Pakistan and the New Global Trade Order

The global trading system is entering a new phase. The era in which international production was organized primarily around the search for the lowest possible cost through offshoring is giving way to a more complex system shaped by geopolitics, supply-chain resilience, technology, energy security and strategic competition. Globalization is not disappearing; it is being reorganized. This emerging environment presents both challenges and opportunities for Pakistan. The central question is no longer simply how much the country can export, but where Pakistan can position itself within the emerging global production system and global value chains.

The scale of this transformation is substantial. Global trade remains resilient, but the rules governing it are changing as governments respond to geopolitical tensions, trade restrictions and strategic vulnerabilities. At the same time, digital services, technology-related goods and green industries are becoming increasingly important components of international commerce. The World Trade Organization has warned that fragmentation into rival trading blocs could reduce long-run global GDP by more than 5 percent, with developing economies among those most affected.

This is why WTO Director-General Ngozi Okonjo-Iweala has argued that the answer is not deglobalisation but what she calls “re-globalization” deeper and more diversified markets that bring more countries and regions into the mainstream of the global economy. She has also argued that greater diversification can make supply chains more resilient and reduce the risks associated with excessive concentration.

For developing economies, this creates a potentially important opening. Multinational companies are increasingly looking to diversify production locations and supply chains rather than relying excessively on a single country. The concepts of “China+1”, near-shoring and friend-shoring reflect this shift. Countries that can offer competitive production costs, reliable infrastructure, skilled workers, market access and policy stability are better positioned to attract investment associated with this restructuring.

Pakistan possesses several characteristics that should make it relevant to this new environment. It has a population of more than 240 million, a large labor force, proximity to China, access to the Arabian Sea and geographical links with Afghanistan, Central Asia, the Middle East and South Asia. Yet these advantages have not translated into a sufficiently diversified or competitive export economy.

The latest official figures illustrate the challenge. During July–March FY2026, Pakistan’s goods exports stood at about US$22.7 billion, compared with US$24.7 billion during the corresponding period of the previous year. The merchandise trade deficit widened to around US$27.9 billion, from US$22.7 billion a year earlier. These figures highlight a structural weakness: Pakistan’s domestic economy requires substantial imports of energy, machinery, intermediate goods and other inputs, while its capacity to generate foreign exchange through exports remains limited.

The composition of exports is even more revealing. Textiles remained the backbone of Pakistan’s export economy, accounting for roughly 59 percent of total goods exports, with textile exports of around US$13.5 billion during the first nine months of FY2026. This demonstrates the considerable strength of Pakistan’s textile industry, particularly in value-added products, but it also highlights concentration risk. When almost three-fifths of merchandise exports come from one broad sector, fluctuations in international demand, cotton availability, energy costs or trade policy can have an outsized impact on the country’s external position.

The answer is not to move away from textiles, but to build on this capability while creating new export engines. Pakistan needs to shift from an export-promotion mindset towards a broader export-competitiveness strategy. The objective should not simply be to sell more of the products Pakistan already produces, but to increase productivity, move into higher-value segments and integrate domestic firms more deeply into international production networks.

There are already encouraging signs outside traditional merchandise exports. During July–March FY2026, Pakistan’s services exports increased by around 17 percent, while IT exports grew by approximately 20 percent. IT exports reached roughly US$3.4 billion during the period, demonstrating that Pakistan’s participation in international trade does not have to depend entirely on physical goods crossing borders. Software, business-process outsourcing, freelancing and other digitally delivered services provide opportunities to earn foreign exchange while connecting Pakistani workers directly to international markets.

The same principle applies to Pakistan’s mineral resources. The global transition towards electric vehicles, renewable energy, batteries and advanced technologies is increasing the strategic importance of minerals. Pakistan has substantial mineral potential, but the opportunity will remain limited if the country simply extracts and exports raw materials. The objective should be to develop processing, refining, manufacturing and associated technical capabilities so that a larger share of the value chain remains within Pakistan.

Harvard economist Dani Rodrik has argued for greater “policy space” for developing countries to restructure and diversify their economies rather than treating market opening as an objective in itself. His work makes an important distinction: integration into the world economy is important, but countries also need sufficient policy space to build domestic productive capabilities.

For Pakistan, trade, industrial, skills and investment policies must work together to strengthen domestic productive capacity. Its strategic location at the intersection of South Asia, China, Afghanistan, Central Asia and the Arabian Sea offers significant potential for regional trade and investment. However, geography alone cannot create a comparative advantage. Pakistan must complement its location with efficient transport networks, modern border infrastructure, streamlined customs procedures and reliable logistics. A more strategic approach to openness can help the country move beyond traditional exports and integrate more effectively into global value chains, with greater emphasis on higher-value production, technology transfer, skills development and productive investment.

Pakistan’s current regional trade pattern illustrates the gap between geographic potential and economic reality. During July–March FY2026, developed countries accounted for approximately 57 percent of Pakistan’s exports, while Central Asian states accounted for less than 1 percent and SAARC countries for only a few percent. These figures indicate that Pakistan’s strategic location has yet to translate into meaningful regional trade integration. The opportunity, therefore, is not merely to build more roads or border facilities, but to reduce the economic cost of moving goods across borders and create commercially viable regional value chains. Pakistan could potentially connect Central Asian economies with seaports and international markets while also becoming a market and production base for regional industries. This requires predictable border procedures, efficient transit arrangements, digital customs systems and stronger private-sector participation.

Investment is equally central to the new trade order. Countries competing for global supply chains need more than tax incentives; they need productivity, infrastructure, skills, energy, logistics and policy credibility. External stability ultimately depends on earning foreign exchange through competitive goods and services rather than relying on import controls or periodic external financing. Pakistan should therefore focus on attracting productive investment that generates exports, jobs, technology transfer and domestic supply chains. Special economic zones and major infrastructure projects should ultimately be judged by the economic activity and competitiveness they create, rather than simply by the amount of land developed or infrastructure constructed.

The new global trade order presents Pakistan with both challenges and opportunities. Its geography, workforce and natural resources provide a strong foundation, but these advantages will matter only if translated into higher productivity, competitive exports, productive investment and stronger regional integration. Pakistan cannot determine how the global trading system evolves, but it can determine how effectively it positions itself within it. The real opportunity is to transform its existing potential into globally competitive economic strength and move from the margins of international trade towards a more productive and integrated role in the global economy.