come as a boon to Pakistani textile exporters as despite poor crop quality and lower domestic cotton production, the garment manufacturers are expected to benefit from lower prices of imported cotton.
Already, domestic textile value add sector is enjoying a bonhomie on the back of Pak Rupee depreciation and resultant price competitiveness of Pakistani manufactured goods in the global market. On the import side, the increased cost of import of raw cotton due to higher USD rates is expected to be more than offset by the lower commodity price in the global market. This is in addition to the 4 percent customs duty and 5 percent sales tax on import of raw material withdrawn by ECC during the last months of PML-N government.
Commodity prices are not something to be relied upon, especially when they are a result of a trigger-happy US president who is prone to reverse his decisions. Poor cotton cultivation and missed production targets are a cause of grave concern for the textile sector in the medium to long term. However, domestic textile sector’s turnaround in fortunes has been a longtime in waiting. Exporters should enjoy it while it lasts!