Wednesday, November 21, 2018

Pakistan Among Top 3 Likely Beneficiaries of US-China Trade War

Nomura Securities strategists believe Malaysia, Japan and Pakistan are expected to be the top 3 beneficiaries of import substitution triggered by US-China trade war escalation. Nomura's analysis is based on detailed study of 7,705 items which will be subject to tariffs and counter tariffs by US and China if the stand-off continues. Nomura developed two indices as part of its research on the subject: NISI (Nomura Import Substitution Index) and NPRI (Nomura Production Relocation Index).

Source: Nomura Securities

The two economic rivals have announced a series of tit-for-tat tariffs on imports in recent months with US set to increase tariffs to 25% on a range of Chinese products in January, unless the two sides reach a trade deal.

Nomura research shows the US list affects 3,477 products imported by US from China valued at $270 billion. Product categories affected are in electrical equipment, appliances and components (29%), machinery and mechanical appliances (22.7%) and furniture and related products (11.9%). China’s tariff list covers 4,228 US products with a combined value of $110 billion, and consists of food, beverage and tobacco, and vehicles.

Malaysia will benefit most, in particular from its exports of “electronic integrated circuits, liquefied natural gas and communication apparatus”. “Vehicles with only spark-ignition internal combustion reciprocating piston engines” will help Japan, according to the analysis, while Pakistan’s cotton yarn exports could rise.

If the trade war between the world's top two economies continues for years, there will also be production relocation of industrial units from China to other countries in the region. The biggest likely beneficiaries of it will be Vietnam, Malaysia, Singapore and India. Pakistan is least likely to benefit from it.

New opportunities are likely to open up for several Asian nations, including Pakistan, to increase industrial production and grow exports if the US-China trade war escalates.

Will the US-China trade conflict escalate? Is Pakistan capable of seizing the opportunity to expand its exports? Will Pakistan's recurring balance of payments crises end?  Will Pakistan manage to avoid repeated IMF bailouts? Only time will tell.

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Anonymous said...

This is the best news for the week. With Malaysia being our strong ally and brother it is doubly good news. As we will gain most in the Product substitution which product exports will likely witness growth?

Anonymous said...

Malaysia, Vietnam, India, Thailand etc. stand to gain both from Production relocation and import substitution (correlation can be understood).

Only Japan and Pakistan seem to suffer Production relocation but gain from Import substituion. How is that possible? because our economies are already in post-industrial age? This could be becuase both Japan and Pakistan will leap front into machine learning, robotics, smart factories. Rapid technological advances being adopted in Pakistan and growing research output could be the cause?

Sikandar N. said...

Very good analysis. Pakistan is uniquely positioned to grab the opportunities for export growth. I had a chance to meet some higher ups in the government. There is no doubt about their desire. The challenge is execution specially after systematic destruction of all institution over the last three decades. But there is hope.

Javed H. said...


I hope Pakistan get some benefit out of this and they leverage this properly.

Riaz Haq said...

Pakistan's tech exports jumped from $75 million in Sept 2018 to $104 million in Oct 2018, according to data from the State Bank of Pakistan

Pakistan's information technology exports have bucked the nation's declining exports trend with double digit growth to reach $1,065 million in fiscal year 2018, according to the State Bank of Pakistan. It is generally believed that Pakistan's central bank underestimates technology exports. Some have argued that the actual IT exports were closer to $5 billion in fiscal 2018. Some of the differences can be attributed to the fact that the State Bank IT exports data does not include various non-IT sectors such as financial services, automobiles, and health care.

Rekha Hasan said...


According to the latest IMF World Economic Outlook 2018 October Report, Pakistan GDP growth will slow down in 2019-2023 and will be slowest in South Asia.

Average %
PAK 3.3%
NPL 4.5%
LKA 4.75%
BGD 7.1%
IND 7.5%

Pakistan will also have the highest growth rate in population, consequently, in per capita terms, Pakistan will fare much worse.

Riaz Haq said...

RK: "According to the latest IMF World Economic Outlook 2018 October Report, Pakistan GDP growth will slow down in 2019-2023 and will be slowest in South Asia."

IMF has poor track record of forecasting. We'll just have to wait and see.

Anonymous said...

IMF is not only poor in forecasting. It is known to use such statistics as a negotiation tool to force countries under loans. Pakistan must not fall into this trap. Other reliable strategists like Chris Woods & Lars Anthonisen (which Riaz sab has highlighted) are private individuals are have no vested interests. They can be relied.

Anonymous said...

I am an Indian who sincerely wishes well on Pakistan and I do read some of your write-ups with genuine interest. My honest question to you is why has Pakistan not improved or lagged relative to others on Human Development. (Of course, I ask that about India as well to my fellow countrymen when it comes to BRICS)


Riaz Haq said...

Subash: "why has Pakistan not improved or lagged relative to others on Human Development."

Please read the following for my thought:

Pakistan saw average annual HDI (Human Development Index) growth rate of 1.08% in 1990-2000, 1.57% in 2000-2010 and 0.95% in 2010-2017, according to Human Development Indices and Indicators 2018 Statistical Update. The fastest growth in Pakistan human development was seen in 2000-2010, a decade dominated by President Musharraf's rule, according to the latest Human Development Report 2018. Pakistan's newly elected Prime Minister Mr. Imran Khan has laid out an ambitious agenda that could accelerate Pakistan's human development progress to take his country from level 2 to level 3 of socioeconomic development. It is achievable but the odds are against him because he faces stiff opposition from the status quo forces. The powerful dynastic duopoly of PPP and PMLN still dominates Pakistan's Senate whose support will be required for major reforms. The research by Professor Hans Rosling shows: "Of the ten countries with the fastest economic growth, nine of them score low on democracy." It's also supported by Pakistan's economic history where pace of development has consistently been faster under military governments than during civilian democratic rule. Can Prime Minister Imran Khan's leadership change the course of history and deliver faster human progress under democratic rule? Let's wait and see.

Anonymous said...

As part of CPEC package China is expected to also fund major upgrades to social infrastructure including schools and hospitals. The final deliberations of package is in progress as per ambassador in Pakistan. The funds have been cleared by CCP and pending some last minute deliberations.

China will share its experiences in poverty reduction and about 10000 bureaucrats will attend training in China over next five years. Pakistan and China will mutually recognize medical degrees. A visa free access to Pakistanis will be part of future package.

Riaz Haq said...

#UNCTAD estimates $1 billion in #export gains for #Pakistan, gains of 3.8% of its total exports because of #US-#China #tradewar. Last fiscal year Pak exported $23.212 billion worth of product, up 14% over the prior fiscal year. #PTI

A new study by UNCTAD looks at the repercussions of existing tariff hikes by the United States and China, and the effects of the increase scheduled for 1 March.

“Substantial effects relative to the size of their exports are also expected for Australia, Brazil, India, Philippines, Pakistan and Viet Nam,” Geneva-based UNCTAD, the part of the United Nations secretariat, said in the latest study.

Around $250 billion in Chinese exports will be subject to US tariffs, while approximately $110 billion in US exports will be subject to China’s tariffs.

Pakistan will be among the countries that could benefit from Chinese tariffs on the US. The largest beneficiary of the trade war would be European Union in export gains, followed by Mexico, Japan, Canada, Korea, India, Australia, Brazil, Taiwan, Viet Nam, Singapore and others.

“Countries that are expected to benefit the most from US-China tensions are those which are more competitive and have the economic capacity to replace US and Chinese firms,” the intergovernmental body said.

“European Union exports are those likely to increase the most, capturing about $70 billion of US-China bilateral trade ($50 billion of Chinese exports to the US, and $20 billion of US exports to China). Japan, Mexico and Canada will each capture more than $20 billion.”

China’s tariffs on US exports will give benefits mostly to non-Chinese firms and the same will be case vis-à-vis US tariffs on China’s exports.

“The reason is simple: bilateral tariffs alter global competitiveness to the advantage of firms operating in countries not directly affected by them,” the UNCTAD said. “This will be reflected in import and export patterns around the globe.”

China is the third biggest export destination for Pakistan after the US and UK, accounting for seven percent share in the country’s total exports to the world. But, China is the biggest import source for Pakistan with nearly 24 percent share in the country’s total imports of $60 billion.

China-Pakistan’s bilateral free trade agreement largely remains in benefit of the former with the latter facing trade deficit of almost $10 billion.

Riaz Haq said...

#China’s #Denim #Exports to US Slide, as Other Major Suppliers Gain Ground. Among the top 5 is #Pakistan, with its denim exports to US up 10.58% to $95.37 million. Pakistan’s market share is up 11.87% in the 12 months to 6.48%. via @SourcingJournal

It’s likely that no matter what happens with the Trump administration’s threat to impose stiff punitive tariffs on Chinese apparel imports, damage has already been done.

Many importers have clearly taken the risk of 25 percent duties on Chinese goods and decided to sew them into their sourcing strategies, limiting their exposure to the once-dominant Chinese market, even with the imposition of those tariffs now on hold. Supply chain diversification is in full effect and the latest data from the Commerce Department’s Office of Textiles & Apparel (OTEXA) reflects it.

“People are diversifying their denim sourcing locations. Some people are getting out of China and some people are staying in China,” Robert Antoshak, managing director at Olah Inc., said. “There is definitely confusion in the marketplace.”

The swing in production is most evident among the top suppliers of blue denim apparel, 97 percent of which are jeans. Denim apparel imports from China dropped 5.16 percent in value to $287.49 million in the year through May, compared to the same period in 2018. This brought China’s market share for jeans imports down 1.77 percent to 23.35 percent for the year.

The next four top suppliers all gained ground on China in the 12-month period, according to OTEXA.

In the second place spot, Mexico, which has had its own round of tariff threats from the White House, though they seem to have subsided for now, saw its jeans imports increase 17.61 percent in the first five months of the year to reach $332.43 million in value. Mexico’s market share rose 11.55 percent to 21.98 percent for the year.

Denim apparel imports from third-place supplier, Bangladesh, were up 6.26 percent year to date to $183.42 million, as the country’s market share advanced 7.61 percent to 14.62 percent. Vietnam’s jeans shipments to the U.S. jumped 35 percent to $105.07 million in the first five months of the year, compared to the year-ago period. This lifted Vietnam’s market share 40.49 percent to 8.2 percent.

Rounding out the top five was Pakistan, with its shipments to the U.S. increasing 10.58 percent to $95.37 million. Pakistan’s market share was up 11.87 percent in the 12 months to 6.48 percent.

“There’s no doubt that the trade war between the U.S. and China has resulted in production being spread out across Asia and being a Pakistan manufacturer, we have benefited,” Ebru Ozaydin, senior vice president of sales and marketing at Artistic Milliners, said at last month’s Kingpins New York show.

The Western Hemisphere, led by Mexico, Nicaragua and Guatemala, continued to increase its denim production, too.

Imports from the region rose 14.83 percent year to date through May to $414.07 million. This gave the Western Hemisphere a 27.64 percent market share, with a 10.4 percent gain for the year.