Beyond globalisation

FINALLY, it is happening through the US president’s executive orders — closure of USAID, the start of a tariff war to balance the trade deficit, challenging of trade liberalisation and breaking away from global value chains.

The US has managed to disrupt global markets by unilaterally altering the terms of trade in the name of reciprocity for the world’s largest consumer market.

In disrespect to the governing rules of the WTO and internal Congressional processes, this executive order is based on a so-called economic emergency in the US. It has not only signalled an uncertain future for economic engagement but has also announced the beginning of an era of popular protectionism.

At the end of the day, it seems all about curtailing China, opening up spaces for US companies in the global marketplace and balancing US trade deficit. Evidence suggests, though, that protection through tariffs does not lead to achieving medium-term goals of investment, competitiveness and job creation.

Various economies are left with no choice but to come up with a short-term response to adjust to the new ways of engagement with the US administration. The top five suppliers of US imports in 2022 were: China ($536.3 billion), Mexico ($454.8bn), Canada ($436.6bn), Japan ($148.1bn), and Germany ($146.6bn), while Vietnam, India, Bangladesh and Pakistan exported $120bn, 90bn, 8.3bn and 5.2bn respectively to the US.

So, the higher tariffs could be a massive downward impact on the GDP of economies that largely depend on their exports to the US, and global financial markets are negatively responding to this development. From the other side, the top five purchasers of US goods in 2022 included Canada ($356.5bn), Mexico ($324.3bn), China ($150.4bn), Japan ($80.2bn), and the UK ($76.2bn).

The China factor remains one of the key driving forces behind this US presidential order. China, the country the US has its largest trade deficit with, has been hit with the highest 125 per cent tariff, prompting Beijing to respond with similar countermeasures. The escalation has marked the beginning of a new global trade war between the world’s two largest economies.

The total US-China bilateral trade in goods was $582bn in 2024, down from $661.5bn in 2018 — the US share of Chinese exports dropped from 19.2pc to 14.7pc. The general perception is that China will emerge as a winner in the medium term due to its dominance in technology and market diversification under the Belt & Road Initiative.

The other major change for developing countries is the closure of USAID. Historically, bilateral aid, multilateral loans and market access have remained visible foreign policy tools for fostering economic diplomacy and geopolitical influencing. Since World War II, the model of delivering aid and concessional loans have undergone several adjustments — from building infrastructure to military aid and from food and medicines to building climate resilience.

The real shock hit the so-called international development sector when on the day of his inauguration, President Trump issued an executive order for “re-evaluating and realigning United States foreign aid” that said the US “foreign aid industry and bureaucracy are not aligned with American interests and in many cases antithetical to American values” and that they “serve to destabilise world peace”.

What do the current economic shocks mean for Pakistan?

Since that order, which froze almost $72bn of US foreign development assistance, the Trump administration has moved to shut down the 65-year-old USAID. While foreign aid has always been aligned with the political priorities of donor countries, it has also helped poor countries deal with natural disasters, displaced populations due to conflicts and other economic shocks like Covid-19.

The US began providing economic assistance and military aid to Pakistan shortly after the latter’s creation in 1947. In total, the US obligated nearly $67bn (in constant 2011 dollars) to Pakistan between 1951 and 2011. In 2009, in an attempt to signal America’s renewed commitment to Pakistan, the US Congress approved the Enhanced Partnership for Pakistan Act (aka Kerry-Lugar-Berman bill).

KLB’s intention was to put security and development on two separate tracks. The Act authorised a tripling of US economic and development-related assistance to Pakistan, or $7.5bn over five years (FY2010 to FY2014) to improve Pakistan’s governance, support its economic growth, and invest in its people. Between FY2002 and FY2009, only 30pc of US foreign assistance to Pakistan was appropriated for economic-related needs; the remaining was allocated to security-related assistance.

For the past three decades, Pakistan has failed to bring a change to the structure of its economy which remains largely dependent on non-exportable services. Under the emerging scenario of US-Pakistan trade, our exports are expected to take a hit due to a potential dip in consumer demand in the US. The opportunity arising from the pressures on our competitors is unlikely to materialise in the short term as the investment climate remains unfavourable for the expansion of export-led industry, knowledge products or relocation of industry from China and East Asia.

The best Pakistan can do in the short term is to control the potential damage through trade and strategic diplomacy with the US. Pakistan’s trade deficit with China is huge and the US may ask for shifting some imports towards itself under the argument of reciprocity. This will lead to making some difficult choices as maintaining a balance between relations with the US and China will get more difficult. It is yet to be seen if China will consider giving more market access to Pakistan to make up the potential trade losses with the US.

For Pakistan, transitioning from using geopolitics and diplomacy as tools for economic gains in the shape of aid, market access or investment is inevitable. There is an urgent need to develop an economic value proposition based on the competitiveness and diversification of the economy. This can only be done if institutional changes are carried out to delegate economic transactions to the private sector.

The current uncertainties might open up space for trade with India and other regional countries. Pakistan’s failure to leverage the connectivity infrastructure needs to be revisited under the tariff war. There are a number of markets in East Asia, Southeast Asia and the Middle East that will be looking for diversification from the US and China.

Can Pakistan offer an attractive economic value proposition to partner with these countries? At the end of the day, Trump’s tariffs have only served to accelerate moves to a new global economic order that will shape the contours of future globalisation and global politics.

The writer is a development policy thought leader and former investment minister.

Published in Dawn, April 12th, 2025