A little-known fact about Pakistan’s paltry and might one argue, stagnant exports to the world is that the majority of them go to the United States, not China—the “all-weather” friend with whom Pakistan signed a comprehensive free trade agreement nearly two decades ago. While Pakistan’s relationship with China has hit snags over the years, for all intents and purposes, the two are close economic and strategic allies sharing various mutual interests. United States and Pakistan, not so much. By that understanding alone, the outcome of the U.S. elections—currently taking place—holds great relevance for Pakistan, and not least because the ghosts of complex political past shared by the two continue to cast a long economic shadow.
The fact is, though Donald Trump and Kamala Harris have significant differences in terms of foreign and domestic policies, when it comes to Pakistan there is bipartisan consensus in Washington on how to deal with the South Asian troublemaker where both sides of the aisle remain united in prioritizing counterterrorism and regional stability over other peripheral issues. Although India has become a key diplomatic partner for the United States, interest in Pakistan has diminished as the country’s strategic value has waned. Pakistan’s growing relationship with China has created further fissures in the Pakistan-U.S. alignment, adding more uncertainty to the future of this bilateral relationship.In fact, if the U.S. decides to make strategic investments in India to counter China’s rise, Pakistan may be pushed further into the background.
Economically too, the status quo will be maintained. As a country heavily dependent on foreign aid, and starved for foreign exchange, Pakistan continues to rely on the United States as its largest market for exports. In addition, the world leader single-handedly wields influence on multilateral organizations central to Pakistan’s macroeconomic stability, now and in the future, if all things remain the same. The reverse is not true: Pakistan’s leverage over the U.S. is limited. One could argue in fact, whether under Harris or Trump, Pakistan is likely to experience a similar treatment from the United States as it has in recent years marked by limited FDI and little interest in majorly expanding trade relations or extending fresh trade opportunities toward Pakistan.
In his first tenure, Trump unleashed a global trade war with China that led to a sizeable reduction in trade between the U.S. and China. This triggered a substantial trade diversion effect where other countries such as Taiwan, Mexico, Vietnam, Korea, India, Bangladesh, and Cambodia suddenly found greater market access in the U.S. as importers sought alternative suppliers. Others shifted their production facilities from China to Mexico or Canada.
There were rerouting effects too where countries such as Vietnam became intermediary exporters of Chinese goods –often only repackaged—to the United States in order to circumvent the higher tariffs. Hongkong, Singapore, and Malaysia emerged as re-exporters or transshipment hubs funneling Chinese goods through their ports before sending them to the U.S.
Pakistan could have seized this moment and attracted U.S. companies looking to move their production out of China, especially in labor-intensive sectors such as leather and others where new investments could quickly flow in. Pakistan’s ability to capitalize on these opportunities, however, was hindered by systemic issues stewing in-house. High costs of production driven by rising electricity tariffs, infrastructure challenges, bureaucratic inefficiencies, and lack of conducive business and investment environment all made it less appealing to foreign investors compared to more agile competitors like Vietnam, Bangladesh, and India, who were better equipped to adjust and capitalize on the changing global trade dynamics. From that trade war to a potential second one under Trump, these fundamental challenges have remained unchanged, or in some cases, even worsened.
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