Pakistan’s tariff policy has historically tried to achieve several objectives at once: boosting government revenue, protecting powerful local industries, and compensating for shortcomings in areas like energy pricing, taxation, credit, skills development, and logistics. This attempt to meet many goals simultaneously has led to a complex web of tariffs that ultimately penalises both exporters and consumers, while failing to help industries become truly competitive on a global scale.

Strategic or perpetual?

The real debate is not simply about whether to protect domestic industries or embrace free trade. Instead, it centres on whether protection should be used strategically and for a limited time or applied indiscriminately and indefinitely. The government’s true role should be to create an environment that encourages competition, which if it does, the central question, then, is whether industries can prosper in such an environment without relying on tariff or non-tariff barriers.

Much of the current narrative in this space amounts to a “chicken and egg” discussion on which should come first. On one hand, there is a debate about whether structural reforms —improvements in energy pricing, taxation, credit access, skills development, and logistics — should precede the reduction of tariffs. On the other hand, some argue that tariff reduction itself can catalyse necessary reforms by exposing industries to competition and driving efficiency.

Our growth challenge is not a lack of protection, but a lack of discipline in enforcing reforms and driving competitiveness

This ongoing debate often results in a policy stalemate, where neither meaningful reform nor effective tariff adjustment occurs. As a result, the core issues remain unresolved, and the cycle of inefficiency is perpetuated.

Tariffs should only be used to help industries move up the value chain, increase their scale, and eventually compete without needing ongoing state support. Protection that simply keeps inefficient, high-cost production afloat ends up hurting both consumers and exporters, functioning as an indirect tax on the entire economy.

Industry leaders often accurately point out that Pakistan’s cost of doing business is unusually high. Contributing factors include elevated energy tariffs, a convoluted tax structure, unpredictable policies, logistical bottlenecks, limited access to credit, and cumbersome regulations.

As protectionist policies are reconsidered, there is an urgent need for broad reforms, particularly in the energy sector, tax reduction, downsizing government, improving private sector access to credit, and streamlining regulations. Temporary fixes like recent reductions in industrial energy costs are welcome but fall short of addressing the underlying issues of cost and reliability.

Using tariffs as compensation for these disadvantages is not a sound strategy. It merely shifts the burden onto consumers and exporters, leaving structural inefficiencies intact. The real solution is to tackle these fundamental constraints directly, rather than sheltering industries behind tariff walls.

Protection cannot substitute for reform. At best, it can act as a temporary bridge while reforms are implemented. However, if cost-reduction efforts do not occur at the same time, tariffs become a permanent crutch rather than a catalyst for competitiveness.

Pakistan’s experience shows that when tariffs were high and macroeconomic conditions were stable, protected industries often failed to invest enough to become globally competitive. Instead of driving improvement, prolonged protection led to complacency.

For a tariff policy to be effective, it must differentiate between sectors with realistic comparative advantage — where time-bound support can stimulate exports and productivity — and sectors structurally unlikely to achieve global competitiveness, even if domestic costs are rationalised.

Failing to make this distinction results in capital and talent being locked into low-productivity activities, depriving consumers of better options and value.

Where smart support makes sense

Pakistan’s fertile land, diverse climate, and large rural workforce give it natural advantages in agriculture. However, value addition in agri-processing remains limited.

Providing time-bound, performance-linked support alongside productivity reforms can help expand exports of processed foods — rice products, fruit concentrates, dairy, seafood, and halal-certified goods. The emphasis should be on building internationally competitive processing capabilities, not on simply insulating the sector.

In terms of mining, copper, gold, and marble are mostly exported in raw or semi-processed form. Targeted support for downstream processing, tied to export benchmarks and clear sunset clauses, can encourage value addition. With resources like Reko Diq still in progress, there is a window of opportunity for policy action.

The pharmaceutical sector already satisfies domestic demand and exports to emerging markets. With improved regulatory processes and rationalisation of selected input costs, its exports could grow further. This is a knowledge-driven industry that benefits from temporary, performance-based support.

Furthermore, the light engineering sector, including surgical instruments, pumps, fans, and electrical items, is labour-intensive and has export potential. Pakistan already has a presence in certain niches, but greater value addition and branding are needed.

And finally, in sectors like tourism and information technology, greater competitiveness often comes from reducing tariffs, not increasing them. Lowering duties on hospitality equipment, aviation inputs, and digital infrastructure cuts costs and expands export potential.

Where protection is harder to defend

To begin with, the automobile industry has long enjoyed high protection, with effective protection rates in some segments exceeding 100 per cent. Yet, exports are negligible and localisation remains limited.

Pakistan manufactures about 200,000–250,000 vehicles annually, while Thailand produces over 1.8 million, mostly for export. Without comparable scale, a strong supply ecosystem, or access to large export markets, local production remains costly. Continuing protection transfers wealth from millions of consumers to a handful of assemblers, with little progress towards global competitiveness.

Furthermore, large-scale petrochemical production relies on integrated refineries, a reliable supply of feedstock, and export-scale markets. In the absence of these, domestic production is inherently expensive.

High tariffs on such inputs increase costs for downstream sectors like textiles and packaging, undermining Pakistan’s strongest export industries. Protecting these sectors can inadvertently harm the country’s export competitiveness, especially when non-refundable import duties are imposed on export-related inputs.

Phasing reform with discipline

A gradual, five-year process of reducing protection can help cushion the adjustment for industries and provide predictability. However, phasing in reform should not become an excuse for delay, as has recently happened with the auto sector.

Such staged reforms are justified only if export competitiveness is maintained during the transition. If exports stagnate and consumer welfare falls, phased protection merely prolongs inefficiency.

Tariff policy should no longer be viewed as a means for raising government revenue or as a substitute for structural reform. Instead, it must be aligned with the goals of export growth, productivity improvement, and consumer welfare.

The real purpose of tariffs is to prepare industries to face competition, not to shield established players from it.

The author, a former CEO of Unilever Pakistan and of the Pakistan Business Council, advocates for sustainable and inclusive economic growth.

Published in Dawn, The Business and Finance Weekly, February 23rd, 2026