ISLAMABAD: Pakistan’s value-added textile sector has raised alarms over the United States’ recent imposition of a 19 per cent tariff on Pakistani exports, warning that it could neutralise any potential gains in market access.

The new tariff, added on top of existing duties, is seen as significantly higher than expected, undermining hopes for improved trade relations and market share, particularly in comparison to regional competitors such as Vietnam and Bangladesh.

Industry leaders argue that the new tariff structure, combined with rising domestic production costs, makes it increasingly difficult to compete. One exporter noted that the higher tariffs, along with Pakistan’s growing production costs, could result in a decline in export volumes. “The deal is neutral at best,” the exporter said, pointing out that regional players like Vietnam and Bangladesh, with their lower production costs, remain better positioned.

Karachi Chamber of Commerce and Industry (KCCI) President Jawed Bilwani told Dawn that Pakistan’s primary competitors in the US market, Bangladesh and Vietnam, stand to benefit from the existing tariff structure due to their significantly lower production costs.

Textile sector struggles as tariff hike limits market gains

Mr Bilwani estimated that Pakistan’s production costs are 10-20pc higher, putting local exporters at a distinct disadvantage. He further criticised the government’s failure to support exporters effectively, pointing to the recent proposal of new taxes on cotton yarn and fabric imports — critical materials for producing export-grade goods. He stressed that imported yarn offers superior quality, which is vital for maintaining competitiveness in global markets.

On April 2, the US imposed a 29pc reciprocal tariff on Pakistani exports, an additional duty on top of the Most Favoured Nation (MFN) rate. This was followed by a 90-day pause, which set a provisional baseline tariff of 10pc (MFN + 10pc) until July 9, later extended to August 1.

After a series of “comprehensive and discreet negotiations,” the revised tariff of 19pc was finalised. While the government has hailed this as a success, some industry representatives, including M. Hassan Shafqaat, CEO of the Pakistan Textile Council, expressed disappointment. “We were expecting a lower reciprocal tariff, in the range of 10-15pc, based on positive signals from government officials,” he said, adding that the new tariff is equivalent to what was imposed on Pakistan’s competitors without them offering anything in return to the US.

Sources revealed that Pakistan had proposed to reduce the $2.9bn trade deficit by importing US cotton worth $1bn, oil-related products worth $1.2bn, and other US goods such as soybeans. The country also offered to remove non-tariff barriers, as recommended in the US Trade Representative’s report.

Mr Shafqaat explained that Pakistan’s competitors, including Vietnam, Cambodia, Sri Lanka, and Bangladesh, now face tariffs between 19-20pc under the MFN+ regime. Only India, with a reciprocal tariff of 25pc, faces a higher tariff than Pakistan.

However, he noted that India’s favourable economic conditions — lower business costs and significant fiscal space — allow the government to cushion exporters with subsidies, rebates, and interest-free financing. As a result, he said, the 6pc tariff differential may not significantly affect India’s competitiveness in the apparel sector. Shafqaat suggested that some US-based buyers of home textiles might consider shifting to Pakistan if the tariff on India does not reduce in the near future.

Textile exporters also expressed concerns about potential conditions attached to the tariff, particularly the rules of origin for Pakistan. US President Trump’s letters specifically mention that transshipped goods will be subject to higher duties, raising the possibility of tariff adjustments for countries like Pakistan, Vietnam, and Indonesia. “It remains unclear whether countries like Bangladesh and Sri Lanka, which were subjected to tariffs without formal agreements, will be exempt from rules of origin requirements,” Shafqaat noted, adding that further changes to reciprocal tariffs cannot be ruled out.

China is expected to redirect its unsold textile products — originally intended for the US market — to the EU and UK, with India likely to follow suit. As a result, Pakistan could face intensified competition from both China and India in these alternative markets.

Khurram Mukhtar, Patron-in-Chief of the Pakistan Textile Exporters Association, welcomed the US tariff reduction but stressed that the government must take urgent action to make the textile sector more competitive. “Reforms in taxation, energy tariffs, improved refund mechanisms, and better access to credit are critical for sustaining growth in the sector,” he said. While he noted that overall US demand might decline as consumers bear the cost of higher tariffs, he warned that Pakistan’s exporters cannot afford complacency. “There is no room for complacency. Reforms are more urgent than ever,” he added.

Published in Dawn, August 3rd, 2025