Trump Administration 2.0: What to Expect in South Asia?

by: Jinnah Institute

Date: November 15, 2024

Jinnah Institute hosted a policy roundtable on 7th November, 2024, titled ‘Trump Administration 2.0: What to Expect in South Asia?’ in response to the US election outcome the previous day. Senior policy stakeholders and thought leaders deliberated on key contours of US foreign policy, expectations from a Republican presidency, and implications for Pakistan’s own strategic imperatives. The perspectives shared by the roundtable participants are summarised below.

Hope for a Bilateral Reset

Pakistan did not feature during Trump’s election campaign, given the reduced attention Pak-US relations have in American policy circles; however, Pakistan will bear the impact of America’s strategic decisions in the neighbourhood, especially with Iran’s involvement in Gaza, and India’s pivotal place in the Indo-Pacific strategy. Trump’s climate denialism will also impact the climate funds receivable by Pakistan.

A Trump presidency would likely mean a shift back to a transactional relationship with Pakistan — one that emphasises specific security concerns over economic cooperation or investments in development, similar to the restrictive policy stance of his previous term.

Pakistan’s strategic alliance with China will likely draw heightened US scrutiny, especially any bolstering of CPEC. This is part and parcel of a tougher US position on China’s trade interests across the globe, and a push back against Beijing’s Belt and Road Initiative (BRI). There will be expectations from Pakistan on limiting economic and military cooperation with China, which Islamabad is long used to. The nature of penalties applied against Pak-China collaboration will need to be considered.

Overall, Trump 2.0 is unlikely to make major policy departures from the previous administration on Pakistan. US presidencies have seen Pakistan through four lenses: Afghanistan, India, Indo-Pacific strategy, and strategic stability. In the past, Pakistan has protested against forced ‘hyphenation’ that downgrades the bilateral relationship to a single set of interests. However, this time around, Islamabad should not be surprised if this recurs, and be ready for some degree of hostility in the bilateral exchanges as well. The first Trump administration had accused Pakistan of militant safe havens and non-cooperation in dealing with the Afghan Taliban, while cutting off $1.3 billion in security assistance. In 2018, President Trump had tweeted: “The United States has foolishly given Pakistan more than 33 billion dollars in aid over the last 15 years, and they have given us nothing but lies & deceit, thinking of our leaders as fools. They give safe haven to the terrorists we hunt in Afghanistan, with little help. No more!”

Many of Trump’s advisors still hold the view that Pakistan was the aggressor in its prolonged War on Terror, and responsible for the loss of American lives. Trump 2.0 will likely carry forward this legacy of thinking.

Critically important for decision-makers in Islamabad is to do the requisite policy ‘homework’, and prepare a framework that helps advance Pakistan’s interest in the US. Ad-hoc and reactive policy responses have deeply undermined Pakistan’s ability to negotiate its own stance or articulate from a position of confidence. It is important to recognise that a Republican White House under Trump provides an opportunity that must be leveraged, instead of lapsing yet again into a ‘cog in the wheel’ led by US foreign policy.

The following recommendations should help decision-makers in Islamabad create a new bilateral agenda:

⁠1. Economic Diversification and Financial Markets

i. The US is Pakistan’s largest trading partner, receiving annual exports of USD 6.47 billion, or 17 per cent of total Pakistani exports. These are dominated by textiles, comprising of house linens, knit sweaters, non-knit men and women’s suits, and other clothing articles. Other products such as leather goods, medical instruments, metal products, foodstuffs, or plastic and rubber products feature far less than they could.

This is because of slow and low-level product diversification resulting in a stagnant trade-to-GDP ratio. Exports are earned from labour-intensive and light-manufacturing products which make Pakistani exports vulnerable to external price shocks. Pakistan must explore niche products and shift from primary, low productivity and low-skilled goods to high-end goods that earn better on the market, and are able to withstand competition from other countries.

ii. Hedging Against Dollar Weaponisation: The U.S. sanctions on Iran, despite global agreements, show how easily the dollar can be weaponised. These sanctions demonstrated the U.S. economic dominance, as the dollar accounts for over 60% of global contracts, dwarfing the euro (22-24%) and other currencies. For Pakistan, this is a lesson on the need to reduce reliance on the dollar to avoid losses through currency turbulence. Countries facing currency devaluation have resorted to boosting gold and silver reserves as a hedge against the sale of US dollar in open markets. China has increased its gold purchases by 30% in 2023 while reducing U.S. dollar-based restrictions holdings. For Pakistan, gold and silver offer alternatives that are immune to sanctions, and offer greater flexibility in reserve management. Furthermore, digital currencies are being explored by 134 countries, and pilot programs are underway in 11 G-20 countries. For Pakistan, CBDCs could offer a digital alternative that is more resilient to dollar-based restrictions, though implementing this would require significant regulatory oversight.

iii. Pakistan should seek further preferential trade access for its exports, not a Free Trade Agreement. Although Pakistan benefits from the U.S. Generalized System of Preferences (GSP) program, which provides duty-free access into the U.S. for over 3,500 products, the scheme does not fully cover textiles, leather and apparel exports. This is why Pakistan has limited benefits compared to Canada, Mexico and other Latin American countries. However, a deep Free Trade Agreement will undermine Pakistan’s agriculture sector, as the U.S. agriculture exports are significantly higher to FTA partners. Competition from American exporters will drive out local farmers and businesses.

2. Foreign Policy Maneuvers

i. Pakistan should be ready for US dependence on India as the ‘net security provider’. India has contracted for nearly $20 billion worth of U.S.- origin defense articles since 2008, including aircraft, helicopters, anti-ship missiles, among others. In June 2023, the United States and India launched a bilateral Defense Acceleration Ecosystem (INDUS-X) to expand strategic technology and defense industrial cooperation. The last Trump administration brought about a host of bilateral upgrades for India as a counterweight to China, including special defense export agreements. This is likely to continue.

Pakistan must enlarge its circle of strategic partnerships that bolster its military and economic prowess, while paying attention to security asymmetries in South Asia that emerge from India’s unrestricted buildup of military capabilities and arsenals.

ii. Pakistan must avoid becoming embroiled in the US conflict with Iran. The proxy conflicts in the Middle East will continue well past the end of Israel’s war in Gaza, even if there is a ceasefire. Pressures to contain or align against neighbouring Iran must be sidestepped in the interest of retaining a vitally important bilateral relationship. A vital lesson from the US-led War on Terror is that choosing political alliances over regional interests comes with severe blowback at home, that cannot be mitigated through security safeguards. Pakistan cannot afford to worsen relationships in its neighbourhood, although there has been pressure to withhold cooperation in the past.

iii. The newly announced climate diplomacy initiative in South Asia by the US should be welcomed. This may be the only area for bilateral cooperation with India, and presents a significant climate governance challenge for decision-makers. By extension, if climate diplomacy can extend to joint water management, air quality, cryosphere, and trans-boundary health challenges, it will be in Pakistan’s favour as a lower riparian and smaller emitter of greenhouse gases. India and Pakistan have no bilateral forum to adequately address these challenges.

3. Leveraging Diaspora Strengths

i. Pakistani diaspora communities in the US must be capacitated for advocating Pakistani interests in trade; investments in healthcare, education and training; technology transfers, etc. Many of these themes were part of structured Pak-US dialogues over successive governments, and programmed through USAID, multilateral partnerships or international development organisations. Advocating for a broader bilateral engagement can be undertaken and sustained by local diaspora communities.

Trade Tariffs and Global Markets

“To me the most beautiful word in the dictionary is tariff. It’s my favourite word,” Trump said on the campaign trail. The U.S. is Pakistan’s largest export market, with trade exceeding $5 billion annually as of 2023, making any tightening of U.S. trade policies especially significant for Pakistan’s economy. Trump’s proposal to impose 10% tariffs on all global imports could disrupt this crucial trade relationship, whose balance of payments is in Pakistan’s favour.

Other countries too have been earmarked as “abusers” of a favourable import regime, which Trump has promised to reverse. China traded an estimated $758.4 billion in goods and services with the US in 2022, whose trade deficit was $367.4 billion for the US. Since Trump’s re-election, Chinese leaders are preparing for an intensified rivalry over trade, technology, and security issues. Trump proposed the highest import tariff of 60% on Chinese goods, and ending China’s most-favored-nation trading status. Although the Chinese issued a statement honouring “the will of the American people” in re-electing Trump, Beijing will likely push for greater technological and economic outreach to trading partners and bolster economic ties with countries like Russia. Since Trump was elected on 7th November, China’s markets have shown a downward trend with the CSI300 Index falling 0.5% and the Hang Seng Index dropping 2.3%, reflecting investor confidence over potential trade restrictions under the new Republican administration.

India and Brazil too have been identified as trade antagonists: India trades an estimated $191.8 billion (2022), with the US trade deficit at $45.7 billion; whereas, Brazil trades $120.7 billion (2022), but with a US trade surplus of $30.7 billion. The International Monetary Fund (IMF) has cautioned that rising protectionism by the US may slow down global economic output, projecting reductions of 0.8% in 2025 and 1.3% in 2026 if trade barriers continue stay. For trading partners in South Asia, particualry for Pakistan, such economic headwinds underscore the urgent need to diversify trade relationships. Pakistan is at a disadvantage as it stands to lose any competitive advantage over textiles’ export to the US.

Anticipating trade conflict under Trump 2.0, the European Union’s (EU) is prepared to engage in negotiations with the US on substantial retaliatory tariffs on American goods. The 2018 imposition of U.S. tariffs on EU steel and aluminium had led to a protracted trade dispute, but this time around countries in EU are preparing to “hit back fast and hard,” to balance and protect transatlantic trade.

1. Ceasefire in the Middle East?

Trump stated on the campaign trail that he will put an end to wars, but to what extent this applies to the Middle East remains to be seen. Some have speculated that Israeli PM Netanyahu was waiting for a Trump win before considering a move towards ceasefire. Having eradicated the top Hamas and Hezbollah leadership, many think that Israel has achieved what it set out to do, and a ceasefire may be imminent either way. Trump previously criticised Biden’s call for a ceasefire, in line with Israeli sentiment, but may now pave the way towards a settlement in the Middle East. Trump 2.0 will significantly enhance Israeli security and consolidate Israeli interest in global affairs.

The celebrations in Tel Aviv after Trump’s win showed the popularity he enjoys with Israelis and the Jewish community, to whom he is indebted for support. Trump’s emphasis on strongman politics and transactional deals will bring changes in the Middle East, brokered by KSA’s Mohammad Bin Salman and UAE’s Mohammad Bin Zayed. The view from Pakistan is that strategic tension in the neighbourhood does not bode well, but there is obvious convergence in Iran’s avoidance of an all-out war, and Trump’s desire to prevent more conflict. Israel is an unbridled entity in the mix, and how far Trump can rein Netanyahu in remains to be seen. Perhaps it may not be possible.

Trump’s earlier decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) in 2018 heightened tensions with Iran, climaxing with the assassination of Iranian General Qasim Soleimani in 2020. Iran has continued apace with its nuclear program, and this has spurred other Arab countries to pursue their own nuclear programs, including UAE, KSA and Egypt. The implications of a nuclear armed Iran must be thought through by decision-makers in Islamabad, who have reason to worry about traditional conflicts simmering in the Afghanistan, while new security threats emerge at the regional level.

2. Europe, NATO and the Russia-Ukraine War

Trump’s first presidency destabilised the trans-Atlantic equation and relations with Europe in particular. The Europeans have urged Trump for greater backing of Ukraine, although Trump has expressed his disinterest in continuing with a “European war”, and promised to end the Ukraine conflict within hours. There is consternation in Europe over Trump’s personal politics with Russia’s Vladimir Putin, neither of whom consider each other an enemy, and a call to action on defending European interests.

Trump previously urged NATO allies to increase defence spending which led to a 4.6% increase. There will also be a push for the Europeans to take over the funding of Ukraine, which cannot be sustained by EU alone. Trump is seen as an unconventional political actor, unemcumbered by traditional diplomacy, Cold War baggage, or ideological constraints. Unlike his predecessor Joe Biden who delineated the world in ideological terms, Trump demonstrates an acumen for political deal making in difficult situations. He may consider normalizing ties with Russia, and possibly drive a wedge between Russia and China. Among his foreign policy challenges will be to create an outcome on Ukraine that saves face for Western allies, and does not look like a total Russian win. Any shift in U.S. support for Ukraine will reshape Russia’s geopolitical calculations, with potential ripple effects across Western Europe.

3. Carry Forwards on Afghanistan

Afghanistan barely figures on the US policy agenda at the moment, given the commitment to Ukraine and Israel. Trump’s first presidency marked the end of America’s forever war in Afghanistan, and his minimalist foreign policy may consider limited counterterrorism support in the event of a terror attack, but not engage in a complex post-war build up. Afghanistan is the problem of a past President Trump wants to leave behind.

Since the Taliban takeover of Afghanistan in 2021, the US has made available $21.06 billion in assistance to Afghanistan and to Afghan refugees. USAID has used pre- and post-withdrawal appropriated funds to support programs addressing healthcare, education, agriculture, and food security in Afghanistan, but also supporting civil society and media, focusing on women, girls, and broad human rights protections. The State Department has focused on humanitarian aid through third-party organizations, including UN agencies and NGOs, aiming to minimise direct benefits to the Taliban. The return of Afghan refugees has been prioritised, especially those from Pakistan. Significant funding has been dedicated to border management initiatives, including humanitarian response efforts for returnees, and handling issues related to deportations from Pakistan. Since 2021, funding has also been channeled to counternarcotics, surveillance, and disruption of narcotics production and trafficking.

4. Climate Denialism and Global Vulnerability

Trump’s potential climate denialism will impact the climate funds receivable by Pakistan, and other vulnerable nations. A Trump presidency will oversee an additional 4 billion metric tons of carbon dioxide emissions to the atmosphere by 2030, according to climate watchdogs in the US. The projected greenhouse emissions will cause global climate damages worth more than $900 billion. For context, 4 billion tonnes of CO2e is equivalent to the combined annual emissions of EU and Japan, or the combined total of the world’s 140 lowest-emitting countries. That projection sees emissions under Trump dropping by 28% below the peak by the end of the decade—nowhere near the 50% target pledged by President Biden at the beginning of his term. As climate scientists have warned, this may be the final straw for efforts to limit global warming at 1.5 °C over pre-industrial levels.

In 2017, Trump announced the U.S.’ s withdrawal from the Paris Climate Agreement, claiming it disadvantaged American businesses and workers. Pakistan has received substantial funding from initiatives like the Green Climate Fund, amounting to approximately $50 million for projects like enhancing resilience in climate-affected areas and devising new climate solutions. Trump’s approach could lead to diminished global funding pools and disrupt ongoing efforts in climate adaptation and mitigation.

5. Pakistani Diaspora Concerns

Large segments of US-based Pakistani diaspora endorsed Trump in the hope he will urge Islamabad to release PTI leader Imran Khan and look into details of rights abuses. While Trump certainly shared a camaraderie with Imran Khan, and has met with no other Pakistani leader, this may be a point in a larger framing of Pak-US ties, although unlikely to translate into any strong initiative taken with the government. As experts see it, Trump is neither bothered about human rights abuses, nor Pakistan’s domestic politics. At most, he may make a statement in support of political prisoners but not specifically to Imran Khan.

Khan’s party, Pakistan Tehreek-e-Insaf (PTI), is hopeful that Trump’s win could ease the political troubles faced by the former prime minister, who just two years ago accused the US, under President Joe Biden, of meddling in Pakistan’s domestic politics to remove him from power. In October 2024, more than 60 democratic legislators urged Biden to use Washington’s influence with Pakistan to secure Khan’s release.