The Pakistani government seems to have gotten over the euphoria of the electricity tariff cut, and taken action on the 29 percent tariff imposed by the USA as part of a sweeping levy on what amounts to the whole world. The Prime Minister set up a steering committee as well as a working group to review tariffs on US imports. Pakistan is trying to respond in a way that will get the USA to lower that tariff. The USA sees Pakistan as an offender because it runs a deficit with Pakistan. It is not only Pakistan’s largest trading partner, but also the country which gives it its largest trade surplus. Pakistan is thus responding to the surpluses the way that Third World countries are supposed to, by seeking out ways to increase imports from the USA.
That is problematic. True, if Pakistan wants to remain within the international trading system, it will probably have to give in to US blackmail, but Mr Trump probably does not realize that he is flying in the face of basic economics. Pakistani importers have opted for goods other than American not because of some insidious viciousness of temperament, but because it was cheaper to do so. US producers cannot make goods cheaply enough to sell to the world, and forcing them to buy through tariffs and perhaps later sanctions is not going to work. One problem is that the dollar is a reserve currency, which means that when it imports, it can pay by printing more dollars, not by making things for export as other countries have to. Economic transactions have to be voluntary.
The problem with giving in to such blackmail is that it may have no end. The government can longer remain a spectator of the US-China clash, which is what this is all about, because now it is funds itself involved, China has responded by imposing counter-tariff, while the European Union has imposed a tariff on US Social media. Apart from the bilateral relationship with the USA, Pakistan must keep a weather eye open on developments. For example, international oil prices have tanked. Is Pakistan going to pass the relief on the fuel users, or keep prices up and pass the benefit on to power users? This is just one example of how Mr Trump’s tariffs are going to have reverberations from into the future for countries like Pakistan, which thought they were minding their own business.
