The return of Trump brings Pakistan opportunities for introspection and reform

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The return of Trump brings Pakistan opportunities for introspection and reform

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Changes in the US leadership have historically played a pivotal role in shaping Pakistan’s economic and geopolitical landscape. During the Cold War, for example, American support under Dwight Eisenhower and subsequent administrations bolstered Pakistan’s military and economy in exchange for alignment against Soviet influence. However, the 1990s marked a shift when the Clinton administration imposed sanctions on Pakistan following its nuclear tests, leading to economic isolation and stagnation.

The Bush administration altered this trajectory, as Pakistan became a crucial ally in the “War on Terror,” receiving the designation of a major non-NATO ally. However, the Obama administration’s pivot to Asia enhanced US-India relations, prompting Pakistan to modify its geopolitical strategy. More recently, the Biden administration has intensified these pressures, urging Pakistan to align its foreign policy more closely with US objectives.

These precedents underscore how shifts in US policy profoundly impact Pakistan’s trajectory with each change in leadership.

With Donald Trump’s return to the US presidency, emerging markets like Pakistan face significant challenges. Already burdened by economic vulnerabilities and geopolitical tensions, Pakistan must prepare for potential upheavals that demand strategic foresight. 

Proactive diplomacy, emphasizing Pakistan’s role as a stabilizing regional force, could help maintain US support while preserving strong ties with Beijing.

Javed Hassan

Trump’s protectionist trade policies, an important feature of his previous administration, could disrupt global trade. Although primarily aimed at Beijing, high tariffs on imports from various trading partners may have ripple effects on economies like Pakistan. As the largest single-country market for Pakistani textile exports, Trump’s proposals for universal baseline tariffs on all imports, if implemented, might harm exports and strain foreign exchange reserves. Additionally, global trade disruptions could decrease demand from other export destinations, further tightening Pakistan’s external accounts.

A potential strengthening of the US dollar, driven by Trump’s proposed tax reforms, could worsen Pakistan’s economic challenges. A stronger dollar would raise the cost of imports, including essential raw materials and machinery while increasing the burden of servicing Pakistan’s dollar-denominated debt. Alongside existing fiscal pressures, these developments could lead Pakistan toward deeper economic instability.

Pakistan’s strategic partnership with China, embodied by the China-Pakistan Economic Corridor (CPEC), places it squarely in the crosshairs of US-China tensions. Trump’s confrontational stance toward China and his framing of Beijing as a strategic adversary could increase the scrutiny of nations like Pakistan that maintain close ties with China. US policymakers might press Pakistan to limit its engagement with Chinese-led initiatives, potentially disrupting key infrastructure projects and complicating Pakistan’s foreign relations with both superpowers. 

India’s growing alignment with the US in the Indo-Pacific could further destabilize Pakistan. A stronger US-India partnership may embolden New Delhi’s stance on contentious issues such as Kashmir, escalating cross-border tensions and challenging Pakistan’s regional equilibrium.

Another critical dimension is Pakistan’s reliance on the International Monetary Fund (IMF) for economic stability. Given the US’s significant influence over the IMF, Trump’s transactional approach to international relations could impose stricter conditions on Pakistan’s access to financial support. These conditions might include demands to reduce strategic and economic ties with China and instead, adopt policies aligned with US interests. Any disruption to the IMF program could trigger capital outflows, currency depreciation, and a loss of investor confidence, compounding Pakistan’s fiscal challenges.

Pakistan must adopt a multifaceted strategy to navigate these challenges. Diversifying trade partnerships is essential to reducing dependency on the US as a primary export market. Strengthening ties with East Asia, the Middle East, and Africa and preferential trade agreements with regional trade blocs could provide crucial market access for new export avenues.

Pakistan can position itself to capitalize on shifts in global value chains driven by the US-China trade war. As companies look for alternatives to China for manufacturing, Pakistan’s competitive labor market and strategic geographic location offer significant opportunities to attract foreign direct investment (FDI). However, realizing this potential requires addressing critical infrastructure and governance challenges. Also, the removal of protectionist policies, preferential treatments and concessions across the economy is essential. To fully harness these opportunities, Pakistan must implement policies that encourage productivity-enhancing resource reallocation, fostering greater domestic competition, and bolstering international competitiveness.

On the fiscal front, Pakistan must prioritize domestic revenue generation. Expanding the tax base, curbing tax evasion, and rationalizing subsidies are critical steps toward fiscal sustainability. Diversifying exports into value-added sectors like information technology could enhance foreign exchange earnings and reduce the trade deficit.

Balancing relations with both the US and China will be vital. Proactive diplomacy, emphasizing Pakistan’s role as a stabilizing regional force, could help maintain US support while preserving strong ties with Beijing.

Additionally, the Pakistani diaspora, particularly in the US, can serve as a bridge for fostering diplomatic and economic ties, lobbying for favorable policies, and amplifying Pakistan’s narrative on key global platforms. Their remittances already provide a vital lifeline, which should be leveraged to attract FDI.

A Trump presidency presents an opportunity for introspection and reform. Pakistan should achieve economic sovereignty by prioritizing the diversification and expansion of export markets supported by nimble diplomacy. 

– Javed Hassan has worked in both the profit and non-profit sectors in London, Hong Kong, and Karachi. X: @javedhassan. The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Arab News.

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