Geo-economics of trade and development

Express Tribune

3 days ago

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The contemporary global landscape is characterised by increasingly complex geopolitical and economic dynamics, chaotic power shifts and rapid collapse of the world order. A new era of regional and sub-regional alliances, reset of the existing coalitions, and reevaluation of the bilateral cooperation frameworks is already on the anvil with serious ramifications especially for the countries in the global south.
Since World War II, the transatlantic alliance between the United States and the European Union has been a bedrock of global economic stability, multilateralism and institutional development. Together, the US and EU account for nearly 43 per cent of global GDP and 30 per cent of global trade. However, the widening schism manifested in competing strategic priorities, trade approaches and economic differences have begun to undermine the traditional allies, engendering new coalitions and multiple power centres.
Key sources of divergence include the USA's increasingly protectionist economic stance under the Inflation Reduction Act (IRA), Europe's more conciliatory approach to China, contentious energy and IT policies, Ukraine war, tensions over defence burden-sharing in NATO and climate change. The result is a fragmentation of global economic governance, blow to multilateralism and volatility of trade and financial markets.
At the same time, a massive shift of economic power to Asia has already flounced the world: 21st century is regarded as the Asian century. In 1960s, Asia did not find even one slot among the top 5 economies; whereas now 3 of big 5 global economies are in Asia – China, India and Japan. The world has thus changed fundamentally; multiple power centres are emerging and asserting which include multi-stakeholders not just the governments; the world of finance, civil society and international media.
Be that as it may, in geopolitics of today, the US and China occupy the dominant geo-economic position while BRICS and EU with substantial economic potential are actively absorbed in the quest to find their own niche. The rest of the world especially global south, including Pakistan, should fully take cognisance of this historical and momentous intercession; not to be sucked into alignment of servility or conflicts. They need to exhibit strong national will, courage, subtlety and sophistication and learn how to exist and live in peace; be able to stand up to the big powers; and simultaneously, go along with them in pursuit of their national economic objectives.
More specifically, the implications for Pakistan are profound. The country's economy is extremely sensitive to external shocks due to high levels of public debt (over 67.5 per cent of GDP as of FY24), dependence on exports to the West and limited foreign reserves ($16.1 billion on 31 January, 2025). The country must adapt its strategy to secure economic stability, diversify trade and attract resilient investment flows.
Forging new network of robust, reliable and mutually beneficial trade and cooperation agreements and augmenting the existing bilateral and multilateral arrangements should constitute the core of such a strategy with focus on China and the countries in Central Asia and Middle East and those of Economic Cooperation Organization (ECO), Shanghai Cooperation Organisation (SCO) and EU.
The economic connectivity via China Pakistan Economic Corridor (CPEC) provides the country access to vast markets of over 2 billion consumers in China, EU, Central Asia and Middle East. For instance, with China, the trade volume could be increased from exiting $22.5 billion (2024) to $40 billion by diversification into exports of fruits and vegetables, frozen bovine meat, livestock and other value-added goods; trade volume with the US could be doubled from existing $7.3 billion especially in IT exports and services and value-added exports by negotiating new tariff regime (29 per cent) and a Preferential Trade Agreement (PTA) or even a Free Trade Agreement (FTA); with EU, Pakistan is already GSP+ beneficiary; and compliance with 27 core international conventions including on human rights, environment, governance dysfunction could tap on the unrealised potential of another $4 billion up from $14.7 billion in 2024.
Similarly, Pakistan's exports to SCO countries could reach $15 billion from existing $3.076 by diversifying into synthetic fabrics, minerals, beverages, etc. The ECO Trade Agreement also unfolds multiple opportunities to achieve potential target of $15 billion exports.
The IT sector, especially AI market, offers immense prospects for Pakistan to benefit from the AI job market, projected to swell to 170 million by 2030. The country has a large population of more than 250 million, of which approximately 64 per cent is under the age of 30. Pakistan could utilise this youth bulge or demographic boon by developing and supplying skilled-techno-professional human capital to especially the European and Chinese labour markets where population growth rate continues to decline due to the fertility rate (TFR) of 1.4 and 1.36 respectively, much below the replacement level of 2.1.
However, in order to ensure enhanced regional trade integration, it is fundamentally imperative for Pakistan to set right the economic management template with priority focus on stable macroeconomic and transparent legal and financial frameworks to guarantee security of investments and harness the potential of country's rich local endowment and production system. This would, a priori, entail commercialisation and value addition of agriculture, bolstering the SMEs sector, yielding maximum benefits of IT sector and building skilled human capital. The country should also improve its global competitiveness ranking and innovation index which at present stand very low – 110 out of 141 countries and 91 among 133 economies respectively – in order to create conducive business environment for foreign investors.
Finally, the Ministry of Commerce in conjunction with lead Ministries and Trade Development Authority of Pakistan should revisit the Strategic Trade Framework (2020-2025). A well-orchestrated regional and bilateral trade compact, based on amalgam of geo-strategic, geopolitical and geo-economic advantages, should be prepared to maximise the exports and foreign investment potential and simultaneously enable the country to serve as a sovereign, reliable and dependable bridge between the markets of China, Europe, Asia, ECO, SCO and the Middle East.