A Quiet US-China Proxy War Underway in Pakistan

US China Trade War

Like most conflicts between imperialist powers, a third country is bearing the brunt of the trade conflict between the United States and China.

Just a decade ago, Pakistan was America’s most important ally in the region. It received billions of dollars worth of economic and financial aid. In return, the United States received on-ground intelligence, the right to set up permanent military bases, and an easy route to transport weapons and goods to NATO forces based in Afghanistan.

But over the years Pakistanis realized that billions of dollars in aid did not compensate for the 75,000 lives lost in the conflict between Afghan terrorists and the United States. So the military started clearing out terrorist forces in the country. Within a couple of years, civilian casualties plummeted as security forces rounded up terrorists and hanged them.

President Obama did not appreciate that. Seeing the Pakistani military achieve within 2 years what 150,000 NATO troops could not in 15 turned him bitter. It was unfathomable to him that a military with a $10 Billion budget could outperform an $800 Billion a year military-industrial complex. Since the US military had failed to rein in terrorist forces, the US insisted that a halt in terrorist activities must have come about as a result of a nefarious nexus between Pakistanis and the terrorist forces.

Republican and Democratic lawmakers, as well as the White House, consistently invoked the killing of Bin Laden as evidence that Pakistan sheltered terrorists. But post-presidency, President Obama acknowledged that the United States had found no evidence that Pakistanis were aware of Bin Laden’s presence in the country.

Nevertheless, Pakistan gradually became the scapegoat for America’s failures in the region. As the NATO forces lost ground to ill-equipped Taliban, the United States cowered with embarrassment and put the onus on Pakistan with the accusation that it sheltered 2500 members of the Haqqani Network. Mind you, Ronald Reagan, the great communicator created the Haqqani Network but no one in the mainstream media even mentioned it.

As the relationship between Pakistan and the United States soured, China stepped in to fill the vacuum. Where the United States provided aid and expected complete capitulation from the Pakistanis to Washington’s demands, China began investing in the South Asian nation. Despite the difference in approach, both the United States and China share a common goal in that they seek total control of Pakistan.

In 2017 alone, China invested nearly $60 Billion in Pakistan as part of its’ ‘one belt one road’ initiative. The United States, anxious over China’s growing influence in the world called the Chinese government out. Where Washington criticized Beijing for hurting small economies with too much debt, it made no mention to the impact of American sanctions.

As construction on China’s ‘one belt one road’ initiative began and billions of dollars worth of Chinese machinery and material entered Pakistan, the trade deficit exploded. Amid catastrophic economic numbers, the Pakistani currency quickly lost value against the US dollar and stock market plunged nearly 20% within a year.

To provide the economic stimulus, the government started mega projects that it knew it couldn’t fund. Poor financial planning combined with pending payments on national and international debt, the foreign reserves shrunk. As of now, the Pakistani government has just enough money to pay for a months worth of government business.

China has pledged $2 Billion to help Islamabad out of the economic crisis while a Saudi bank activated a $4.5 Billion oil-financing loan. The incoming government is also touting plans of asking IMF for a bailout package worth $14 Billion. But Secretary of State, Mike Pompeo said that the US would oppose an IMF intervention if the dollars were to be used to pay off Chinese debt.

Even though a shake of the head from the IMF would mean economic catastrophe for Pakistan, the target of Pompeo’s threat isn’t Pakistan it’s China.

If the United States wanted to inflict damage to the Pakistani economy, there are a million more potent ways to do it. The United States is opposed to an IMF only on the ground that the money might go to China, which it will, given the fact that China owns a disproportionate amount of Pakistani debt.

In this economic proxy war, Pakistan stands to lose the most. Given the size of the Chinese economy, whether or not Pakistan can pay its’ dues is inconsequential. The target of Secretary Pompeo’s ire is China’s $60 Billion investment in Pakistan. If the Pakistani economy collapses and the nation defaults on its’ financial obligations to Beijing, China loses all its’ investment in Pakistan dealing a significant blow to its’ ‘one belt one road’ initiative.

But Pakistan might not even need an IMF bailout or even further assistance from the Chinese or Saudis. A recent report revealed that illegal assets of Pakistanis parked in tax havens are worth over $350 Billion. By comparison, Pakistan owes $215 Billion in debt. As anti-corruption institutions in Pakistan wake up from a deep slumber, the south Asian nation might be able to retrieve a portion of that.

It is part of the reason why the United States and the international establishment did not want Imran Khan to succeed in the 2018 elections. As a candidate for Prime Minister, he vowed to further strengthen financial accountability institutions and audit the political and business leaders. Most importantly, horror of all horrors, it could lead to the financial independence of Pakistan.

If Khan succeeds in retrieving 10% of the amount during the first few months of his administration, it will be enough to pay-off Pakistan’s expenses for a year. Khan has already secured an assurance from the British ambassador to help the south Asian country retrieve the nation’s money.

To deliver on the promises Khan made as a candidate, his administration will need to retrieve the embezzled funds from foreign accounts. The international treaties and agreements of mutual assistance will be at his disposal.

So while the new government is taking steps to curb some of the administrative spendings, it will save only a minuscule amount. The prime strategy to ward off an economic crisis would be to liquidate assets of politicians and businesspersons convicted on corruption charges such as a previous Prime Minister of Pakistan who owns a 550-acre property in one of the country’s most prime locations.

There remains very little hope of better ties between the United States and Pakistan. And as the economic disputes emerge between 2 of the largest economies in the world, Pakistan will have to make a choice. It is more likely that it will side with China due to the economic and geopolitical incentives it offers. As a result, Pakistan will remain a continuous target for international forces that aim to push back China and undermine its’ growing influence in the region.

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