As Washington and Beijing jostle for influence, Islamabad is quietly refining a survival strategy — one that trades allegiance for leverage, turning great-power rivalry into an economic opportunity.

China remains Pakistan’s largest trading partner but also its biggest source of imports, fuelling a persistent bilateral trade deficit. Much of this is tied to machinery, technology, and raw materials for infrastructure and industrial projects. Pakistan’s export basket to China, however, is still dominated by low-value goods, leaving ample room for value addition. This imbalance underscores a structural reliance on Chinese supply lines — a relationship that powers growth but also exposes vulnerabilities in the external account.

Figures from the State Bank of Pakistan show China retained its position as Pakistan’s largest source of imports in FY25, with the bill rising by 20.7 per cent to $16.31 billion from $13.51bn a year earlier.

The increase was driven primarily by electrical and electronic equipment, machinery, nuclear reactors, and raw iron, steel, and organic chemicals. Imports from newer sectors also gained ground, including solar energy equipment and electric vehicle components, underscoring Pakistan’s gradual shift towards energy transition and technological modernisation.

Exports to China, meanwhile, weakened. The Trade Development Authority of Pakistan (TDAP) data indicates a fall in shipments by 7pc in FY25 to $2.38bn from $2.56bn in FY24 despite tariff concessions under the China-Pakistan Free Trade Agreement. The export basket remained heavily tilted towards low-value primary goods — copper, cotton, rice, sesame seeds, and seafood — with only a modest share of semi-processed textiles like manmade filament yarns and fabrics.

Security cooperation can allow Pakistan to extract tangible benefits from both China and the US

The United States, by contrast, is Pakistan’s single largest export destination and has consistently delivered a healthy trade surplus for over two decades. Textiles remain the backbone of these shipments, but non-traditional exports — from leather goods to medical equipment — are gradually finding space in American markets. The surplus with the US offers breathing room for the external sector and a reminder that Pakistan’s competitive edge in certain industries can still yield sustainable gains.

Pakistan’s trade surplus with the United States widened in FY25, as exports far outpaced imports, cementing America’s role as the country’s top export market. According to the TDAP, merchandise exports to the US reached $6.034bn in FY25, driven primarily by textiles and apparel, alongside rising sales of leather goods, carpets, and medical equipment. Imports from the US totalled $1.744bn in the same period, with engineering, manufacturing and minerals forming the largest category, followed by agri-food items and textile-related products. The resulting surplus underscores the depth of Pakistan’s commercial ties with the US and highlights the strategic value of maintaining and diversifying market access in America.

In a notable shift, the United States has cut its tariff on Pakistani goods to 19 pc under a new trade accord that also covers energy cooperation and improved market access. The move, signed off by President Trump, is expected to sharpen Pakistan’s export competitiveness, particularly in textiles, leather and medical equipment, by lowering entry costs at the US border.

With China, our challenge is to reduce dependency by boosting high-value exports, while with the US, we must broaden the export base beyond textiles

Coupled with Islamabad’s readiness to step up imports of American cotton, soybeans and critical minerals, the tariff cut could help Pakistan consolidate its foothold in US markets and open fresh avenues for bilateral trade.

Strategists in Islamabad know the two tracks cannot be treated alike. With China, the challenge is to reduce dependency by boosting high-value exports and building local manufacturing capacity in sectors such as renewable energy and steel. With the US, the priority is to broaden the export base beyond textiles to shield against sector-specific shocks. Both require targeted policy support, better trade diplomacy, and the agility to seize emerging market gaps.

Overlaying this economic calculus is the China–Pakistan Economic Corridor, a multi-billion-dollar initiative that has transformed the energy and transport landscape. Gwadar Port is now operational, power generation capacity has expanded significantly, and new road and rail links are knitting the country more tightly into regional supply chains. These are long-term assets that require careful debt management and local buy-in, especially in provinces where large projects have stirred concerns over displacement and security restrictions.

On the US side, diplomatic and military engagement has deepened in recent months. High-level visits to Washington have explored energy, mining, defence, and counterterrorism cooperation. Yet Islamabad knows that American policy towards Pakistan has historically swung between warm and cold in short cycles, often tied to shifting priorities in Afghanistan or relations with India. Maintaining relevance without over-reliance remains the art.

The balancing act is delicate. Too much security cooperation with one power risks unsettling the other. But if managed well, this multi-vector approach can allow Pakistan to extract tangible benefits from both sides — Chinese hardware and infrastructure, paired with US markets and global legitimacy. Such a strategy demands political discipline, diplomatic dexterity, and the willingness to say “no” when national interest requires it.

Published in Dawn, The Business and Finance Weekly, August 18th, 2025