Looking beyond preferences scheme

The summit meeting between President Donald Trump and President Xi Jinping was overshadowed by rising tensions in the Middle East, yet trade issues remained high on the agenda. While the talks produced no major breakthrough on the closure of the Strait of Hormuz or broader geopolitical concerns, there was modest progress on easing bilateral trade tensions.

China agreed to increase purchases of American agricultural products by more than $17 billion annually and confirmed the first tranche of an order for 200 Boeing aircraft. The two sides also agreed to establish separate trade and investment boards to manage economic relations more systematically.

On tariffs, however, the meeting largely preserved the status quo, with China refraining from pressing for immediate reductions and both sides choosing, for now, to avoid further escalation.

These developments are unlikely to restore the pre-crisis global trading order. At best, they may offer temporary relief from the turbulence that has unsettled international markets over the past year. The earlier model of deeply integrated global supply chains is unlikely to return anytime soon, nor is there much prospect of reviving the old multilateral consensus.

A growing sense of mistrust now shapes global trade relations, pushing countries toward diversification rather than dependence on any single economic power. No country is abandoning the American market altogether, as the United States remains the world's largest source of imports and consumption. However, governments are increasingly seeking additional markets and more reliable partnerships. Long-stalled free trade negotiations have suddenly regained momentum as countries attempt to reduce overdependence on any single market.

India, for example, accelerated negotiations with the European Union, the United Kingdom, the European Free Trade Association, and the UAE, concluding agreements that had remained pending for decades. Brazil and several Latin American countries similarly revived and advanced trade arrangements with the EU after years of delay. These countries recognised that economic pragmatism matters more than ideological alignment.

Pakistan, by contrast, showed limited enthusiasm for pursuing new trade agreements and instead focused on preserving unilateral preferential arrangements such as the GSP Plus regime. It appeared satisfied that the United States had granted it slightly more favourable tariff treatment, or at least kept it broadly aligned with its South Asian peers.

At the same time, Pakistan did not follow the American protectionist path. Instead, it gradually moved toward unilateral tariff liberalisation and greater openness to competition. Policymakers increasingly recognised that long-term competitiveness cannot be built through permanent economic shelter.

They also understood that entering bilateral free trade agreements without first rationalising Pakistan's own tariff regime would be unwise, as it would effectively subsidise imports from countries already operating at lower tariff levels, limiting the scope for meaningful reciprocal concessions, as happened in the case of China.

Critics of the tariff reforms had warned that lower tariffs would reduce import-related tax revenues and weaken domestic manufacturing. Yet, as the reforms approach their first full year, these concerns have not materialised.

Manufacturing has performed better than several other sectors, including agriculture and services, while import-based tax revenues have continued to grow in double digits despite tariff reductions of more than 20% under the first year of the reform plan. For the first time in decades, customs-related tax expenditures arising from special exemptions for privileged groups have also begun to decline.

While Pakistan can continue reforming its tariff regime over the coming years before pursuing major bilateral agreements, it cannot afford to ignore regional developments. Asia-Pacific economies are steadily deepening integration and actively considering expansion beyond the original 15 members.

A formal accession process now exists for new entrants. Sri Lanka, Bangladesh, and Hong Kong have all expressed interest in joining this bloc. Since Pakistan has already embarked on tariff reform, it should now adopt a more forward-looking strategy and seek to become part of this fast-growing regional framework.

Alongside tariff reform, Pakistan must also look beyond unilateral preference schemes. Many peer economies now recognise that long-term growth is better secured through binding bilateral free trade agreements rather than arrangements subject to unilateral withdrawal or expanding conditionalities.

The Philippines, for example, currently benefits from GSP Plus preferences in the EU. Yet recognising that such schemes are temporary and conditional, it has chosen not to seek an extension beyond 2027 and has instead begun negotiations for a free trade agreement with the EU. Indonesia has similarly concluded an FTA with the EU.

The global economy, therefore, remains in transition rather than collapse. The old order has weakened, but most countries are not choosing between Washington and Beijing. Instead, they are seeking to preserve economic flexibility, diversify partnerships, and protect their own interests in an increasingly fragmented, yet still interconnected, global economy.

The writer currently serves as a WTO Trade Arbitrator and has previously served as Pakistan's Ambassador to the WTO