U.S.-Pakistan relations have remained checkered. Despite being one of the first diplomatic relationships established by Pakistan, these ties have not evolved from a transaction-based one to one based on mutual respect, and from an economic perspective – trade. From a geopolitical perspective, both countries have always needed one another, even if one partner has continued to remain in denial about this. Pakistan wanted to overcome the effects of its asymmetric defense equation with India and the U.S. wanted Pakistan to curtail the growing influence of the then-Soviet Union. And yet, the relationship kept going off course swerving between tango-like intimacy to total indifference, always marked by friction and taut tension.
Pakistan’s security imperatives and Washington’s strategic objectives engendered a dependency such that Pakistan (dependent state) relied on the U.S. (dominant state) to meet its economic needs and strategic interests. While Pakistan and the U.S. have forged working modalities with respect to Afghanistan off and on, the U.S.-China rivalry and India’s overwhelming influence on U.S. policies towards Pakistan continue to cast a shadow over Pak-U.S. relations. Pak-Sino strategic and economic cooperation is seen with suspicion in the U.S., leading to a perception that the latter’s policy towards Pakistan has become a function of its Beijing or New Delhi policy. On the other hand, Pakistan feels that its legitimate security concerns vis-à-vis India are not being taken seriously by the U.S.
While Pak-U.S. relations have significantly improved since the beginning of 2022 given several Congressional and Foreign Office visits; significant help in rehabilitation efforts for the super floods that tore through Pakistan; and the initiation of dialogues on energy, climate, and health, it is time for the U.S. to ‘do more.’ Pakistan has been a part of four global movements, namely ‘Decolonization,’ ‘Cold War,’ ‘War on Terror (WOT),’ and ‘Cold War II’. One would think that these must have brought economic benefits – the reality on ground, however, is far from this.
Despite what those in the State Department and White House (or even many American think tanks) may like to tell themselves, Pakistan has paid a heavy price for its engagements with the U.S. – and not just because it became a ‘victim’ of ‘terrorism’ and ‘extremism’ itself while fighting this menace. The single-minded pursuit and ill-conceived manner in which the WOT was executed, impaired democracy in Pakistan. Academicians and political leaders often quote the costs in terms of lives lost and infrastructure damaged, but while buildings can be rebuilt and broken lives (albeit painfully) heal, the very foundation of a state’s political and governance structure remains forever dented.
Perhaps it has been this realization that finally dawned on the country’s leadership which led it to formulate Pakistan’s first-ever ‘National Security Policy’ document that signaled a shift by putting ‘economic security’ at the forefront of national security – that it’s time to leverage our geostrategic location to reap economic dividends. Here, the U.S.-Pakistan relation assumes criticality.
From an economic perspective, there is massive potential in terms of trade and investment. The U.S. is the only country with which Pakistan has a trade surplus. Pakistan’s exports to the U.S. are around $4 billion, mainly consisting of linen knitwear and sweaters, while imports from the U.S. are about $2.78 billion consisting of raw cotton, soybean, and scrap iron. Since exports are mostly made up of raw materials (linen), there is ample scope to boost trade with the U.S. in many other products like machinery and mechanical appliances, agriculture, chemicals, plastics, rubber, furniture, bedding, lamps, toys, games, sports equipment, paint, lime, cement, printed books, footwear, headgear, medical instruments, and leather goods, etc. The average annual growth rate during the last 25 years was 5% for both exports and imports.
The Information Technology sector can contribute to the nation’s income and make Pakistan an IT superpower. The industry has a large pool of trained professionals, excellent infrastructure facilities, and a considerable demand in the domestic and overseas markets. The sector accounts for more than 70,000 jobs, while exports were around $3.5 billion in 2020, with potential to reach $15 billion in 3 years. In fact, with growing local manufacturing capacity and number of patents, the sector may well become completely self-sufficient with no need for imports. This industry creates jobs that can be offered to the unemployed educated youth, and skilled human resources that help them get their own businesses going. Pakistan is the 5th largest population in the world, with a median age of 23; it has the fastest-growing middle class and 175 million+ mobile users. It has the 4th largest English-speaking population in the world. Technology penetration is high, with 100,000+ professionals in engineering, 70% of which work for IT companies. The start-up ecosystem has been thriving and is a fertile market for new and emerging technology products.
The U.S. is one of Pakistan’s largest trading partners and has been a leading source of Foreign Direct Investment (FDI) for over two decades. With over 80 companies operating in Pakistan and 100+ manufacturing facilities for global markets, the U.S. leads investments in Pakistan. American companies have set up profitable investments in healthcare, automotive components, thermal and renewable energy, food processing, fast-moving consumer goods, franchising, and financial services, creating much-needed employment in Pakistan.
Medical tourism is an untapped market in Pakistan, and it has the potential to become a regional hub. Pakistani medical facilities are less than half the price in the U.S., a region that has become a hub for health seekers of all types. The cost of a kidney transplant procedure in the U.S. is $12,000, compared to $2,000 in Pakistan.
In 2003, both countries signed the U.S.-Pakistan Trade and Investment Framework Agreement (TIFA), which was relaunched in 2022. TIFA aims to create a framework for boosting trade, investment cooperation, and people-to-people ties between the two sides. The agreement was part of an ambitious effort by both governments to provide a sustainable platform where they could discuss issues of importance to both parties and work together to overcome obstacles to repair this relationship. In particular, the agreement became one of the tools both governments utilized to enhance bilateral trade and investment relations. Given recent developments in South Asia, TIFA must not be allowed to lose momentum.
Incentives introduced in Pakistan’s ‘Investment Policy 2013’, 2015-18 Strategic Trade Policy Framework (STPF), Export Enhancement Packages (EEP), and Special Economic Zones Act 2016, remain in place. One of their key goals is to strengthen competitive advantage in technology, innovation, and quality products through industrial clustering, R&D, and other attractive programs. Industrial clustering creates a national value chain by integrating suppliers, producers, and service providers in specific industries. The National Aerospace Science and Technology Park (NASTP) is one such initiative launched late last year.
As discussed earlier, Pakistan’s export basket to the U.S. needs to expand in terms of value and as well as variety. Emphasis must be placed on value-added goods. Pakistan is already the 7th largest exporter to the U.S. for apparel and home textiles; however, for the country to significantly increase its exports, it needs to have tariffs similar to those offered by the U.S. to its other trading partners. An intensifying trade war between the U.S. and China is bringing Pakistan to the forefront of global attention. Given the U.S. current economic position, the gap created by China’s retaliatory actions may present Pakistan a golden opportunity to enhance its exports to the U.S. However, it is imperative to address capacity issues and weaknesses within existing industries for this opportunity to materialize.
More importantly, the U.S has to stop looking at Pakistan from its Afghanistan, China, India and even Iran-Israel lens. It should realize that this policy has never worked and would not work in future as well. The people of Pakistan have suffered immensely due to the state’s involvement in U.S.-led military alliances and campaigns. Because of its promising strategic location, Pakistan can become a model for developing countries. The U.S. can help it achieve this if it is willing to take risks and be bold in its choices toward Pakistan. The recent positive narrative about each other at the highest level has been an important shift. However, the U.S. future success in Pakistan will also be determined by its willingness to take steps that transcend specific geopolitical objectives and move beyond the traditional security issues, where both nations can work in tandem. It is also important to bridge the trust deficit by looking at India and its destabilizing role in the South Asian region with evenhandedness and fair play; increasing people-to-people contacts (a welcoming and hospitable entry and exit instead of hostile security checks for business personnel, academics, and students would be a good start), and promoting business-to-business relations through joint expos. Both countries have many things in common – those simply need to be seen through a magnifying glass.
Dr. Aneel Salman is Chair, Economic Security at the Islamabad Policy Research Institute (IPRI).