The era of naive globalisation is coming to an end with nations turning inward and prioritising their own interests. — Donald Tusk, Polish prime minister
WHILE one cannot say for sure what was in the minds of those who approved the new National Tariff Policy 2025-2030, they were definitely not looking at the prevalent global trade scene. The new policy seems to draw its inspiration from the ‘neoliberal orthodoxy’ fast becoming redundant in these challenging times, which columnist Gillian Tett describes as “a new era of ‘geo-economics” where state-driven industrial policies — tariffs, export controls — are reshaping global trade.”
In the 1980s, leaders such as Margaret Thatcher and Ronald Reagan supported the free-market ideas espoused by politicians such as Jack Kemp and economists such as Eugene Fama and Milton Friedman. They assumed that “markets and money were shaped by laws of supply and demand so consistent and universal that they could be modelled using tools from physics and math”. The myth did not survive even in the best of the times when global free trade policy in the World Trade Organisation was led initially by the US or later by China.
Even before the world saw the US-China trade war heat up, using tariffs and subsidies to influence flow of trade, globalisation and market access had been restricted through customs unions/ trade blocs such as Asean, the EU, EAEU, GCC and many others. The countries have been engaging with each other and these trade blocs, to gain market access through free or referential trade agreements (FTAs/ PTAs). One of the main reasons for Pakistan facing difficulty in expanding its exports is that it has only few FTAs/ PTAs as compared to its competitors. That is to say, it has limited market access.
This is not the first time that we went down the path of old-fashioned romanticism with the ideas of free trade and tariff liberalisation. The rationale was always the same: global integration, competitiveness and efficiency. The outcomes, however, tell a different story.
The new tariff policy poses a risk to external sector stability and the current account surplus.
We should have kept in mind the lessons from the liberalisation era of the 1990s under the IMF and World Bank structural adjustment programmes. It was said that tariff rationalisation would modernise trade and integrate the economy into the global market. Between 1996 and 2005, Pakistan’s average tariff was steeply brought down from 46.6 per cent to just 14.3pc. Instead of expanding exports, Pakistan entered into an unending spiral of high trade deficits eating away workers’ remittances and leaving behind large current account deficits. The trade deficit which was just $3.1 billion in 1995-96 grew four times to $12.1bn in 2005-06 and 16 times to $48.3bn in 2021-22.
In three decades (1995-2025) Pakistan’s exports increased only 3.7 times from $8.7bn to $32bn. In these 30 years, the export of regional peers, ie, Bangladesh and India, grew by 12.6 and 14.3 times, respectively. In contrast, our imports jumped almost eight times, from $11.8bn in 1995-96 to $80.3bn, its highest in 2021-22.
The unilateral opening of our markets to foreign goods, without an accompanying industrial policy which would have allowed our industry to grow from producers of low-value goods to high-value ones, left our industries facing their worst downward spiral into an era of premature de-industrialisation. In these three decades, Pakistan’s industrial sector recorded only a six-fold increase, compared with 30-fold in Vietnam, 17-fold in Bangladesh, and nine-fold in India.
The National Tariff Policy 2025-30 seeks to reduce the average tariff from 10.4pc to below 6pc by 2030, far below the average tariff of around 16pc in India and 14pc in Bangladesh. The new structure reduces five slabs to four (0pc, 5pc, 10pc, 15pc), reducing from the current highest slab of 20pc. Bangladesh and India continue to retain their maximum slabs of 25pc and 70pc respectively, despite enjoying a much larger market access. Both our competitors continue to impose additional duties and surcharges, whereas Pakistan has committed to phase these out in four to five years under the new policy.
The previous National Tariff Policy 2019-24 distinguished between inputs essential for industrial development and luxury consumption goods, lowering duties on raw material, intermediate inputs and machinery while retaining higher tariffs on finished and non-essential imports. It helped reduce production costs without exposing domestic firms to undue competition. If accompanied by the right policy mix, it could have provided the foundation for sustainable industrial growth.
Any attempt to trade liberalisation must be accompanied by a reasonably sound industrial base and enabling global environment. The new tariff policy puts the hard-earned stability in the external sector and the current account surplus achieved only last year, at immense risk. The knee-jerk tariff policy shift has shown the future trend in the first two months of its partial implementation. The trade deficit in the months of July and August jumped 29pc at $6bn, up from $4.6bn last year for the corresponding period against a 12.5pc decline in exports in the month of August.
As a market of 250 million consumers, Pakistan can attract many investors and traders if it can offer a profitable proposition through preferential tariff concessions to economies which make reciprocal concessions to our exporters and investors. If we open our market unilaterally for the entire world, giving away tariffs as a bargaining chip, why would anyone bother to discuss FTAs/ PTAs with us and open their markets for our exports?
“The world has changed, globalisation is over and we are now in a new era,” said Keir Starmer, the British prime minister. We no longer live in the Reagan-Thatcher era of neoliberalism or globalisation. Let us put aside outdated editions of a redundant policy mix. Let us wake up to the new real world of smart trade deals, using tariff policy as a tool for negotiations and for exchanging market access, instead of allowing unilateral access. It must be accompanied by a reliable security environment, enabling policies and their continuity; and efficient protection for those industrial sectors that are critical for our economic security.
The writer was formerly a federal secretary and caretaker provincial minister. He is currently the chairman of the Policy Research and Advisory Council.
Published in Dawn, September 9th, 2025
