Gathering clouds over Asia

“Poor Mexico. So far from God, so close to the US,” said the president of Mexico. No, it was not its current president, nor was this lament uttered in 2017. It was said in the late 19th century when Porfirio Diaz – who was Mexico’s president from 1877 to 80 and 1884 to 1911 – was venting his frustration about the dealings with his big, northern neighbour.

But the recent efforts by Trump to set into motion his plans of constructing a border wall between the US and Mexico, deporting illegal Mexican immigrants, cancelling Nafta and threatening to impose higher tariffs on imports from Mexico into the US has reminded many of Diaz’s lament.

But the times have changed. Globalisation has integrated the economies of the US and Mexico where over $500 billion worth of trade flows between both countries and goods made in Mexico – at one-fifth of the labour costs in the US – provide cheaper consumer products to American households. Mexico is also important for the security of the US as the history of Cuban- American relations have shown. The whole of Latin America is joining hands to prevent the deterioration of relations between the US and Mexico. Even within the US, several cities and states are declaring themselves to provide sanctuaries against undocumented immigrants. As a result, there is reason to believe that deterioration in the relations between Mexico and the US may not be as bad as feared.

But Asia is where bigger and more lasting struggles are going to be taking place. Throughout his campaign and after assuming office, President Donald Trump has taken up more issues with Asia than elsewhere. He has talked against the 12-nation Trans-Pacific Partnership, raised several issues of trade and security with China – including the One China Policy and South China Sea Islands – temporarily banned visitors from seven Muslim-majority countries – four of them from Asia – imposed sanctions against Iran over its missile tests and talked about recognising the whole of Jerusalem as the capital of Israel. All of this has surfaced in a matter of a fortnight after Trump assumed public office. Not one of these policy initiatives were heard of during the 16 years of previous administrations of presidents Bush and Obama.

But economics seems to be the dominant theme underlying most of these startling measures. Trump had talked throughout his campaign of reviving the manufacturing industries in the US, creating job opportunities and preventing immigrants – whether legal or illegal – from taking away these jobs from Americans. Initially, security did not seem to engage the same level of his concerns as trade and economic issues did. Even when Trump hinted at recognising Taiwan, it seemed to be driven more by his trade and economic arguments against China. He had even displayed a touch of isolationism and talked about Nato as well as Japan and South Korea strengthening their own defences. In the case of the latter, he even suggested that they develop their own nuclear weapons programmes, which was subsequently was back-pedalled.

In this space, we have taken up the impact of his protectionist and anti-globalisation measures towards Asia. However, one thing about trade and investment agreements between countries must be said at the outset: these agreements are as much about trade and investment flows as they are about the balance of power among the signatories.

It was the free flow of capital and technology invested into Asian economies which fuelled their export-led growth to the largest and richest market of the US. Coupled with this was the free movement of skilled labour to rich and developed economies of the US and Western Europe, which helped the growth of the middle class in Asia. Asian countries, which had produced a skilled and disciplined workforce, benefited the most and became attractive destinations for investment and technology to produce quality goods at low costs.

For Asian nations that had built an educated, skilled and disciplined workforce, globalisation opened opportunities and helped them succeed in world markets and expand the size of their middle classes. The immigration of an educated and skilled workforce further helped these nations, as they lacked opportunities in domestic markets. Consequently, as a World Bank study shows that between 1988 and 2008, the income of the middle classes increased by 300 percent in China, 200 percent in Thailand and Indonesia and 50 percent in India.

Those were also the days when Pakistan had initiated investment reforms and set up the Board of Investment in 1989. Pakistan was the first country in South Asia to set up this board to attract investment and technology into Pakistan’s economy for its export-led growth. In fact, Pakistan’s model of the Board of Investment was officially taken by Bangladesh and Sri Lanka for setting up similar organisations in their countries. Even India set up similar investment board in 1991 – two years after Pakistan had done it. It was a new, bold initiative to launch Pakistan into the mainstream of globalisation and make it an attractive destination for investment and technologies.

Way back in 1996, the net inflows of FDI in Pakistan had crossed $1.25 billion – the highest in the region and more than the aid Pakistan was receiving from consortium countries after loan repayments. Several multinationals were planning to make Pakistan a regional hub for entering Central Asian markets. However, like many other good initiatives, this too fell victim to the short-sighted and destructive politics of the country.

Today, a large part of our industries are closed, the value addition of most of those operating is marginal, and FDI as well as exports have been declining. The country has remained on the losing side of globalisation and the planned surge in the growth of its middle class has not materialised. New problems will now arise in our pursuit of economic objectives.

Had it not been for the China-Pakistan Economic Corridor, the economy would have faced dire straits. As Chinese exports to the US markets face increasing difficulties in the wake of the Trump administration’s new measures and tensions in the South China Sea rise, CPEC is going to acquire greater importance as China looks to find alternative markets in the Middle East and Africa. China’s farsightedness in planning for alternative markets is also shown by other components of the One Belt, One Road initiative, which provides connectivity to China for its exports to Eurasia and Europe.

As the clouds start gathering over Asia, India’s Modi government would look more attractive to Trump’s administration to contain China’s influence. And Afghanistan – forgetting the known and not-so-known favours – seems eager to act as an irritant to Pakistan as everybody’s proxy.

Iran is now facing sanctions from the Trump administration over the missile tests and the tone and tenor of Washington hints at another dark cloud gathering over a region which has long remained destabilised for one reason or the other. But our comatose foreign policy does not seem to see the world beyond the Gulf’s attractions and remains laidback even as the gathering clouds over Asia, including our neighbourhood, portend serious new developments.

The writer designed the Board of Investment and the First Women’s Bank.

Email: smshah@alum.mit.edu