China-US confrontation
How ironic that Beijing is struggling with another yuan collapse just as Donald Trump is gearing to take office in Washington. Now, inevitably, the Chinese government will have to step in more prominently to get a handle on not just a currency run, but also a foreign exchange black hole — $320b of which was burnt through in the outgoing year just to keep major investors from packing up and leaving altogether. And once again Trump will reiterate his ‘currency manipulator’ rhetoric, even though contrary to the accusation Beijing is now moving to prop up its currency, not keep it under valued.
But that’s not all. Signs that the campaign rhetoric – talk about Taiwan included – would soften as the reality of the job is factored in went up in smoke when Rex Tillerson, Trump’s nominee for secretary of state, unveiled his strong views about Chinese actions in the South China Sea; a policy posture that could well lead to far more friction than just trade and currency wars. Needless to say, these developments have direct and serious implications for Pakistan in a number of ways, even as Islamabad itself is pretty uncertain about its equation with the new White House.
One, a serious hit to the Chinese economy could well affect the new Silk Route initiative. And dependent how Pakistan has become on its all weather friend and the CPEC bonanza, a protectionist fallout between the world’s two biggest economies could well have serious unintended consequences for the Islamic Republic as well. Two, Trump is more likely to push the Pivot to Asia than abandon it, not the least considering his own position with regard to China. That cannot be the best news of the new year for China’s best friends in the region. And three, Pakistan will have to pull its socks up on the one point that will still bring America and China together – controlling terrorism in South Asia. So far the ruling party has dealt with foreign policy challenges as they have come. From now on it will have to be far more proactive as international headwinds are building.