In US-China trade war, Pakistan gets extra export orders
FAISALABAD: The present tense relations between the US and China have proved to be a blessing in disguise for Pakistan as its exporters are getting extra orders from the US in the prevailing circumstances, said Faisalabad Chamber of Commerce and Industry (FCCI) President Syed Zia Alumdar Hussain.
Speaking to trainees of the Pakistan Institute of Trade and Development (PITAD) at the FCCI, Hussain said Faisalabad was a main industrial and economic hub of Pakistan as the city had Asia’s biggest sock manufacturing units, the largest knitwear factory, rice mill, yarn market and a state-of-the-art agriculture university.
“The share of Faisalabad in total textile exports is around 55%,” he pointed out. “Although textile is the mainstay of Pakistan’s economy, many other sectors like oil, chemicals and beverages are also contributing to the national economy in a big way.”
He emphasised that the basic objective of the FCCI was to protect the economic interests of its 7,000 members in addition to developing a cooperative working relationship between the government and business community.
Hussain revealed that FCCI office-bearers had chalked out their roadmap which consisted of ‘Triple E’. “We will focus on the economy, exports and education as these sectors will be our priority for the year 2018-19.”
Regarding the impact of deteriorating US-China ties, he said Pakistan was already getting additional orders from the US.
“These orders could be doubled provided the government resolves the country’s liquidity problem by ensuring immediate payment of tax rebate, refund and Drawback of Local Taxes and Levies (DLTL) claims,” he said.
He specifically mentioned the recent visit of Finance Minister Asad Umar to the FCCI and told the trainees that the chamber had played a major role in drafting the textile policy for the next five years. He expressed satisfaction over the government’s efforts to implement uniform gas tariffs across the country, especially for the five major export-oriented sectors including textile.
“Punjab is getting gas for Rs1,600 per unit while it was supplied in other provinces at only Rs488 per unit,” he lamented. “This disparity has made our exports uncompetitive even within the country.”
US-China trade war: Pakistan gets chance to boost exports of food products
KARACHI:
Pakistan, which is struggling to achieve a dramatic turnaround by reining in excessive imports and boosting sluggish exports to fix the faltering economy, is likely to partially achieve the goal in the wake of opportunities emerging due to the US-China trade war.
The two biggest economies of the world have made 62% ($360 billion) of bilateral trade expensive by slapping additional tariffs on thousands of each other’s goods since July 2018 and have caused a slowdown in the global economy, according to the State Bank of Pakistan (SBP).
“For Pakistan, the imposition of these cross-tariffs offers some interesting opportunities as well as challenges. On a positive note, key food items, such as rice, seafood and soybean (both seeds and oil), have come in the crosshairs, which offer an opportunity to Pakistan to reduce its trade deficit,” the SBP said in its first-quarter report on the state of economy for fiscal year 2018-19.
Among the thousands of goods on which additional tariffs have been imposed by the two countries, three product categories may provide benefit to Pakistan’s exports which are seafood, rice and cotton (raw cotton, fabric and yarn). “Specifically, American seafood exports to China are now much costlier as a result of the tariffs, as are Chinese exports of rice and cotton items to the US,” the central bank said.
Seafood
China is a major global importer of seafood products and imported 16.3% of its overall seafood imports from the US in 2017 (worth $1.3 billion).
“It mainly imports lobsters, oysters, flatfish and sardines, all of which are now attracting additional tariffs, and all of which are also exported by Pakistan,” it said.
Pakistan’s global exports of these products amounted to $338.9 million in FY18 and constituted 75.1% of the country’s overall seafood exports. “As the US seafood exports to China have now become much costlier, Pakistani exporters might increase their presence in the Chinese market,” the SBP said.
Soybean
China is the world’s largest importer of soybean and the US is the second largest producer and exporter of the commodity, after Brazil. Importantly, soybean is the largest export product from the US to China.
Soybean was among the first items targeted by China when the first round of retaliatory tariffs went into effect in July 2018. China then shifted its demand for soybean to Brazil and Argentina. As a result, soybean export prices of Brazil and Argentina have spiked whereas those of the US have plunged.
“This presents an opportunity for edible oil mills in Pakistan to reduce their imports of soybean oil and seed in value terms by diverting their purchases to the US, where the prices are falling,” the SBP pointed out.
Encouragingly, there are indications that this switch is already taking place. Brazil’s share in Pakistan’s overall soybean imports (both seeds and oil) fell to 49.5% in FY18 from 58.4% in FY17 whereas the share of the US rose to 45.4% from 32.1%.
“Further enhancing soybean imports from the US will yield more FX (foreign exchange) savings for Pakistan,” it said.
Iron and steel
On the other hand, the volatility in iron and steel prices in recent months after the imposition of tariffs by the US presents a challenge from Pakistan’s perspective.
In September 2018, with anti-trade measures in full swing, the US targeted the bulk (49.1%) of iron and steel products that it imported from China and imposed additional tariffs on them. Steel prices in China were falling during the first half of 2018 as uncertainty loomed about the extent of the protectionist measures that would be adopted by the US. Further downward pressure came from a cooling off in China’s economy this year, which has impacted its demand for steel.
However, Chinese steel prices have been rising since August 2018, partly as a result of an expected drop in steel production in winter months as the country tries to limit harmful emissions and control smog.
“All of this uncertainty has created challenges for Pakistan as the unit value of the country’s iron and steel imports (both scrap and finished products) has been rising, though with significant fluctuations. Even though Pakistan imports most of its steel from China, the unit value of its steel imports has not dipped.”
Nonetheless, a slowdown in broader economic activity, as Pakistan tries to stabilise its economy, has already stalled the demand for imported iron and steel products. “In Q1-FY19, quantum imports of these items have already dropped 10.1% on a year-on-year basis,” the SBP said.
Making the most of China-US trade tiff
The ongoing trade war between China and the United States can boost the prospects of Pakistani exports to the American market and encourage Chinese producers to relocate to Pakistan to avoid punitive tariffs on their US shipments and take advantage of cheaper labour.
On top of that, business leaders say it may afford Islamabad an opportunity to renegotiate the terms of China’s future investments in and trade with Pakistan.
Abdul Razzak Dawood, adviser to the prime minister on trade, industry and investment, was quoted last week to have told a gathering of textile manufacturers in Karachi that the trade war between the world’s two largest economies could be beneficial for Pakistan.
“The trade war between China and the United States is getting bigger and bigger by the day… and the demand for goods is not declining (in the US market). Pakistan needs to explore ways so that it can benefit from this war.”
Pakistan is already seeking the same market access for its exports that Beijing has given to the Association of South East Asian Nations (Asean), New Zealand and Australia under the 2006 Free Trade Agreement (FTA) that is responsible for heavily tilting the trade balance in favour of China.
Islamabad has also asked China to share complete information of its exports, both under and outside the FTA, with Islamabad in order to help it eliminate under-invoicing by Pakistani importers.
Moreover, efforts are on to convince Beijing to encourage its manufacturers to relocate their industry to Pakistan.
The adviser had also told a Senate panel on industries and production that China-US tensions over trade tariffs was a good sign for Pakistan as it would place the country in a better negotiating position (with China).
“The China-US trade war has put Pakistan in an advantageous position and we have become more competitive than China in some areas like textiles. It offers an opportunity for Pakistan to boost its exports to the United States as well as revive the closed manufacturing capacity (mostly in Punjab),” Pakistan Business Council CEO Ehsan Malik told this correspondent.
He says Chinese manufacturers can also ward off punitive tariffs on their exports to the United States by relocating their labour-intensive industries to Pakistan.
“They (Chinese companies) can bring semi-finished goods and convert them into value-added goods for export to the United States. Then there are products that are made in China but not in Pakistan.
Such industries can also be relocated to Pakistan to avert higher US tariffs on Chinese exports.”
A Lahore-based textile exporter, who requested anonymity, was not too optimistic. “In theory, we can take advantage of the American action against China. But we are not ready to benefit from it. We do not have enough capacity to fill the gap. Nor do we have developed our value-added textiles to replace China in the US market. I think countries like India and Bangladesh will have captured the US market by the time we are ready to even start thinking about benefitting from this opportunity.”
By far, China has shown a rather favourable view of most of Islamabad’s demands. It has expressed willingness to take steps to boost its imports from Pakistan in view of the geopolitical advantages it will draw from the completion of the China-Pakistan Economic Corridor (CPEC), a part of the Belt and Road Initiative around which it has pledged to invest more than $60 billion in energy and transport infrastructure.
“The immediate benefit Pakistan can expect from China because of its worsening trade relations with the United States is improvement in trade terms and extension in the repayment period of loans taken for power projects under the CPEC initiative,” the anonymous textile exporter contended.
“It can be followed up with softer terms for future CPEC investments, relocation of Chinese textiles industry to Pakistan and transfer of technology and skills. My advice for the government will be to focus on these items.”
