The international trade landscape is undergoing rapid transformation, with the United States introducing new tariffs and reshaping the competitive environment in South Asia. This development has created both opportunities and challenges for countries like Pakistan, India, and Bangladesh, whose economies heavily rely on textile and garment exports.
Recently, a new trade agreement between Pakistan and the United States has tilted the balance of trade in South Asia. With increased tariffs imposed on Indian and Bangladeshi products, Pakistan now finds itself in a unique position of relative advantage. However, the competition remains fierce, especially from Bangladesh, whose garment industry is globally recognized for its scale and efficiency.
U.S. Tariff Decisions: Winners and Losers
The U.S. government has imposed steep tariffs in an attempt to rebalance its trade dynamics. The new tariff structure looks like this:
- India: 25% tariff (with the possibility of rising to 50%)
- Bangladesh: 20% tariff
- Pakistan: 19% tariff
This tariff policy has hit Indian exporters the hardest. For Pakistan, the decision provides some breathing space and a chance to capture market share from its South Asian rival. However, when it comes to competing against Bangladesh, Pakistan’s advantage has been significantly reduced.
Until January 2025, Pakistan enjoyed a 5% tariff advantage over Bangladesh in textile exports to the U.S. market. Now, that advantage has shrunk to just 1%, making it a far tougher competition.
Bangladesh’s Edge in Textile Production
Bangladesh’s textile industry is globally renowned for its scale, low production costs, and massive labor force. With 4.1 million textile workers employed across the country, Bangladesh has built a robust ecosystem that allows it to dominate global apparel exports.
One of the biggest advantages Bangladesh enjoys is its energy pricing policy. Electricity and gas prices are nearly 60% lower than in Pakistan, making production costs significantly cheaper. This advantage allows Bangladeshi manufacturers to offer competitive prices to global buyers like Walmart, H&M, and Zara.
Moreover, Bangladesh has invested heavily in compliance with international labor and environmental standards, giving it a strong reputation as a reliable supplier. Many Western buyers view Bangladesh as a safer and more sustainable option compared to other regional exporters.
Pakistan’s Opportunity: Capturing India’s Market Share
While competition with Bangladesh is intensifying, Pakistan has a golden opportunity to capitalize on India’s loss in the U.S. market. With a steep 25% tariff on Indian products, Indian exporters are struggling to maintain their foothold in the U.S.
India annually exports nearly $10 billion worth of textiles to the American market. Given the current tariff advantage of 6%, Pakistan can potentially capture a significant portion of this market share.
Already, large U.S. retailers such as Target and Walmart are reevaluating their sourcing strategies. Pakistani exporters are reporting a record number of inquiries from American buyers, signaling a potential surge in orders in the coming months.
Pakistan’s Textile Industry: Current Strengths and Weaknesses
Pakistan’s textile exports currently stand at around $16 billion annually. While this figure is substantial, it pales in comparison to Bangladesh, whose exports cross $45 billion annually.
Strengths of Pakistan’s Textile Sector:
- Diverse Product Range: Pakistan exports a variety of textile products, including home textiles, cotton yarn, denim, and garments.
- Cotton Production: As one of the world’s largest cotton producers, Pakistan enjoys a natural advantage in raw material availability.
- Geographic Advantage: Proximity to key shipping routes reduces transit time compared to competitors.
Weaknesses and Challenges:
- High Energy Costs: Electricity and gas prices remain significantly higher than in Bangladesh, reducing competitiveness.
- Outdated Infrastructure: Many factories lack modernization and automation, leading to lower productivity.
- Policy Uncertainty: Inconsistent government policies, frequent tax changes, and slow refunds of sales tax hinder smooth operations.
How U.S. Importers Benefit from the Tariff War
While South Asian countries are battling for dominance, U.S. importers stand as the biggest winners. The tariff-driven competition is forcing exporters from Pakistan, India, and Bangladesh to lower their prices, improve quality, and speed up deliveries.
This situation allows U.S. retailers to negotiate better contracts, pushing suppliers to meet stricter conditions. American buyers are leveraging the rivalry to ensure they get maximum value at reduced costs.
The Road Ahead: What Pakistan Needs to Do
For Pakistan to convert this short-term tariff advantage into a long-term trade gain, several measures are necessary:
- Energy Price Reforms: Reducing electricity and gas costs will bring Pakistan closer to Bangladesh in competitiveness.
- Infrastructure Modernization: Investment in automation, digitization, and efficient machinery is crucial.
- Skilled Workforce Development: Training programs for workers can help improve productivity and product quality.
- Policy Consistency: A stable tax and regulatory environment will attract foreign buyers and encourage long-term contracts.
- Diversification of Markets: Relying too heavily on the U.S. market is risky. Exploring opportunities in Europe, Africa, and East Asia will help balance trade dynamics.
Bangladesh’s Response to the Challenge
Bangladesh, aware of Pakistan’s rising opportunities, is doubling down on its competitive advantages. Industry reports suggest that Bangladeshi exporters are:
- Cutting profit margins to retain key U.S. buyers.
- Investing in green factories to meet environmental standards.
- Seeking alternative markets in Europe and the Middle East to offset potential U.S. losses.
This means Pakistan will not only have to seize India’s lost share but also find innovative ways to outpace Bangladesh’s well-organized industry.
Regional Competition and Geopolitical Context
The U.S. tariff policies are not merely economic decisions; they also carry geopolitical weight. By penalizing India and partially shielding Pakistan, Washington may be signaling a desire to strengthen economic ties with Islamabad amid changing regional alliances.
For Bangladesh, which has long enjoyed Western goodwill for its role in global apparel supply chains, the new tariffs come as a wake-up call to diversify and reduce dependency on the U.S.
Conclusion: A Pivotal Moment for Pakistan’s Textile Industry
The current trade shifts mark a pivotal moment for Pakistan’s textile industry. With India facing exclusion from the U.S. market, Pakistan has a once-in-a-generation chance to expand its footprint. However, Bangladesh’s scale, cost-efficiency, and established reputation continue to pose a significant challenge.
If Pakistan takes proactive measures to modernize its industry, reduce energy costs, and maintain stable trade policies, it can secure long-term benefits from the current global trade realignment. Otherwise, the fleeting advantage may be lost to Bangladesh’s resilience and adaptability.
