Why Pakistan may lose export race despite US tariff break

ISLAMABAD: Pakistan faces 19 per cent US tariff on its exports—lower than India’s 25 per cent and China’s steep 34 per cent—but high energy costs, soaring interest rates and a weak currency are eroding any advantage, leaving its export competitiveness under strain as global trade dynamics shift.

Pakistan’s industrial power tariffs, ranging between 13 and 15 cents per kilowatt-hour, are among the highest in South Asia. In comparison, India’s industries pay 6 to 9 cents, Bangladesh 9 cents, Vietnam 8 cents, and China only 4 to 9 cents.

Gas prices show an even starker gap. Pakistani industries pay $15.38 per million British thermal units (MMBtu), more than double India’s $6.75 and triple China’s $5. Bangladesh and Vietnam enjoy gas costs of $9 and $7-9 respectively, giving their exporters a critical competitive edge.

Pakistan’s interest rate, at 11 per cent, is one of the

highest in the region, surpassed only by Bangladesh’s 10 per cent. In contrast, India’s policy rate stands at 5.5 per cent, Vietnam’s at 4.5 per cent, and China’s at 3 per cent. These high borrowing costs increase financing expenses for businesses, particularly for export-oriented sectors already struggling with thin margins.

The Pakistani rupee trades at 283.75 against the US dollar, sharply weaker than India’s 87.35 and Bangladesh’s 122.18. China’s yuan stands at 7.2 per dollar, while Vietnam’s dong is 26,218.02 per dollar. While a weaker rupee theoretically boosts export competitiveness, it also raises import costs for critical raw materials and machinery, eroding profit margins and limiting investment in capacity expansion.

Despite the relatively lower U.S. tariff of 19 per cent on Pakistani exports, this advantage is unlikely to offset structural disadvantages stemming from high energy and financing costs. Bangladesh and Vietnam face similar U.S. tariffs of 20 per cent but enjoy cheaper energy and lower borrowing rates, while India, despite higher tariffs, has a stronger cost structure and more stable macroeconomic fundamentals.

Energy pricing and financial costs are the two biggest hurdles for Pakistan’s manufacturing sector to compete regionally. Without immediate reforms, export growth may slow, foreign investment inflows could weaken and Pakistan risks further loss of market share.

With global markets becoming more protectionist and production shifting to lower-cost economies, Pakistan has a narrow window to capitalize on its tariff edge over India and China. The only way out is restructuring energy pricing, stabilizing interest rates, boosting industrial productivity and investing in renewable energy and domestic gas supply to enhance competitiveness and attract shifting supply chains.