For decades, Pakistan's textile industry has stood as the backbone of the country's export economy. Textiles have made up almost 60 per cent of the country's total exports. Even today, Pakistan's textile trade is about 2.5 per cent of the world's total textile trade.
EXPORT COMPETITIVENESS
For decades, Pakistan's textile industry has stood as the backbone of the country's export economy. Textiles have made up almost 60 per cent of the country's total exports. Even today, Pakistan's textile trade is about 2.5 per cent of the world's total textile trade.
The country is the world's fourth-largest cotton grower, third-largest cotton user, seventh-largest cloth maker and fifth-largest cotton-yarn maker. Textiles remain central to Pakistan’s export earnings and support a vast network of farmers, manufacturers, exporters and workers.
From cotton cultivation and spinning to garments and home textiles, the sector connects agriculture with manufacturing and international trade. Yet Pakistan’s textile industry now faces a difficult mix of external and domestic pressures. Rising production costs, energy challenges, dependence on imported cotton, limited movement into higher-value products and increasingly competitive international markets have weakened the sector’s position. The latest US tariff measures have added another layer of uncertainty.
In July 2026, the US imposed an additional 10 per cent tariff on imports from Pakistan, citing concerns related to forced labour. Pakistani goods therefore face greater costs in the US market at a time when exporters are already operating under intense price competition. The US market's significance should not be underestimated.
American buyers are important customers for Pakistan’s textile and apparel exporters and even a relatively modest increase in import costs can influence purchasing decisions. International buyers typically compare suppliers across several countries, considering not only price but also quality, delivery time, reliability and trade preferences.
Pakistan is also competing with countries that are actively negotiating better access to major markets. Recent developments indicate that Bangladesh, Cambodia, Indonesia and Malaysia have been positioned to benefit from tariff-rate quota arrangements linked to purchases of US cotton and textile products, potentially giving some of their textile exports an advantage. Pakistan needs to ensure that it is not left behind as competing exporters negotiate new forms of market access.
However, blaming external tariffs alone is too simple. Pakistan’s textile industry was already facing structural problems before the latest US measures. Energy costs are among the industry's most persistent concerns. Textile production is highly energy-intensive, and Pakistan’s textile sector consumes large amounts of electricity and natural gas.
Research from the Pakistan Institute of Development Economics has highlighted the sector’s substantial energy use and the potential for efficiency and cost savings. High financing costs have also created difficulties for exporters that need working capital to purchase inputs, maintain production and fulfil international orders. Delays in tax refunds can further tie up exporters’ working capital, while transportation and logistics costs add to the final price of Pakistani products.Another structural weakness is Pakistan’s declining domestic cotton production. When local cotton supplies are insufficient, textile manufacturers have to rely more heavily on imported cotton. This increases the industry's exposure to international commodity prices and also places additional pressure on Pakistan’s foreign-exchange resources. The deeper problem, however, is that Pakistan still has considerable room to move from lower-value textile exports towards higher-value products.
If Pakistan can reduce production costs, improve productivity, maintain preferential market access and move towards higher-value products, its textile sector can remain a major source of exports, employment and foreign exchange
Producing yarn, fabric and basic garments is important, but greater export earnings can come from sophisticated garments, branded products, technical textiles and other value-added goods. This is where Pakistan’s competitors provide an important lesson.
The international textile market is no longer simply a race to produce cotton yarn or basic clothing at the lowest possible cost. Buyers increasingly look for quality, design, sustainability, speed, compliance and reliable supply chains. Pakistan must therefore compete on productivity and value, not merely on low prices.
The European market presents another important consideration. Pakistan continues to benefit from the European Union’s GSP+ arrangement, under which more than 85 per cent of Pakistani exports, including textiles and clothing, enter the EU duty- and quota-free. These preferences cover almost 20 per cent of Pakistan’s exports globally. This access is extremely valuable, but it should not be taken for granted. GSP+ is linked to Pakistan’s implementation of international conventions covering areas such as human rights, labour rights, environmental protection and good governance.
Maintaining compliance is therefore both a diplomatic responsibility and an economic necessity for exporters. The government has made efforts to protect and engage with international buyers and participate in major trade events. These efforts help, but promotional activity alone cannot solve the industry's competitiveness problem.
Pakistan now needs a broader strategy. Energy costs for export-oriented industries need to remain competitive with those of major regional rivals and the tax refund system should become faster and more predictable so that exporters do not have their working capital trapped in government procedures. Textile firms also need incentives to modernise machinery, improve energy efficiency and adopt new production technologies and trade diplomacy must become more commercially focused.
Pakistan should actively negotiate market access rather than simply react when competitors secure better arrangements. The objective should not be to seek sympathy from trading partners, but to create conditions in which Pakistani exporters can compete on a more equal footing. The textile industry did not become a pillar of Pakistan’s economy by accident and it will not disappear overnight. But history alone cannot protect its position. Rising costs at home, changing trade policies abroad and stronger competition from regional exporters are creating a new competitive environment.Pakistan therefore faces a choice. It can continue responding to each new challenge after it emerges, or it can use the current pressure as an opportunity to reform the sector.
The future of Pakistan’s textile industry will depend not only on what happens in Washington, Brussels or other foreign markets, but also on what Pakistan does at home. If the country can reduce production costs, improve productivity, maintain preferential market access and move towards higher-value products, its textile sector can remain a major source of exports, employment and foreign exchange.
The warning signs are already visible. The real question is whether Pakistan will respond to them early enough.
The writer is a scholar at the Pakistan Institute of Development Economics (PIDE).
