In a recent interview, the former Finance Minister, Miftah Ismail,advanced a notion that Pakistan's economic woes could be resolved by increasing exports by $20 billion. This proposition prompts a crucial inquiry: would this remedy indeed alleviate our economic challenges if it led to a corresponding rise in imports of equal or greater magnitude? One cannot dismiss the potential resurgence of a current account deficit as imports escalate, possibly by $40 billion or more. The question thus arises: did our substantial curtailment of imports in the last few years genuinely yield any substantial improvement?

Miftah Ismail's stance isn't an isolated perspective. Over the recent years, a clamor around the current account deficit has echoed amongst financial managers and economic pundits alike. The prevailing consensus among these opinion leaders suggests the pursuit of a nationalistic policy involving import tariffs, export subsidies, and protectionist measures. A common observer of television broadcasts might conclude that only exports hold the key to a nation's prosperity while imports stand as a threat to its very way of life. Trade deficits are portrayed as the road to economic destruction.

This line of thinking corresponds to a school of thought known as mercantilism. This doctrine strives to avert potential current account deficits or to achieve a current account surplus, employing tactics aimed at accumulating monetary reserves via a positive balance of trade. While comprehensible, it's no wonder that many individuals are swayed by this perspective, perceiving trade as a competition centered on exports and harboring suspicions that other countries inflict harm by providing us with quality goods at a reasonable cost. This palpable misunderstanding fuels the fervor around import substitution, irrespective of production quality and opportunity cost considerations.

To delve deeper into this perspective, consider a hypothetical yet illustrative trade example. Imagine a scenario where we discover intelligent life on Mars, prompting us to export wheat, rice, and vegetables to this celestial sphere due to their inability to cultivate these crops. One might wonder: what's our gain in this trade when the exported crops effectively mean they can't be consumed by us? Would we truly benefit from such trade? After all, it represents the ultimate dream of a trade surplus. The answer is no. Our actual gain from this trade scenario hinges on receiving something in return that we value more than the goods exported — perhaps precious minerals. In the realm of trade, the true advantage stems from imports, making exports nothing more than a cost required to obtain those imports. The same principle resonates within international trade among nations: exports facilitate the acquisition of imports, which is the ultimate objective. It allows us to import items that are either difficult for us to produce or at least challenging to produce at a low cost. The emphasis invariably rests on maximizing the value of imports.

Then, why is a trade deficit often perceived as problematic? In truth, a trade deficit poses no inherent issues, as trade is primarily about imports, not exports. Managing the current account deficit lies beyond the purview of the government; it’s a solution trying to find a problem. Trade occurs between private individuals and enterprises, and the government should refrain from financing consumer preferences, much like it refrains from financing the foreign debt obligations of private businesses.

In instances where imports surpass exports, equilibrium is restored through adjustments in the exchange rate. Regrettably, governments are consistently preoccupied with either controlling or exerting influence over the exchange rate, much like they do with various other essential commodities. Ironically, many of those who endorse price controls on commodities passionately advocate for a free-market approach concerning exchange rates, perhaps persuaded by the clearly evident outcomes in this particular situation. However, market includes two components: demand and supply. So, restricting imports is still a market manipulation and does more harm than good.

Politicians often highlight export figures as a yardstick of success, acting as if these numbers must be attained at any cost. The notion of using subsidies is thus put forth as a mechanism to bolster competitiveness. However, international trade is not a competition for exports, it’s a cooperation. Just as trade with our local grocery store is not a competition. When governments extend subsidies, they essentially prioritize the interests of specific groups, usually consumers, which enhances their welfare at the expense of broader societal economic welfare. Subsidizing exports takes this a step further, amplifying the welfare of foreign consumers at the expense of domestic welfare. Such a situation is inherently lose-lose and ultimately favors export-oriented companies that are inclined towards seeking special privileges, a trend that has been unfolding.

Furthermore, there's a growing obsession on import substitution, yet a pertinent question remains: at what cost? One must first probe why certain products are not domestically manufactured or grown. Often, the reason is their elevated cost or inferior quality. Would anyone willingly purchase an inferior product at a premium price and feel content? The goal should not involve rejecting cost-effective imports to manufacture everything domestically. Pursuing self-sufficiency leads down the path to impoverishment. If China offers us superior products below cost, the sensible response is to welcome these imports with gratitude. There is no good reason why we should object to the foreign aid that we can receive through the imports subsidized by the Chinese government.

This brings us to the crux of the matter: the actual predicament. As previously explained, a current account deficit is not a problem at all. The true challenge lies in the government's incapacity to honor foreign debt obligations due to its fiscal imprudence and its inability to broaden the tax base. Undoubtedly, it presents a significant concern of utmost national consequence, requiring a host of governmental actions to ensure the sustainability of debt payments. However, addressing the current account deficit is not among these necessary measures.

Before making any decisions, it's imperative to embrace and acknowledge the hard-hitting economic realities at play. The gradual adoption of free trade and a market-driven exchange rate holds the potential to strategically harness our comparative advantage. This, in turn, would allow us to manufacture a specific product or service at a significantly reduced opportunity cost compared to our trade partners. Rather than being fixated on the production of costly goods for local consumption or camouflaging the costs of exported items through subsidies, the focus should pivot to reducing business costs by removing unnecessary obstacles, facilitating the unimpeded flow of capital and resources into sectors where our comparative advantage thrives.

Consequently, such a stance would set the stage for market dynamics to organically shape the economic landscape, liberating resources from wasteful rent-seeking and inefficient high-cost production. Ultimately, consumers would reap the rewards by gaining access to the best bargains from every corner of the world, while exporters could reap sustainable profits and heightened productivity without depending on subsidies or hampering national economic welfare.