Making the most of China-US trade tiff

Updated October 08, 2018

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The ongoing trade war between China and the United States can boost the prospects of Pakistani exports to the American market and encourage Chinese producers to relocate to Pakistan to avoid punitive tariffs on their US shipments and take advantage of cheaper labour.

On top of that, business leaders say it may afford Islamabad an opportunity to renegotiate the terms of China’s future investments in and trade with Pakistan.

Abdul Razzak Dawood, adviser to the prime minister on trade, industry and investment, was quoted last week to have told a gathering of textile manufacturers in Karachi that the trade war between the world’s two largest economies could be beneficial for Pakistan.

See: What’s on everyone’s mind in China-US trade war

“The trade war between China and the United States is getting bigger and bigger by the day… and the demand for goods is not declining (in the US market). Pakistan needs to explore ways so that it can benefit from this war.”

Chinese manufacturers can ward off punitive tariffs on their exports to the United States by relocating their labour-intensive industries to Pakistan, according to PBC CEO Ehsan Malik

Pakistan is already seeking the same market access for its exports that Beijing has given to the Association of South East Asian Nations (Asean), New Zealand and Australia under the 2006 Free Trade Agreement (FTA) that is responsible for heavily tilting the trade balance in favour of China.

Islamabad has also asked China to share complete information of its exports, both under and outside the FTA, with Islamabad in order to help it eliminate under-invoicing by Pakistani importers.

Moreover, efforts are on to convince Beijing to encourage its manufacturers to relocate their industry to Pakistan.

The adviser had also told a Senate panel on industries and production that China-US tensions over trade tariffs was a good sign for Pakistan as it would place the country in a better negotiating position (with China).

“The China-US trade war has put Pakistan in an advantageous position and we have become more competitive than China in some areas like textiles. It offers an opportunity for Pakistan to boost its exports to the United States as well as revive the closed manufacturing capacity (mostly in Punjab),” Pakistan Business Council CEO Ehsan Malik told this correspondent.

He says Chinese manufacturers can also ward off punitive tariffs on their exports to the United States by relocating their labour-intensive industries to Pakistan.

“They (Chinese companies) can bring semi-finished goods and convert them into value-added goods for export to the United States. Then there are products that are made in China but not in Pakistan.

Such industries can also be relocated to Pakistan to avert higher US tariffs on Chinese exports.”

A Lahore-based textile exporter, who requested anonymity, was not too optimistic. “In theory, we can take advantage of the American action against China. But we are not ready to benefit from it. We do not have enough capacity to fill the gap. Nor do we have developed our value-added textiles to replace China in the US market. I think countries like India and Bangladesh will have captured the US market by the time we are ready to even start thinking about benefitting from this opportunity.”

By far, China has shown a rather favourable view of most of Islamabad’s demands. It has expressed willingness to take steps to boost its imports from Pakistan in view of the geopolitical advantages it will draw from the completion of the China-Pakistan Economic Corridor (CPEC), a part of the Belt and Road Initiative around which it has pledged to invest more than $60 billion in energy and transport infrastructure.

“The immediate benefit Pakistan can expect from China because of its worsening trade relations with the United States is improvement in trade terms and extension in the repayment period of loans taken for power projects under the CPEC initiative,” the anonymous textile exporter contended.

“It can be followed up with softer terms for future CPEC investments, relocation of Chinese textiles industry to Pakistan and transfer of technology and skills. My advice for the government will be to focus on these items.”

Published in Dawn, The Business and Finance Weekly, October 8th, 2018