Pakistan’s industries are exposed to disruptions

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Pakistan

Global commerce has traditionally spurred economic progress, raising global incomes and moving more than a billion people out of poverty. Since 1990, this economic connection has resulted in a 24 percent increase in worldwide earnings and a 50% gain for the bottom 40 percent of the population. However, recent trends show an increase in protectionist policies, raising worries about deglobalization, which reduces global economic interdependence. This change jeopardizes the benefits of linked economies while posing difficulties to trade policy and Global Economic Stability.

Despite continuous economic disputes, such as the US-China trade war, China remains critical to global commerce. Daria Taglioni, World Bank Research Manager, cites many paradoxes that demonstrate this complexity. First, despite a trade dispute with the United States, China’s role in global trade networks has increased. Second, Global Value Chains (GVCs) now account for an even bigger percentage of global trade flows, notwithstanding legislative reforms and the COVID-19 epidemic. In 2022, GVCs accounted for 52% of global commerce, up from over 48 percent in 2015. Third, enterprises maintain global links, defying expectations of regionalization and demonstrating a strong commitment to international commerce despite rising constraints.

The US-China trade war, which affected around $450 billion in yearly commerce, lowered exports between the two nations while paradoxically increasing China’s global economic prominence. This example illustrates the law of unexpected consequences. As the United States and China slapped tariffs on each other, third-party nations felt a “bystander effect”; These nations capitalized on the gaps created by American and Chinese imports, growing worldwide exports and leveraging economies of scale. As a result, protectionist policies increased trade prospects for many nations rather than just reallocating market shares or diminishing global commerce.

This example demonstrates the intricate interaction between protectionist measures and global trade trends. Standard explanations for policy impacts, such as pre-existing patterns of product specialization, are no longer valid. Instead, country-specific reforms and institutions that promote efficiency and flexibility are increasingly key to understanding export performance in this new era of globalization.

Despite the growth in protectionist measures, several nations are working towards greater commercial integration and international collaboration. Daria Taglioni observes that, while harmful measures have outpaced trade-liberalizing policies in recent years, global commerce has remained resilient. For example, following the global financial crisis, services trade regulation has grown less restrictive, and nations continue to sign more comprehensive trade agreements. Climate policy has also expanded dramatically, notably in trade-related policies among G20 countries. Initial findings from a World Bank-Australian National University database reveal an exponential growth of trade-related climate measures, however, their total impact on trade is unknown. This increase in climate-related legislation emphasizes the complexities of current trade concerns and the necessity for comprehensive policy measures.

Policies targeted at deglobalization, such as higher tariffs and trade barriers, look appealing in the face of political tensions and concerns about exposure to trade risks. However, these initiatives have considerable costs. According to estimates from international organizations, decoupling US-China trade and separating the world into economic blocs might result in a 5 percent GDP loss and a 12 percent welfare cost. However, these figures are exceedingly questionable and most likely underestimate the real costs of decoupling.

The complexity of supply chains, especially in businesses that rely on specialized inputs or worldwide networks, makes decoupling impossible and economically harmful. For example, the smartphone industry functions as a ‘Massively Modular Ecosystem’; with geographically scattered clusters of enterprises specializing in creating certain components. This integrated system delivers tremendous economies of scale while promoting an efficient globalized trading system. Partial decoupling would incur significant expenses, whereas full decoupling might collapse the sector. Countries seeking self-sufficiency would incur noteworthy capital investments and efficiency losses.

Tariffs are commonly viewed as tools for increasing domestic output and employment by reducing imports and improving the trade balance. However, economists believe tariffs distort markets, cause deadweight losses, and incite retaliation. Tariffs often cost consumers more than they benefit producers, resulting in total economic inefficiencies. Furthermore, tariffs can cause
countervailing changes in currency rates, weakening the intended macroeconomic gains.

According to research, tariff rises harm domestic macroeconomics and distribution. Higher tariffs diminish GDP by lowering labor productivity and reallocating resources to less productive activities. This inefficiency reduces the economy and overall value added. Furthermore, tariffs do not considerably improve the trade balance since higher tariffs might cause currency appreciation, which offsets potential gains. Tariffs also tend to raise unemployment and inequality, which strengthens the case against protectionism.

Pakistan, like many developing nations, is at a critical juncture when the growth of global protectionism presents both obstacles and opportunities. As an export-dependent economy, Pakistan’s industries, notably textiles, are exposed to disruptions caused by trade wars and protectionism. Historically, protectionist policies have resulted in economic downturns and trade wars, which may impede growth and restrict market access. Protectionism might stifle Pakistan’s economic growth, raise consumer costs, and lower the competitiveness of its exports on a worldwide scale.

In contrast, by fighting protectionist inclinations and promoting more international collaboration, Pakistan may expand its markets, attract foreign investment, and strengthen its position in global value chains. Initiatives such as the China-Pakistan Economic Corridor (CPEC) demonstrate the potential benefits of regional economic integration, providing Pakistan with a path to strengthen its infrastructure, enhance trade logistics, and maintain economic development in the face of global uncertainty. To effectively manage the complexity of the current trade system, Pakistan must strike a balance between national interests and Global Economic Integration.

The growth of protectionism, which includes higher tariffs, trade barriers, and economic nationalism, offers substantial problems and risks to the global economy. Protectionist policies can have unforeseen implications throughout the Global Economic System, undercutting the same aims they seek to achieve. Deglobalization and decoupling are expensive and futile, jeopardizing decades of economic growth.

A more nuanced approach is required, one that recognizes the benefits of globalization while tackling its difficulties through coordinated international policies and strengthened global governance structures. The global community can negotiate the challenges of contemporary commerce by strengthening international collaboration, increasing economic integration, and enacting appropriate laws.

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