On account of their great value shawls and shawl cloth became a substantial revenue source for the ruler of Kashmir. In 1827 the governor imposed a 26 percent ad valorem tax on every shawl produced in Kashmir. Some historians see this and the other soon to be levied taxes as the main contributing factor to the industry's decline and eventual disappearance by the 1880's. However onerous these taxes were the period 1800-1850, when they were the most severe, saw the Kashmir Shawl's heyday and their immense popularity stimulated the establishment of shawl weaving ateliers and workshops all over Kashmir.

It also led to the founding of manufactories in a number of European countries and to an active trade in all types of shawls and shawl cloth by merchants from almost every one. But Kashmir's premier position as a producer of luxury shawls was never seriously threatened and the best, most admired, hand-woven examples have always been made there. Initially during the mid-18th century European manufacturers tried to copy the laborious and difficult hand weaving process, technically known as 2x2 tapestry-twill, used to make true Kashmir Shawls. But these attempts were never commercially successful and they were quickly abandoned and forgotten.

At the very end of the 18th century, the development of power driven machine looms finally enabled European shawl manufacturers to begin to produce shawls able to compete with Kashmiri ones. While these machine-made shawls were never to achieve the quality of texture, brilliance of color and fascinating design of the originals they could compete in price - in fact they were cheaper. To the novice buyer they looked identical and eventually these affordable imitations changed the perception of a Kashmir shawl from a distinctive and precious commodity to a rather commonplace and normal one.

The first shawls produced on these machine looms were quite simple in design because the looms and weaving mechanisms were not able to produce the complex patterning and color variation found on Kashmirs. These obstacles were overcome with the invention in France of the Jacquard Loom during this period. Shawls made using this innovative power loom were introduced with great fan-fare at the Paris Exhibition of 1801 where they elicited a great deal of excitement and publicity. Of course these Jacquard shawls, which soon were to be produced in England, Scotland, Austria and Russia, could never rival the qualities possessed by those made in Kashmir and their touch instantly gave them away. But since they looked the same and were far less costly they easily gained a place in the market and eventually provided serious competition for those made in Kashmir at the low end of the market.

The commercial success of the machine made European shawls as well as the strain of the extremely high taxes levied by the government of Kashmir on the importation of the raw materials, on the finished shawls and the shawl weavers themselves combined with the disastrous economic and political effects of the Franco-German War of 1870 caused the downfall of Kashmir's shawl weaving industry. It was so sever the industry never recovered.