With all the on-going trade wars cum posturing in the developed world: China vs. USA; USA vs. EU; Canada vs. USA; EU signing a historic trade deal with Japan; China signing a new deal with the UAE; etc., the question is that does it also affect Pakistan or not? Answer: Yes, of course it does and don’t let anyone misguide you by stating otherwise. The gigantic production economies like China have manufacturing operations and jobs to sustain and they will not bow down easily. Meaning, that the goods being refused by the US (United States) will start knocking on the doors of other markets, undermining their domestic manufacturing in the same way they were affecting domestic production in the USA. And it is precisely for this reason that the moment Mr. Trump placed enhanced tariffs on Chinese good, the EU (European Union) immediately slapped their own protection measures to ensure that the goods originally meant for the US markets do not now instead find their way in the EU markets.
Pakistan unfortunately has already been on the receiving end for over a decade now with an un-checked free flow of cheap Chinese products, which has resulted in literally destroying its once robust SME (Small and Medium Sized Enterprises) sector. Job creation has suffered (only 20% of the employable youth has access to new jobs) and the economy of late has been rendered to being a mere consumption oriented. With Xinjiang developing as China’s new production powerhouse and its convenient access now to low shipping costs (thanks to fast track CPEC) the pressure on Pakistan to absorb a new influx of Chinese goods will only increase in the coming years. The transit corridor to Gwadar catering to Xinjiang’s exports to the outer world would mean the risk of duty-free or smuggled pilferage of goods into the Pakistani markets, thereby repeating the saga of the ATT (Afghan Transit Trade) that became the single most main culprit in creating an unprecedented high level of an un-documented sector in Pakistan! Given our growing dependency on China (in every way) and that the entire nation and its institutions are so gung ho on implementing all facets of CPEC (China Pakistan Economic Corridor) at any cost, it will be a big challenge for anyone to arrest further erosion of the home industry through growing imports from China. Never mind that the balance of trade is already completely skewed in their favour and that as an economy our imports have risen to un-sustainable levels, with no real hope in sight of any meaningful breakthrough in our exports - as there exists no real export surplus to ship out - but then, who cares!
In fact the actual blow back on Pakistan from the global trade war could be much more than one may normally assess or certainly higher in comparison to other regional economies, largely because of our close association with China. Closer to home the developments under the, ‘Made in China 2025’, initiative in general - including its facets in the bordering Xinjiang province that directly affect us - are being termed by most developed countries as being damaging to inclusive global development. They argue that the Chinese companies in the targeted industries have been offered loans at low interest rates by the State-controlled Chinese banks and the share notion of these state backed companies then going on to dominate markets at home and abroad through preferential placing, tends to be counterproductive to the healthy development and the very future of key technologies and high-end industries. What this tells us is that perhaps tariffs aren’t the real issues here, as the real tussle is about manufacturing jobs.
Fine, but the question that then arises is that what does Pakistan need to do to protect its jobs at home? Answer: First, and foremost, to alter its partnership with China in a way that induces China to bring its low value production industries to Pakistan. China is still highly reliant on smokestack industries of the past. With China endeavouring to move to high-end industries, and with its real workers’ wages being on a rising trend, this could be a good time to relocate some of these industries, albeit not in Xinjiang but in Pakistan. A move if somehow successfully achieved by Pakistan through targeted policy making could in times to come play a key role in addressing Pakistan’s balance of payment woes. A good example could be to follow the model Chinese industrial investment in Taiwan. However, it would be difficult, since the pitfall in our case being that over the years not only have we not invested in improving the skill set of our work force, but also that due to mere populist policies, to gain cheap political mileage, the professionalism and discipline in our work areas stands compromised.
Second, our prized CPEC will need to be revisited and re-structured in order to save the home industry. Pakistan’s manufacturing sector for quite some time now has been grappling with the impact of high cost of production, unfriendly government policies, and a liberal imports regime, thereby resulting not only in closure of the installed manufacturing, but also in failing to attract fresh investment to create new jobs. Investor confidence has plummeted, entrepreneurship (new start-ups and investments with risk) is virtually non-existent and many traditional items’ factories have shut down; naturally giving rise to higher unemployment. According to the latest National Human Development Report, released only recently by the same institution, youth unemployment in Pakistan surged to 9.1% in 2015 from 6.5% in 2007. The report added that the International Labour Organization (ILO) put the unemployment figure for the 15-24 years age group at 10.8%. Clearly adequate creation of new jobs in Pakistan is absent. Given that looming external push by the foreign manufacturers to make further inroads into the Pakistani markets the danger will only increase in the coming months, with the need of the hour being to craft a fresh trade and industrial strategy that not only protects the interests of the local industry, but also gives it a chance to increase its global outreach. All eyes will be on the incoming lot!
The writer is an entrepreneur and economic analyst.