Trade protectionism through high tariffs has always been considered as damaging barriers in the way of smooth flow of international trade, which has the potential of causing a serious economic damage to the global economy. These barriers could be more damaging to the developing and emerging economies as such countries may not gain access to the appropriate markets for trading their products which, in turn, may cause a great loss to their domestic industry, resulting in a soaring unemployment rate and consequent poverty.
A numerous efforts were made in the past to find out a common platform for entering into multilateral negotiations for removing the barriers of tariffs and quotas for boosting trade across the globe.
Through the General Agreement on Tariffs and Trade (GATT) and, later on, the World Trade Organization (WTO), the partner countries were able to find ways and means to gradually remove and soften tariffs and other trade restrictions by restraining countries from setting higher tariffs unilaterally.
However, the ripples caused by the recent US policy of imposing full spectrum tariff regime on trading partners across the globe has shaken confidence of many countries in the free flow of global trade as the policy is being seen as a barrier to access of their products and services to the US markets.
In this age of globalization where simultaneous investments across various foreign and business-friendly jurisdictions is a norm rather than the exception, imposing a higher trade tariff regime on the trading partners across the world is unheard of in a prevalent trading ecosystem.
The initiated tariff plan imposes heavy tariff on the imports from their foreign trading partners starting from baseline tariff of 10 percent and going well beyond 50 percent on the premise of addressing currency manipulations and trade barriers.
Fortunately, Pakistan has received a favorable tariff structure as compared to their neighboring trading competitors. Other East Asian and South Asian countries have been subjected to tariff regime between 20 percent to well beyond 50 percent whereas Pakistani goods would be subjected to 19 percent tariff, which appears to be a favourable step for Pakistan. India has been subjected to a tariff above 50 percent, which is likely to affect trade adversely between the two countries in the coming years.
However, this complex challenge throws up a unique opportunity for Pakistan to take policy steps and create business-friendly environment with the aim to boost domestic production, and diversify export markets and strengthen its trade alliances in the region.
Fortunately, the imposed tariff policy is set to offer an opportunity for Pakistan to capture the space in the US markets likely to be vacated by those countries which are going to bear the brunt of the heaviest tariff restrictions.
The new favourable tariff and competitive advantage can provide better access to the US markets for exportable goods. In addition, the reduced tariff can make Pakistani products more competitive against products of other countries, creating more economic opportunities and enhancing domestic growth on the one hand and, on the other hand, this step can also help to attract much-needed foreign direct investments to the export sectors.
Pakistan’s exports to the US are crucial for its economy particularly in sectors like textile and chemicals. The US remains Pakistan’s single largest export market with annual exports valued well above USD 6 billion, making up 18 percent of the country’s exports. The tariff-targeted countries like China and the ASEAN countries may throw up new opportunities for Pakistan’s exports, particularly textiles and chemical sectors.
However, the pharmaceutical sector has been spared from the new tariff offering Pakistan an excellent opportunity to strengthen its position as a pharmaceutical partner by leveraging tariff exemption.
The imposition of tariff can also provide Pakistan an opportunity to look beyond traditional markets to the emerging markets. Shifting focus to such markets can help reduce negative impact of the high tariff. Moreover, the higher exports to the US in the wake of reduced tariff rate can provide impetus to industrial growth in Pakistan and help in generating revenue, creating jobs and stimulating overall economic growth.
Pakistan’s ability to adapt to the shifting trade dynamics will determine its success in navigating the challenges posed by the latest regime. Although efforts have been made in the past to boost our exports, unfortunately, the outcome has fallen far short of the intended objectives.
Over the past five years our exports are hovering around USD 32 billion and in the last financial year exports stood at USD 32.11 billion, which represents a 4.67 percent increase over the previous fiscal year.
No substantial progress has been made in diversifying our exportable goods which many consist of textile, apparel and the allied items and agricultural products. It is however heartening to note that our IT exports are on the way up and have reached a record high of USD 3.8 billion in the financial year 2024-25, marking an 18 percent increase from the previous year’s USD 3.2 billion. Thus, IT sector has a substantial growth potential and can prove to be one of the largest components of the country’s total services exports if focus is placed on this sector.
In addition, the freelance segment of the IT and IT-enabled services sector also saw a growth through freelance and remote work, which grew by an impressive 90 percent to USD 779 million. The government has provided many tax cuts and breaks to this sector and the entrepreneurs and upstarts are rightfully expected to avail the opportunities to enhance exports in IT and IT-related services.
In the developing economies like ours, no meaningful economic progress can be made without favourable intervention of the government. Therefore, the government will have to roll out a comprehensive plan for enhancing domestic economic growth and production in export-related industries for producing quality value-added surplus goods for exports to the developed and other emerging markets.
In addition, the policy rate needs to be brought down to a single digit as also demanded by businessmen, and access to credit lines be made available for investment and expansion of businesses and upgrading of products.
Inflation has to be effectively monitored and kept under control to arrest trend of high costs of inputs, raw materials and utilities to enable businesses to convert such challenges into business opportunities.
Copyright Business Recorder, 2025
The writer is a retired Member FBR
Email: muhammadnbutt1972@gmail.com