US ties are not dispensable

Published: July 22, 2012

We should try to achieve economic growth within the international economic and political system instead of trying to overturn it by taking on a superpower unnecessarily. PHOTO: REUTERS

Supporters of the Difa-e-Pakistan Council are bent on blocking Nato supplies. Rubbishing the possibility of any backlash from Western governments in the form of hostile trade policies and international isolation for Pakistan, they say the US is already a sunset superpower and that Pakistan should foster stronger trade ties with China and other emerging powers.

According to critics, two fully-fledged wars in the last decade have shaken the economic foundations of the US. However, when the US-led wars in Afghanistan and Iraq were at their peak, its war-related expenses amounted to $125 billion a year, which is not even one per cent of the total size of the US GDP.

Also, while referring to its heavy defence spending, many people feel that America will soon crumble under its own military weight. What they fail to notice, however, is that US defence spending forms only 4.9 per cent of its GDP, which is hardly 0.6 per cent higher than that of China, according to CIA’s The World Factbook.

The reason for US’ unrivalled military power is that it rests on a solid economic base, which is reflected in the enormous size of its economy. It has been the world’s largest economy for the past 130 years and has been producing around one-quarter of the global GDP for the last six decades.

But what should we make of the claim that the United States is on the wane?

Businesses and technologies of the future, like nanotechnology and biotechnology, are all being developed in the US. While many Pakistanis never tire of pointing out the outsourcing of manufacturing operations from the US to Asia, they should take a closer look at profit margins. According to iSuppli Corporation — a market research firm — the bill of materials of an iPhone 4 (manufactured in China) in 2010 was $187.51 as opposed to its unsubsidised price of $600 in the US market. The stark difference between the manufacturing cost and the retail price makes clear that real money lies in branding and retail, which can prosper only in countries with higher per capita income.

America is Pakistan’s largest trading partner.

Our exports to the US were 128 per cent higher than those to China in 2011. The US is indeed indispensable for us. We should try to achieve economic growth within the international economic and political system instead of trying to overturn it by taking on a superpower unnecessarily.

Read more by Kazim here, or follow him on Twitter @KazimAlam

Kazim.Alam

Kazim Alam

The writer is a business reporter for The Express Tribune.

The views expressed by the writer and the reader comments do not necessarily reflect the views and policies of The Express Tribune.

  • BlackJack

    Hi – well said. While reducing dependence on any one trade partner makes eminent sense, most Pakistanis don’t understand the implications of a permanent break in relations with the US, and it is sad to see the powers that be are out there fanning the flames instead of trying to douse them. However, I do have an issue with your iPhone example as it seems to indicate that the Bill of Materials and the COGS to end-user are pretty much equal; in most cases, this is far from the truth (especially in developed markets) – where advertising & promotion, organization selling expense overheads (salaries and other fixed expenses), and retailer margins are likely to weigh-in as much or more on the value chain of any retail product. Most of the disproportionate value that Apple extracts is from the iTunes eco-system and not from device sales.Recommend

  • Parvez

    A very pragmatic write up.Recommend

  • http://peddarowdy.wordpress.com Anoop

    Absolutely!

    US has been a great power for decades, its just that its reached its economic potential. India and China will overtake US’s GDP by the middle of this century, but not its per-capita income.

    So, India/China are merely catching up, US is not regressing.

    With regards to Pakistan-US relations its inevitable. US is a natural ally of India, and Pakistan being un-India cannot possibly have the same rapport with the US. That time is gone.

    If that were simply the case, well and good; it would not have harmed Pakistan, but no, Pakistan had to support people who went on to kill US soldiers in Afghanistan. That crossed the line and there is no way US will not not sanction Pakistan post-2014.

    Your advice is great but you might as well not bother. The trajectory is irreversible. Recommend

  • realist

    @Anoop:

    Some of the points made in your comments are also articulated in this article:

    http://www.captainsjournal.com/2010/11/08/india-americas-natural-ally/Recommend

  • Noise

    The US has stagnated, it cant rise any higher, other powers are rising to challenge it. It is increasingly having to rely heavily on its lesser vassals such as Gulf Arabs for financial assistance and its upper hand is slowly coming down. The US cant go anywhere but down. I think Pakistan should look for alternatives and lessen its reliance on the US. It needs to get closer to regional powers like India, Iran, China and Russia. The US may wax and wane but these countries aren’t going anywhere.Recommend

  • Imran Con

    @Noise:
    Who are you to judge the limit of human capability, in turn, the limit of a country? Being allergic to progress, Pakistan is consciously stagnant. That’s the thing about developing “new” technologies. You set the limit at whatever the present best is while everyone else is raising the bar.
    You’re thoroughly incompetent to judge anything of the sort because your brain is locked on the mediocre and jealous wishful thinking. Recommend

  • Ch. Allah Daad

    One of the few sane voices, Thanks for writing.Recommend

  • Ahmed

    The great ZAB said that we will bulld the bomb and defeat the enemy, even if we have to eat grass. Where is that true Islamic spirit? Are we an Islamic republic only in name? Yes ties with the infidels is dispensable.Recommend

  • Ahmedullah

    Yes, America has had the largest economy for the past century or so. Britain before that. But India and china dominated world GDP for several thousand years, India accounting for almost 40 percent in 0 AD and 1000 AD. That is what percentage of world GDP the US is today. Read up Prof. Angus Maddison’s research who is an economic historian.

    As they say, history has and will repeat itself. So, pay close attention to its lessons.Recommend

  • Sane

    @Ahmed
    The great ZAB said that we will bulld the bomb and defeat the enemy, even if we have to eat grass.
    The great Bhutto could not even defeat his own appointed Chief of Army Staff, what to talk about other enemies. However, people are now eating grass just because of Bhutto’s liens, if not due to bomb which ‘Bhutto made’.

    This is the bomb that JACK built.Recommend

  • mrk

    Some good points however, 125 U.S. government does not have control over its GDP – it controls its expenditures. So the defense budget is approx 20% of U.S. annual expenditures which is significant. You may argue that perhaps is a contributory factor to majority of Americans having a lower living standard than many other western nations. By some estimates, the bottom 95% of Northern Europeans live a considerable higher living standard than the comprable percentage in the U.S. which accounts to greater violence and poverty in larger U.S. cities. However, coming back to the point at hand, U.S. is a open economy for the world’s wealthy and its consumers at over 330 million, equal or exceed the consumers of all other similar-situated nations. Therefore, having good relations with U.S. et al is critical. However, it’s not one or the other. Because anyone saying that relations with China are less important is either a dinasaur or ignorent of today’s reality. The world has experienced a huge leap in its living standards over the past decade due to the positive aggregate supply shock provided by China’s output. All the nations in the world today want to increase their trade and relations with China. In fact, even India’s 2-way trade with China is approaching $80 billion per year raising China in range for India’s largest trading partner. So it cannot be one vs. the other if we are to survive. In less than a decade, China will be the largest economy in the world and it’s better to act proactively rather than Recommend

  • I don’t know where you get your info from, most sites tell me that the US’s total expense in Iraq and Afghanistan was 3.4 trillion dollars, which makes up a sizable portion of their 15 trillion of debt. And to the strong economic base part, I think 15 trillion dollars of debt speaks for itself Recommend

  • Cautious

    Interesting article. Perhaps the USA should stop purchasing all Pakistani products for one month to remind Pakistan how many jobs and how much of your hard currency comes from this trade. The reality has always been that the USA doesn’t need to fire a single shot to implode Pakistan — it just has to stop trade, finance, aid, etc. and to make matters worse Pakistan doesn’t make anything the USA can’t readily find from other countries.Recommend

  • Paki

    @Cautious
    Pak was undr us sanctions before and after soveit war in afghanistan…but fr ur info. V r still alive..if ths z to hapen again i dnt thnk v r going to die….
    I cant undrstnd frm where ths pro -US SEXPRES tribun clctd data on iraq afghan war, just a few months suply blockad costs billions f $ from central asia route…

    Increasng povrty and 15 trillion dolars debt z nt without expensesRecommend