WHAT could a Trump presidency mean for Pakistan’s economy? The answer is less than clear, of course, given the uncertainty of Mr Trump’s likely actions in the White House, stemming from a potential disconnect between his campaign rhetoric and the actual policy agenda that his administration may put together and pursue. The fact that his cabinet is incomplete at this point in time, especially members of his economic team, and whether all of Mr Trump’s nominees will receive confirmation from Congress, compounds the uncertainty.

Nonetheless, based on what has been stated and the electoral platform on which Donald Trump secured victory, the contours of the likely channels and potential consequences for Pakistan’s economy can be outlined. The probable channels through which any impact, negative or positive, of Mr Trump’s policies and actions can be transmitted to Pakistan’s economy would likely be as follows: the impact on the global economy; impact on China; consequences for multilateralism and globalisation in general, and world trade in particular; impact on the US-Pakistani community; and, the effect on regional geopolitics especially with regard to the Pakistan-India equation.

While some of the impacts unleashed by Mr Trump’s election victory may manifest themselves in global financial markets fairly soon — as demonstrated by the strength of the US dollar and impact on other major currencies and emerging market assets already playing out — most of the others are longer term in nature, and are likely to unfold over a much more protracted period. The effect on climate change of US action, or inaction, and policy under Donald Trump is an example in this category.

The global economy as well as Pakistan face an uncertain period.

The implications for the global economy of the change of guard at the White House are somewhat clearer than for the other variables. In his inaugural policy statement as president-elect, released via a video message posted on YouTube, Mr Trump has stated that his first policy action as president will be to scrap the Trans-Pacific Partnership (TPP) trade agreement that was a signature effort of the Obama administration. Designed to exclude China and deepen US engagement with the Pacific Rim countries, this trade agreement would have posed challenges for Pakistan’s textile and clothing exports, as major global players such as Vietnam would have snared a larger market share in the US at our expense.

In a direct sense, if TPP is rescinded, it would be a positive for Pakistan’s exporters. It would also be a huge boost for China’s economic standing and its soft power, which is already positioning to replace TPP with its own version — the Regional Comprehensive Economic Partnership.

However, by pandering to the 50 per cent of Americans fearful of trade liberalisation, the incoming president threatens to uproot the foundations on which much of recent world prosperity, especially of developing countries, has been built — global trade. The wider emerging markets universe, especially the dynamic exporter nations such as the likes of China, Vietnam and India, are likely to feel the brunt of a more protectionist US and a less open global economy as a result. However, such an outcome could also have a profound knock-on effect on Pakistan. It could potentially close the window for pursuing an export-led growth strategy, which, even in the presence of CPEC, remains the only viable growth strategy available to Pakistan given its binding constraint on the external account (in the form of a vulnerable balance of payments position).

Other actions by the incoming US administration that could sow the seeds of uncertainty and turmoil in global financial markets include the slapping of punitive tariffs on imports from China, which would not only invite retaliation but also very probably tip the global economy into recession. A potential scrapping of the Iran nuclear deal and reimposition of sanctions, as well as ‘retaliatory’ measures against Saudi Arabia’s oil exports, will also roil global financial markets. Each of these actions and measures, let alone a combination, will be sufficient to reduce access to global private capital for many developing countries such as Pakistan, as well as raise the cost of borrowed capital. Even if not one of these potential measures is taken by the new US administration, the unbridled strength of the US dollar amid higher bond yields and a boost in infrastructure spending, will precipitate the same result — reduced availability of capital at a higher cost.

The effects on international commodity prices of the foregoing developments are uncertain, though most likely are going to be negative for net importing economies.

Pakistan will also have to contend with a potential ‘reset’ of its relations with the US — possibly towards an even lower equilibrium, especially vis-à-vis India. A more hostile neighbourhood, encouraged either by US indifference or by active US policy, will be negative for Pakistan’s ability to attract non-CPEC foreign direct investment. In addition, US indifference or hostility to Pakistan may also affect the country’s ability to access emergency funding from the IMF in the case of a balance-of-payments crisis. (An approach to the IMF by Pakistan circa 2019-20 is a matter of when and not if).

Finally, a silver lining for Pakistan could emerge out of any potential difficulty the Trump administration imposes on Muslims in the US. In the event of a registry being introduced for American Muslims, or any other discriminatory measure that is aimed specifically at this community, reverse capital flight (as well as possibly reverse brain drain) may occur. The reverse capital flight, depending on its magnitude, is likely to propel onshore assets, especially real estate, to new highs.

Hence, a Trump presidency could roil international financial markets and introduce deep uncertainty with regards to the global economy. Some of the effects may be positive for Pakistan, but on balance, the country’s economy is likely to face an uncertain period.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, November 25th, 2016