The imposition of 29% additional tariffs on our exports to the USA will be highly disruptive to our exports to the USA even if they are removed or reduced after a couple of months.
Consider the type of tariffs and the structure of our trade. The bargaining strength of the two sides is not matched and we have few options for our sales.
The fact is that the USA is the biggest buyer for most of our textile items. In most categories they take as much as 30/40% of the world wide exports.
The other big importer is the European Union (EU) and they combined import as much as the USA. For any industry to suddenly find one third of its customer base put on hold is catastrophic.
The other factor is the nature of the trading companies. Most of the firms from our side are medium sized or small by world standards. Many of them specialize in selling their products to the USA. Very often their products are designed to the tastes and preferences of the US consumer.
None of our exporters who sell to the USA can boast of the USA being a peripheral market. For a vast majority of them the US market will be of vital importance. Hence, to start with, the bargaining position of our exporting firms is weak.
The importers on the other side are large firms who have worldwide stakes and connections. Many of them, like Walmart, are among the top companies of the world in their field. They carry a vast number of items which they sell to their customers. Their size and complexity gives them much stronger bargaining powers than us.
Take for example, towels exports to USA. Pakistan is only one of the suppliers; there are others like Portugal, Turkey, and Brazil who are not facing 29% tariffs. They cannot replace us completely but there must be spare capacity in their factories who would happily take over some of our trade.
The large stores especially the US ones carry huge inventories as a precaution for any transport or trade disruptions. This is especially for imports from countries as far away as Pakistan or India. They often require their importers or their own import sections a 60-day quarantine before putting any item on the shelves.
The reason is that they pride themselves for supplying all their displayed items continuously and without disruptions.
In towels, for example, if they are carrying a range of 16 or more shades in four sizes they claim that if a consumer will pick up one shade, say yellow, to match the colour coordinated bathroom, then that very same yellow will be available five months later to match those in your bathroom already. So they carry large stocks of all items at all times. In short, the stores on the American side are sitting on hefty stocks.
The consumers in the USA are so spoilt by “everyday low prices,” “best value in town,” that they will be allergic to price increases. The customer is being so aggressively fought over by numerous suppliers and retailers. Consequently, the stores will be very, very, reluctant to announce price increases in textile, clothing’s and other every day use items that we export.
As such their buying departments will be extremely loathe to buy their goods with a 29% cost increase. Hence the normal trade will get disrupted with each side demanding that the other trading partner absorb the extra tariff. Our exporting industry is operating at very low margins, seldom over 5 percent. They do not have 29 percent to give away.
There is no doubt that the situation will sort itself out soon. I am sure our government will succumb quickly to the demands of the US Government. Be that be trade, security or diplomatic concessions.
However, to make any reasonable agreement will take a month or two of negotiations. For the US side we are a very small player and nothing we make is of any strategic advantage.
Meanwhile, it will be tempting for our exporters to offer price concessions, not only to US importers but also to others outside the USA. They will try to deflect the thwarted US goods to other markets. At the best of times we the exporters of textiles are our own worst enemies. I fear much the same will happen now.
In today’s world there is plenty of capacity to manufacture everything that is in demand. Whether be it textiles, clothes, automobiles air-conditioners, electronics, there are plenty available at all times. It’s our poverty that restrains us from having a better standard of living, not a lack of supply.
The US consumer already has plenty of everything. His house is full of almost everything. From joggers, to clothes, to towels and bed sheets – he already has plenty in the cupboards at home. So, if he or she doesn’t buy any more clothes this season it will really not matter.
I have no doubt that in the long or medium term textiles will be manufactured in our countries. Very few people will be willing to work in the uncomfortable conditions that prevail in textile factories and the low wages they are paid. They would much rather work in an air-conditioned telephone assembly line or a pharmaceutical works. We are, unfortunately, stuck at the base of the manufacturing process. However, that is another subject.
Meanwhile, we have to devise how best to handle the situation. The best way would be to first identify the vulnerable sectors. Talk to them and discuss possible strategies to meet the emergency that has been created so callously by the US president. Let us remind ourselves of the huge trade deficit we run with the other superpower, China. To their credit with the USA we have a huge trade surplus.
Maybe this is the time to examine our trade again.
Copyright Business Recorder, 2025
The writer is also the current Chairman of the Towel Manufacturers Association of Pakistan