Is the US pushing countries towards China?

Summary

Summary of "Is the US pushing countries towards China?" – The Indicator from Planet Money

Episode Release Date: April 29, 2025
Host: Darian Woods and Adrian Ma
Guest: Mohammad Aurangzeb, Pakistan's Minister of Finance

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Introduction

In the April 29, 2025 episode of The Indicator from Planet Money, hosts Darian Woods and Adrian Ma delve into the intricate geopolitical and economic tightrope that Pakistan walks between the United States and China. Titled "Is the US pushing countries towards China?", the episode explores how US policies, including aid cuts and tariffs, may be influencing Pakistan's strategic alliances, potentially steering it closer to China amidst a complex web of regional relationships.

Pakistan's Economic Challenges

The episode opens with an overview of Pakistan's economic struggles, highlighted by Minister Mohammad Aurangzeb. Appointed relatively recently to his political role after a career as a bank executive, Aurangzeb provides context on the nation's economic state:

“We have known the what and why for the longest time. It was always a question of the who part of it.” [03:58]

Pakistan has been grappling with high inflation and stagnant incomes, which Aurangzeb notes have been persistent for over a decade. The country’s tax-to-GDP ratio has languished between 9% to 10%, reflecting challenges in revenue collection and widespread corruption:

“We bring down the leakage in the system. When I say leakage, it's a euphemism for corruption because it takes two to tango.” [04:40]

US’s Role: Aid and IMF Engagement

The discussion shifts to the United States' role in Pakistan's economy, particularly through aid and financial institutions like the International Monetary Fund (IMF). Since 2020, the US has provided approximately $270 million annually in aid to Pakistan, supporting sectors such as health, education, and infrastructure development. However, Aurangzeb downplays the impact of recent US aid freezes:

“Overall, we didn't have a huge reliance on, on this funding. You know, are there going to be issues? Yes. Are they going to be manageable for a country like Pakistan? It's also. Yes.” [06:29]

Pakistan's engagement with the IMF involves stringent conditions aimed at fiscal tightening, including enhanced tax collection, reduced government spending, and business deregulation. While these measures are challenging, Aurangzeb asserts that Pakistan has made significant progress:

“We are moving in the right direction.” [04:26]

China’s Influence: CPEC and Trade

In contrast to the US, China plays a pivotal role in Pakistan’s economic landscape through the China Pakistan Economic Corridor (CPEC), a major component of China's Belt and Road Initiative. This initiative encompasses extensive infrastructure projects, including ports, roads, and railways, designed to enhance China's access to oil and gas shipments via Pakistan's ports.

Aurangzeb elaborates on the evolution of Pakistan-China relations:

“Phase one was exactly about that infrastructure. Where we are now with China is sort of phase two, which is really now business to business led.” [08:05]

Chinese investments have diversified into various sectors, including joint ventures in truck tire manufacturing and electric vehicle production with companies like BYD. This phase aims to leverage existing infrastructure to boost Pakistan's manufacturing and export capabilities:

“Using the infrastructure that we have now, is to start assembling and exporting from Pakistan.” [08:30]

Balancing Act: Maintaining Relationships with Both Powers

A central theme of the episode is Pakistan’s strategic balancing act between maintaining robust relationships with both the US and China. Despite US policy shifts, Aurangzeb emphasizes that Pakistan views both nations as essential and strategic allies:

“With respect to China, you know, it has been a, you know, a long standing and very strategic relationship for us and it's been led through investment and trade.” [07:44]

When addressing potential pressures to side exclusively with China due to US aid cuts and tariffs, Aurangzeb reiterates Pakistan's commitment to a balanced approach:

“It's an and and discussion.” [09:08]

This stance reflects a nuanced understanding that Pakistan’s geopolitical and economic interests are best served by engaging constructively with both superpowers, rather than aligning solely with one.

Insights and Conclusions

The episode concludes by highlighting Pakistan's pragmatic approach to international relations, particularly in the face of shifting US policies under the Trump administration. While the US has imposed tariffs and reduced aid, Pakistan seeks to mitigate these challenges by deepening ties with China and exploring new trade opportunities.

Adrian Ma summarizes the situation:

“Mohammed says, both China and the US are strategic allies, so Pakistan will continue to work with both countries.” [09:00]

This dual strategy underscores Pakistan's efforts to maintain economic stability and growth by leveraging relationships with multiple global powers, ensuring that it is not overly dependent on any single nation. As global dynamics continue to evolve, Pakistan’s ability to navigate these relationships will be crucial for its economic resilience and regional influence.

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Notable Quotes

• Mohammad Aurangzeb [03:58]: “We have known the what and why for the longest time. It was always a question of the who part of it.”
• Mohammad Aurangzeb [04:40]: “We bring down the leakage in the system. When I say leakage, it's a euphemism for corruption because it takes two to tango.”
• Mohammad Aurangzeb [07:44]: “With respect to China, you know, it has been a, you know, a long standing and very strategic relationship for us and it's been led through investment and trade.”
• Mohammad Aurangzeb [09:08]: “It's an and and discussion.”
• Darian Woods [05:29]: “In March, we clocked 0.7%. So it's a very, very good achievement for the country to have moved in that direction.”

Conclusion

This episode of The Indicator from Planet Money provides a comprehensive look into how Pakistan is navigating its relationships with the US and China amidst global economic tensions. Through insightful interviews and detailed analysis, listeners gain a clear understanding of the strategic decisions and economic policies that define Pakistan's current position on the world stage.

Transcript

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[Darian Woods]

This is the indicator from Planet Money. I'm Darian Woods.

[Adrian Ma]

And I'm Adrian Ma. Have you ever had two friends who fell out with each other and then you're left kinda asked to pick sides? Well, this is the position a lot of countries find themselves in with the US And China right now. Pakistan happens to be one of these countries stuck in the middle. It's got China to its north, but historically it's also had close ties with the US and to make this situation even trickier for Pakistan, it's got other relationships to manage. It's got Iran and Afghanistan to its west, India to its east, and that one's looking particularly dicey right now.

[Darian Woods]

But on today's show, we're focusing on Pakistan's ties with the US And China. How is it juggling these two important economic relationships? We ask Pakistan's minister of Finance whether US Aid cuts and tariffs could push America's friends into the arms of China.

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[Darian Woods]

To learn more about how bystanders are being affected by the financial tug of war between the US And China, we spoke to Pakistan's minister of Finance, Mohammad Aurangzeb. Mohammad's actually pretty new to politics. He was a bank executive working all over the world and took the plunge into politics last year.

[Mohammad Aurangzeb]

I was running the largest bank in the country, which is a systemically important bank. So in Some sense, you're already intertwined with the fortunes of the country.

[Adrian Ma]

And the fortunes of the country were not looking great a year ago once you took into account sky high inflation. Incomes hadn't grown in a decade.

[Darian Woods]

And so this is a time when Mohammed looked around at who was lending money. China. Yes. And also the imf, the International Monetary Fund. It's one of those key global financial organizations. It's based in Washington D.C. and the U.S. holds a lot of sway there.

[Adrian Ma]

But lending from the IMF has strings attached. Usually it's some combination of increasing the ability of the government to collect taxes, reducing government spending, and deregulating business. And that's exactly what the IMF was asking Mohammed to do for Pakistan.

[Mohammad Aurangzeb]

We have known the what and why for the longest time. It was always a question of the who part of it.

[Darian Woods]

Right. You knew what to do, but you didn't know how to get there.

[Mohammad Aurangzeb]

And it's always about implementation and execution.

[Darian Woods]

So you said the what was known. Tell us, what was the what?

[Mohammad Aurangzeb]

Well, you know, as a country, we've gone through these boom and bust cycles. The country has been languishing in tax to GDP of between 9 to 10%.

[Darian Woods]

Right. So it hasn't been able to tax a lot of its population.

[Mohammad Aurangzeb]

Indeed, indeed. And that's what we have been working on and we are moving in the right direction.

[Darian Woods]

Mohammed says that making the tax system fairer, along with stronger enforcement, has been helping to get more of the country to pay taxes. Taxes also the country's been moving more financial services digitally, which can help reduce corruption.

[Mohammad Aurangzeb]

We bring down the leakage in the system. When I say leakage, it's an euphemism for corruption because it takes two to tango.

[Adrian Ma]

He says it's combination of stronger tax collection, more prudent government spending, and higher interest rates that brought down inflation.

[Darian Woods]

Pakistan's central bank had interest rates at 22% last year. That was to reduce people borrowing money and therefore intentionally slowing down the economy to stop the cycle of rising prices.

[Adrian Ma]

22% interest. I mean, that really makes like the US interest rates look tame by comparison.

[Darian Woods]

Sure, but you know, it worked. Pakistan's inflation is actually looking even lower than the US right now.

[Mohammad Aurangzeb]

In March, we clocked 0.7%. So it's a very, very good achievement for, for the country to have moved in that direction.

[Darian Woods]

Yeah. Inflation is less than 1%. That seems like quite an achievement. Did you celebrate at any point when it got, I don't know, below 2%? Was there a Minister of Finance inflation party?

[NPR Sponsor]

Yeah.

[Mohammad Aurangzeb]

No, I Think it's the real celebration is where the common man or common woman is seeing the impact of that lower inflation.

[Adrian Ma]

Okay, so they weren't really, like dancing in the streets. No.

[Darian Woods]

At least he wouldn't admit to that. And, you know, one reason might be that, yeah, sure, he solved one problem, inflation, and now he has another headache. Policies under the Trump administration, foreign aid cuts and tariffs.

[Adrian Ma]

Right. And let's just take the aid cuts first. The overall size of Pakistan's economy is more than $330 billion. Since 2020, the US has sent about $270 million a year in aid to Pakistan for health, education, and building things like roads. But Mohammed downplays the current aid freeze.

[Mohammad Aurangzeb]

Overall, we didn't have a huge reliance on, on this funding. You know, are there going to be issues? Yes. Are they going to be manageable for a country like Pakistan? It's also. Yes.

[Darian Woods]

Okay, but what about those tariffs? They certainly caught Pakistan's attention. 29% tariffs announced in early April. Like many countries, that was temporarily dropped to 10% for 90 days. And in the interim, Pakistan is sending its top officials over to negotiate a possible deal. The country imports cotton from the US that it spins into fabrics and then sews into clothes and linens.

[Mohammad Aurangzeb]

Can we import more cotton? Can we import more soya bean? On the agriculture side, US has already expressed that the access to rare earth and some of the minerals like copper, which is going to play a very important role in the energy transition, that US Wants to have access to that I think we are in a good position to manage that to a very large extent.

[Darian Woods]

What do you make of the argument that as the US Cuts its foreign aid to countries like Pakistan that steers countries closer to China?

[Mohammad Aurangzeb]

Yeah. With respect to China, you know, it has been a, you know, a long standing and very strategic relationship for us and it's been led through investment and trade. If you know the Belt and Road Initiative of China, the China Pakistan economic.

[Darian Woods]

China is big effort internationally to build infrastructure, ports, lending and assisting with construction all around the world.

[Mohammad Aurangzeb]

Indeed.

[Adrian Ma]

And in fact, Pakistan has a project with China called the China Pakistan Economic Corridor. Basically, it's a bunch of lending from China to Pakistan to build ports and roads and rail, and that's to allow China to access oil and gas shipments that arrive at Pakistan's ports.

[Mohammad Aurangzeb]

Phase one was exactly about that infrastructure. Where we are now with China is sort of phase two, which is really now business to business led. So a lot of companies which are coming in, forming joint ventures, whether it's truck tire manufacturing or whether it's the likes of byd, the electric vehicle company. Byd, yeah, so they are coming in. But going forward, using the infrastructure that we have now, is to start assembling and exporting from Pakistan.

[Adrian Ma]

In short, Mohammed says, both China and the US Are strategic allies, so Pakistan will continue to work with both countries.

[Mohammad Aurangzeb]

It's an and and discussion.

[Adrian Ma]

It's not an and or discussion for leaders like Mohammed. All over the world, they've taken different responses in the face of the Trump administration's tariffs. Some have flattered Donald Trump, sending him gifts and compliments. Some have retaliated. That's what China's doing.

[Darian Woods]

Many countries are doing nothing, just waiting for the dust to settle, and others are just quietly trying to cut a deal. Mohammed's answers today suggest that's what Pakistan's trying to do while still staying friends with China.

[Adrian Ma]

This episode was produced by Lily Quiros and engineered by Jimmy Keeley. It was fact checked by Sierra Juarez. Cake and Cannon edits the show and the indicators of production of npr.

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