DONALD Trump seems to have singled out one of its largest trading partners - China - for an all-out war.

Although the temporary halt in the imposition of reciprocal tariffs levied on dozens of countries is meant to allow them time to renegotiate bilateral trade with the US, a universal across-the-board tariff of 10 per cent is still in place.

However, this is nothing compared to the levy stacked on US imports from China, which Trump enhanced to 145pc on Thursday.

This is not the first time the US has initiated a trade war with China.

“Back in 2018, the US (under Trump) had singled out and slammed tariffs on China. Initially, other countries were also on Trump’s tariff list, but were dropped later as he directed his focus on China,” recalls Dr Manzoor Ahmed, who has served as Pakistan’s ambassador to the World Trade Organisation (WTO) in Geneva.

Experts fear China might flood European market with cheaper goods; suggest energy imports from US to reduce trade deficit

Amid the rapid escalation of the trade war between its two largest trade partners, Pakistan’s chances of getting caught in the crossfire cannot be ruled out.

Analysts believe that a highly negative spillover impact of an all-out China-US trade war would be felt globally as it is going to slow their own and global growth down, and even lead to a recession.

Challenge for Pakistan

Apart from indirect ramifications of a full-blown trade war for the rest of the world, Pakistan’s teetering economy will likely have to deal with the direct impact of the spillover of this war.

China, as the world’s biggest manufacturer, produces far more than it consumes domestically and could seek to divert its goods to other markets, like the European Union.

“The Pakistan government thinks that there is a risk that China could endeavour to dump its products elsewhere and hack away at Pakistan’s market share there, if it were unable to enter the US,” Dr Ahmed said.

Musadaq Zulqarnain, chairman of Interloop and one of Pakistan’s largest exporters, echoes the same views.

“With its deep pockets and large international reserves, China has the ability to subsidise and support its industry,” he said.

“The Chinese firms will likely divert their ‘excess export surplus’ generated from recent tariff restrictions in the US to Europe, the biggest importer of Pakistan’s textiles and apparel.”

According to Mr Zulqarnain, China has the ability to offer big discounts and undercut prices to attract European buyers to switch to their products.

This can set off an “intense trade competition” not just with China but also with other competitors like Bangladesh and India.

“In my view, our apparel exports may face greater pressure in Europe besides a plunge in sales in the US due to potential economic slowdown and possible recession.”

Mr Zulqarnain fears that China could increase its heavily discounted exports to Pakistan as well.

“We have a free trade agreement with Beijing besides our strategic relationship with that country, and, thus, cannot stop or restrict Chinese imports. This could bring other industries (besides textiles and clothing) under significant pressure.”

The influx of cheaper Chinese goods into Pakistan through its online giant, Temu, is already giving local retailers sleepless nights as they are not able to match the massively low prices in addition to stripping the government of sales tax on those online sales.

Deal with US

The owner of the country’s largest apparel company listed on the Pakistan Stock Exchange pointed out that the pause in higher tariffs for three months may have afforded Pakistan some room to “negotiate our trade relationship with the US”.

However, uncertainty remained over Pakistan’s potential to secure a lucrative deal.

“[W]e are not sure if Pakistan will be able to negotiate a deal equal or better than its competitors like Vietnam, India and Bangladesh,” the businessperson said, adding relatively lower reciprocal levy was Pakistan’s edge over many of its competitors before the tariffs were announced.

Compared to 37pc reciprocal tariffs for Bangladesh, 46pc for Vietnam and 49pc for Cambodia, Pakistan was slotted for 29pc (all higher reciprocal levies include 10pc universal baseline tariff).

However, India was slammed with 26pc and Turkiye with just 10pc reciprocal baseline import taxes.

“Earlier, we had advantages over some and disadvantages against others. But now, no one knows what they are going to get in trade negotiations with the US Treasury Representative,” the businessperson said.

“On the one hand, a demand slowdown in the US and intensified competition in Europe is in prospect. On the other hand, uncertainty looms over the outcome of the ensuing negotiations on bilateral trade adjustment with Washington. We have relatively low trade surplus with the US and are in a better condition than our competitors. But we need to tread very carefully,” he concluded, cautioning the country’s trade authorities against complacency in talks with the Trump administration.

‘Silver lining’

However, some experts believe that Pakistan stands to gain from a potential decline in global growth caused by the Trump tariffs, which have resulted in lower oil prices.

Energy consumes 25-30pc of our total import bill and the drop in oil prices could reduce it by $1.5-2bn and help narrow trade deficit, stabilise currency, strengthen foreign exchange reserves, and contain inflation.

Pakistan’s nearly $5.5bn exports — comprising 75 to 80pc of textiles and apparel shipments — to the US constitute 20pc of the country’s total exports.

Some, like Ahmed Kamal, the chief executive of Kamal Textiles, insist that Pakistan could walk away with significant concessions from the Trump administration.

For that, Pakistan could “completely slash import taxes on US goods and increase our imports from the US to eliminate or reduce our trade surplus”.

“We are just a minor dot on the US’s trade deficit problem. Our competitors have already offered this to Trump. Why can’t we?,” Mr Kamal added.

“It is time we sign a free trade agreement that we have been pursuing with the US for the last two decades,” he argued.

Dr Ahmed of WTO points out that if Pakistan reduces tariffs on US imports, the country will also have to give the same treatment and advantage to its other trading partners as well.

“We can’t give preferential treatment to just one country under the WTO framework. It is because we don’t have an FTA with the US,” he said.Mr Ahmed suggests Pakistan imports energy supplies from the US to narrow the trade imbalance, which is at the heart of the reciprocal tariffs, besides addressing their legitimate concerns over their list of non-tariff barriers and additional duties on top of normal import levies on US goods.

Published in Dawn, April 11th, 2025