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Umair Javed //DAWN: April 14, 2025
RECENT convulsions in the global economy mark another curtain call for the long 20th century. The worldwide economic system put in place during the 1970s appears to be unwinding.
The system was built on the back of American political-economic hegemony. It featured an increasingly liberalised global trade regime facilitated by the US dollar, especially through an exclusive trade in oil, and free(er) movement of capital across national borders, especially towards financial assets such as bonds and equities.
Clubbed under the larger rubric of neoliberalism, the system produced several long-term shifts. It shifted manufacturing from the West to East/Southeast Asia, creating value chain booms in the latter and cheap consumer goods for the former. It created new and increasingly risky avenues in global financial markets, which offered astronomical returns to a small segment of the population. And, most of all, it helped subsidise consumption through debt for the American population far beyond any actual growth in wages.
Critical voices spent many years pointing out the crisis-inducing impact that such unhindered liberalisation posed to economies, especially of the developing world. It led to premature deindustrialisation for many countries in Asia and Africa, including Pakistan, made the world prone to financial crises, and heightened inequality across a variety of metrics. Such critiques were labelled as archaic, anti-development, anti-freedom and summarily dismissed.
Progressives in Europe and the US too spent much of the 1990s and early 2000s warning about the corrosive impact that neoliberalism was having on their own domestic economies. Between 1979 and 2022, real (ie, inflation adjusted) wages for middle and low-income workers in the US, showed paltry growth of a mere 12 per cent, even when overall productivity has increased by almost 80pc.
So who benefited from this gain in productivity if the average worker is still where they were 40 years ago? Unsurprisingly, wealth and incomes for the top earners and incomes from capital (profits, rents, and returns from stocks and bonds), increased significantly, widening overall inequality.
The simple fact is that the rhetoric of bringing back good jobs for American workers is eyewash.
Four decades of a widening gap between the haves and the have-nots mean the proverbial chickens have finally come home to roost. For the last decade and a half, inequality has staged a comeback as a political issue in Western politics. Unfortunately for everyone else, the issue is finding its expression through a variety of regressive political forces, especially in the US and UK.
In a recent note, Stephen Miran, one of the architects of Trump’s tariff policy, cited a decline of stable manufacturing jobs across the Midwest and the South as a key justification for the US president’s tariff antics of the past few weeks. As free trade became the norm, he argued, good jobs went offshore in search of cheaper labour costs, leaving behind increased dependence on precarious, service sector employment for American workers.
In rhetoric at least, the Trump administration wants to ‘reshore’ industrial production so that white male workers in Ohio can relive a mid-20th-century golden era, ie, the fantasy of an archetypical breadwinner who could buy a house, car, and provide for his stay-at-home wife and three kids.
There is nothing intrinsically wrong with giving workers better jobs. But as many have pointed out, there is no going back to this golden past. Most manufacturing jobs rely on cheap labour, which Asia and Latin America have plenty of and the US simply cannot provide. As per some reports, an iPhone if made entirely in the US, would cost $25,000. No company in their right mind could sell a mass consumer product at that price tag.
This is one reason why the Trumpian diagnosis, even if one takes it at face value, is seriously flawed. In rhetoric, it seeks to go back to a long distant past, without giving up the debt-based consumption privileges that the US has attained through its dominant political and military position in the world.
On the other hand, if the precarious material conditions of blue-collar workers in places like Ohio is of actual concern, then one should be considering an entirely different set of solutions. For example, there are jobs that cannot be sent offshore (such as in personal services and care work), which remain remunerated very poorly. Why not think of ways to raise incomes for those actual working-class people doing such jobs, and ensure they have a better standard of living?
If the average worker is struggling to afford housing and other basic needs, why can’t the state redistribute a greater share of the profits accrued by big companies and wealthy individuals? This is not some alien concept. It formed the basis of social democracy in the mid-20th century, a period that saw some of the greatest gains towards equality and improvements in overall standards of living. As one economist put it wryly, if inequality in the US is your concern, how does taking jobs away from Vietnamese workers act as the solution?
The simple fact is that the rhetoric of bringing back good jobs for American workers is eyewash. The real goal, as it so often is for governments of this ilk, is to secure returns for some section of the capitalist class. In this case, raising some revenue through performative tariffs may act as a convenient and stealthy way of providing further tax cuts for high-income earners. The end result will be more inequality and more immiseration for workers.
The political and economic costs of America’s domestic dysfunction are borne by everyone else. The erratic display of decision-making witnessed in the last month is reflective of a hegemon confronted with internal contradictions and faced with external decline. Unfortunately, we mere mortals located elsewhere have to put up with these symptoms of morbidity, which will only distort and escalate till something else is ready to take its place.
The writer teaches politics and sociology at Lums.
X: @umairjav
Published in Dawn, April 14th, 2025
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Maleeha Lodhi //DAWN: 14 April 2025
PRESIDENT Donald Trump’s announcement of sweeping tariffs on imports from nearly every country upended the global trading order and plunged markets into turmoil. It left countries scrambling to respond by either imposing counter levies or seeking negotiations to secure lower rates. The US stock market lost $5.4 trillion within two days of the announcement while global stock markets lost $5tr as fears intensified about a global recession. The prospect of a full-blown trade war shook investor confidence. The IMF warned this would significantly affect already sluggish global economic growth. The head of America’s central bank warned increased tariffs would lead to “higher inflation and slower growth”.
Using emergency powers, Trump slapped so-called “reciprocal tariffs” on America’s trading partners that ranged from baseline 10 per cent to 50pc, an action that did not discriminate between friend and foe. The steepest tariffs were imposed on Asian countries with Chinainitially facing 34pc (added to previous levies and an additional 50pc it took the net rate later to 104pc). EU was subjected to a blanket 20pc levy. Trump’s justification rested on flimsy grounds — that this will boost the US economy by reducing its trade deficit, bring manufacturing and jobs home, promote investment in the country, raise revenue to finance deep domestic tax cuts, and protect American businesses and workers. Most of these assumptions are deeply flawed but the Trump administration rejected the view that the measures would hurt US industries and lead to recession and higher prices for American consumers.
The Financial Times described Trump’s decision as “one of the greatest acts of self-harm in American economic history”. In similar vein, The Economist wrote in its leader that Trump’s announcement, which marked the biggest break in America’s trade policy in over a century, “committed the most profound, harmful and unnecessary economic error in the modern era”. It dubbed Trump’s economic ideas as delusionary “nonsense”. Former US treasury secretary Janet Yellen described the tariffs as “the worst self-inflicted wound” she had ever seen imposed on a well-functioning economy.
The world’s response was swift and strong. America’s biggest trading partner and the world’s largest exporter, China retaliated by announcing a matching 34pc tax on US imports. When Trump imposed additional duties, Beijing also raised tariffs and said it would “fight till the end”. This marked a dangerous escalation in the trade war and drove the two global powers towards a historic split. European leaders roundly denounced Trump’s tariffs as “illogical” and “paranoid”.
Trump’s tariff policy has sparked a trade war and damaged US credibility.
With markets tanking, American bankers and businessmen panicking and heavy sell-off in US bonds, Trump suddenly switched course. He backed down against a range of countries he claimed wanted negotiations and did not take retaliatory actions.
He announced a 90-day pause on tariffs but added more levies on China taking them eventually to 145pc. The policy U turn — so characteristic of Trump — was apparently the result of combined pressure from the US business community, foreign governments and Congressional leaders including Republicans. But while it temporarily halts higher duties on many countries, it doesn’t end uncertainty about Trump’s next protectionist moves. A 10pc levy on most countries is still in force while some assessments show that despite Trump’s retreat “tariffs average over 25pc across all trading partners, when weighted by America’s imports last year”.
How far Trump’s tariffs are a negotiating tactic to force trading partners to align with Washington’s interests will soon be tested. His 90-day pause suggests negotiations may enable some countries to bargain for lower rates in return for concessions. What those concessions are will be determined by Trump. But while Trump’s climbdown has come as a relief to many countries, no one can be sure he won’t flip again. In any case, the damage to US credibility has been incalculable. Markets remain jittery while Trump’s erratic policies have injected volatility into the global economy. The US-China trade clash — with China hiking retaliatory tariffs to 124pc — will dampen global growth and raise inflation in America.
The geopolitical consequences could be even greater as nations across the world begin to recalculate their relationship with an unpredictable, whimsical, bullying power whose reliability is in growing doubt. Trump’s economic warfare made no distinction between friend and adversary; almost everyone being deemed “cheaters”. It angered nations across the world, placing traditional relations with allies under strain and ratcheting up tensions with them. This may affect cooperation by them on other fronts too. It could set in train a realignment of relations and even reshape geopolitics over time.
Trump’s unilateralist action is likely to erode the trust and confidence of allies urging them to adopt hedging strategies and consider reducing their exposure and dependence on the US in the long run. Such recalibration of foreign policies may leave Washington without the firm friendships and alliances it has counted on in the past. This has strategic implications for America’s contain-China strategy especially in Asia, where allies like Japan, South Korea and others were hit hard by tariffs (even if they are now up for negotiation), some of whom were persuaded in the past to move their businesses out of China.
Faced with an untrustworthy trade partner in the US, the economic imperative for countries would be to pursue trade diversion. As some commentators have pointed out, the EU, far from de-coupling, may well consider re-coupling with China. Countries will look for trade opportunities with each other and may gravitate more towards China. That top officials from China, Japan and South Korea met twice in the past fortnight to enhance ‘trilateral trade cooperation’ says much about emerging trade alliances.
If Trump has chosen an isolationist policy, isolation is what the US economy will end up in. The biggest beneficiary will be China even as it struggles now to limit the damage wrought by Trump’s tariff war. As Howard French wrote in Foreign Policy, “If a country has to choose a superpower to hitch its wagon to, China may loom as the preferable option” because it appears as a more moderate and stable force.
The consequences of the turmoil caused by Trump at home and abroad will come back to haunt his country whose international reputation has already been severely tarnished.
The writer is a former ambassador to the US, UK and UN.
Published in Dawn, April 14th, 2025
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DAWN EDITORIAL: 14 April 2025
IN Trumpian America, even those foreigners with legal status are finding that the walls are closing in on them. As part of regulations linked to an imaginatively titled presidential executive order — ‘Protecting the American People Against Invasion’ — signed in January, non-citizens in the US will now be required to register and carry proof of registration at all times. Permanent residents — those with the coveted Green Card — visitors, students and workers, with few exceptions, will be affected by the changes, and even a routine traffic check may result in law enforcers asking foreigners for proof of registration. Registration has been a legal requirement in the US since 1940; what is different with President Donald Trump’s regulations is that foreigners will now be required to carry their papers at all times, or risk fines, even incarceration. For any foreigner who has travelled to the US, these are disturbing changes; legal visitors could earlier feel at ease in the country, without the fear of being hauled up by law enforcement and asked for their papers. But these are very different times.
Historically, America has had its periods of authoritarianism, especially when descendants of immigrants and people of colour have been targeted in xenophobic fits of rage by the state. The starkest example is of the Nisei, or second-generation Japanese-Americans, who were rounded up and placed in camps during World War II. However, in the decades since, the US had come a long way, attracting talent and brains from around the world to help power its economy. Those days are over. As for the Maga crowd, all of America’s ills are to be blamed on foreigners, and xenophobic policies are needed to restore the country’s ‘greatness’. Such moves will ultimately hurt America, as the world’s best minds and most industrious people will now think twice about wanting to live or work in the US.
Published in Dawn, April 14th, 2025
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DAWN EDITORIAL: 14 April 2025
WITH the Trump administration’s trade war on China and the rest of the world having led to global economic uncertainty, the Asian Development Bank’s advice for Pakistan’s policymakers to stick to the reforms agenda agreed with the IMF comes at the right time. Reminding our policymakers of the several downside risks to the country’s hard-won but fragile economic recovery, the lender has projected that the national economy will expand at the much slower pace of 2.5pc during this fiscal year compared to the average South Asian growth rate of 6pc. How Donald Trump’s trade war will impact these growth estimates if protectionist US policies push the global economy towards recession is anybody’s guess. The report has not taken into account the ramifications of the insanely high American ‘reciprocal import levies’ in its projections. But both the IMF and State Bank have highlighted lately the uncertain global environment as a risk to the country’s struggle to overcome its economic crisis.
That debt-ridden Pakistan faces several vulnerabilities despite its improved external position and a quicker-than-anticipated drop in inflation shows that the country must stay on the path of structural reforms, even more so after the punitive baseline and higher tariffs slammed by the US on most of the world. In its latest Asian Development Outlook report, the lender noted that recovery requires policy consistency and reform implementation to sustain it, build resilience and enable durable growth. Macro improvements, it warns, must not lead to a relaxation of policies and deviation from the reforms path, which could potentially trigger new balance-of-payments pressures, and jeopardise our hard-earned stability and disbursements from multilateral and bilateral partners. The potential negative impact of the Trump tariffs on the global economy will likely spill over into Pakistan too, especially if the tariff war between the US and China does not end soon. The emerging global landscape demands that Pakistan navigate this challenge carefully because of its reliance on both the US and China. With major economic challenges facing the country amid rising militancy, it is crucial for politicians to work out a formula to resolve their selfish disputes and join forces to deal with the emerging situation. The ongoing economic slowdown has affected the average Pakistanis the most in recent years. They deserve better days now.
Published in Dawn, April 14th, 2025
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