Can the trajectory of the United States and Pakistan’s economic relationship be immune to renewed diplomatic bitterness?

The government and leaders of the business community do not expect instant economic fallout owing to souring diplomatic relations. But American companies in Pakistan differ.

“The acrimony, if allowed to persist, will certainly hurt the economy of Pakistan,” an executive feared. “The recovery is too fragile to withstand economic headwinds. The return to IMF at this point looks imminent.”

Moreover, “a hostile US can increase the difficulty level of negotiations with lenders when we go knocking at their door for a bail out,” he said.

Last month US President Donald Trump talked tough on Pakistan, accusing the country of harbouring terrorists through its ‘safe havens’. He hinted at punitive actions but stopped at a warning.

Pakistan’s reaction was constrained. It rejected the allegations and blamed the US for making Pakistan a scapegoat for its own policy failures in Afghanistan, but did not bring up the question of the logistic support it extends for routing NATO supplies through its territory.

For most Pakistani business leaders President Trump’s stance was not surprising as the cold vibes from the US, they say, were evident even before Mr Trump assumed office.

Prime minister’s special assistant on economic affairs says he doesn’t see current diplomatic stress spilling over to hurt Pakistan’s trade relations with the United States

They want the tension between the two unequal partners to ease even though they do not expect an immediate spillover effect of the verbal spat on Pakistan’s trade or economy.

Zubair Tufail, president of the Federation of Pakistan Chambers of Commerce and Industry, said that thus far no disruption in the two-way trade has been reported by members.

“Our exports to US are not based on duty relief or concession. We competed and penetrated the market. Still, a hostile state has the power to create difficulties without breaking the relevant laws,” he warned.

Majyd Aziz, president of the Employers’ Federation of Pakistan, was candid in his opinion. “You need the right set of friends to watch out for you in Washington and other capitals. To expect anyone to voluntarily defend your interest is absurd.

“The government can’t do it alone. The private sector of Pakistan needs to learn marketing tricks from their Indian counterparts,” he commented.

Shabir Ahmed, a leading bed linen exporter, hammered the need to manage economic affairs professionally for better results. “My partners are perfectly satisfied. I do not foresee a problem in the near future,” he said over the phone.

Pakistan is currently US’s 57th largest goods trading partner with $5.5 billion in total two-way trade during 2016, according to the Office of the United States Trade Representative. Our imports from the US totalled nearly $2.1bn while exports were $3.4bn during the year.

There were phases in history when the US very generously provided economic assistance to the country.

When approached for input, the American Business Council (ABC), a powerful group of over five dozen US companies in Pakistan, was reluctant.

In an email response to Dawn, it said, “The current slide in US-Pakistan bilateral relations will, for sure, have a negative impact. We have some market intelligence for our few specified products where our clients are exploring options for sourcing products of non-US origin. They fear that extreme measures such as sanctions might disturb their business.”

The US companies, commenting on the contours of the next IMF package, said, “It might have a direct effect on the country’s tax policies.”

According to information on the ABC website, the collective total investment in Pakistan was recorded at over $750 million and cumulative annual revenue is around $4bn. The total contribution to Pakistan’s treasury in direct and indirect taxes has not been quantified.

Miftah Ismail, special assistant to the prime minister on economic affairs, was concerned but optimistic.

“I do not see current diplomatic stress spilling over to hurt Pakistan’s trade relations with the US,” he said. “Yes, the situation is unfortunate and we wish to ease it quickly. We know that high sustainable growth target is difficult to achieve in an adverse diplomatic environment.”

He said the government was keen to have friendly relations with all countries, including the United States, which is Pakistan’s major trading and investment partner.

“The benefits of this economic cooperation are mutual,” Mr Ismail said. “Pakistan offers a hospitable business environment to big US brands such as P&G, IBM, Coke, Pepsi, etc. Their presence in the country is not for compassion but for business”.

Published in Dawn, The Business and Finance Weekly, September 11th, 2017