Balancing Trade and Competition in Pakistan

High tariff rates have increased the overall cost of production in Pakistan, and the domestic prices of many products have become much higher than the international market prices. Reducing import tariffs will reduce not only the domestic prices but will also increase the export competitiveness of the country because many imported products are complementary intermediate inputs in various exporting industries. Further, it will allow the country to take advantage of the augmented technology in the new imported products, which will help add new products to its export portfolio. Hence, we eliminate the import tariffs of the 10 major import items of Pakistan such as cooking oil from Indonesia; textiles, chemicals, basic metals, machinery, and electrical equipment from China; mining, coke and petroleum from the United Arab Emirates; and mining coke and chemicals from the Kingdom of Saudi Arabia. Our simulation results show that eliminating the import tariff reduces domestic production in most of these sectors. Among them, however, the mining, textile, and chemical industries still grow moderately. On the other hand, domestic production of all other sectors increases moderately indicating that access to more economic intermediate inputs allows these industries to contribute to economic growth, and the overall GDP increases by around 0.5 Percent in the country. The overall trade balance of the country improves by around US$ 338.14 million where exports of electrical equipment, mining, and machinery sectors increase by 13.5 Percent, 12.5 Percent, and 10.06 Percent, respectively.