The US-China Trade War and Its implication for Pakistan

Abstract

This paper aims to study the impact of the US-China trade war on Pakistan by analyzing the bilateral trade data from 2012 to 2025. The findings indicate that despite the reduction in the US-China trade imbalance during the initial phase of the trade war, diversification of trade supply chains and trade rerouting enabled the trade flows to rebalance, thus avoiding a long-term rebalancing. However, Pakistan experienced benefits from trade diversion, in particular, increased exports to the US in the period 2018-2022, largely of textiles. Due to structural constraints like limited industrial capacity, lack of export diversification, and energy issues, Pakistan was not able to fully capitalize on new opportunities. At the same time, Pakistan's dependence on China for its trade grew and the volume of imports rose, including intermediate goods, machines and goods linked to the China-Pakistan Economic Corridor (CPEC), continuing to contribute to the country's burgeoning trade deficit. The study recommends that Pakistan should undertake a balanced economic policy with both the US and China, increase its competitiveness, attract export-oriented foreign direct investment, and diversify its export portfolio.