The Indicator from Planet Money - Is the US pushing countries towards China?

Episode Date: April 29, 2025

As the U.S. goes head-to-head with the rest of the world on tariffs, those countries are trying to figure out their best diplomatic strategy. One dilemma countries have is how close they get with another global superpower: China. On today's show, we hear from Pakistan's Finance Minister Muhammad Aurangzeb about how the country is balancing trade relations with both countries.Related episodes: China's trade war perspective (Apple / Spotify) Dealmaker Don v. Tariff Man Trump (Apple / Spotify) Who's advising Trump on trade? (Apple / Spotify) For sponsor-free episodes of The Indicator from Planet Money, subscribe to Planet Money+ via Apple Podcasts or at plus.npr.org. Fact-checking by Sierra Juarez. Music by Drop Electric. Find us: TikTok, Instagram, Facebook, Newsletter. See pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences.NPR Privacy Policy

NPR. This is the indicator from Planet Money. I'm Darym Woods. And I'm Adrian Ma. Have you ever had two friends who fell out with each other and then your left kind of asked to pick sides? Well, this is the position a lot of countries find themselves in with the U.S. 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 U.S.

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. But on today's show, we're focusing on Pakistan's ties with the U.S. and China. How is it juggling these two important economic relationships? We ask Pakistan's Minister of Finance whether U.S. aid cuts and tariffs could push America's friends into the arms of China. To learn more about how bystanders are being affected by the financial tug of war between

the U.S. and China, we spoke to Pakistan's Minister of Finance, Mohamed Orang Zab. Marmad's actually pretty new to politics. He was a bank executive working all over the world and took the plunge into politics last year. 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. 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. And so this is a time when MoMAD 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. lot of sway there. 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, we have known the what and why for the longest time. It was always a question of the who part of it. Right. You knew what to do, but you didn't know how to get there. And it's always about implementation and execution.

So you said the what was known. Tell us what was the what? Well, you know, as a country, we've gone through this boom and bus cycles. The country has been languishing in tax to GDP of between 9 to 10%. Right. So it hasn't been able to tax a lot of its population. Indeed, indeed. And that's what we have been working on and we are moving in the right direction. Mammat says that making the tax system fairer, along with stronger enforcement, has been helping to get more of the country to pay taxes. Also, the country's been moving more financial services digitally, which can help reduce corruption. We bring down the leakage in the system. When I say leakage, it's an euphemism for corruption

because it takes two to tango. He says it's a combination of stronger tax collection, more prudent government spending, and higher interest rates that brought down inflation. 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. 22% interest. I mean, that really makes like the US interest rates look tamed by comparison. Sure, but, you know, it worked. Pakistan's inflation is actually looking even lower than the US right now.

In March, we clocked 0.7%. So it's a very, very good achievement for the country to have moved in that direction. 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? Yeah, no, I think it's the real celebration is where the common man or common woman is seeing the impact of that lower inflation.

Okay, so they weren't really like dancing in the streets. No, 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. 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 U.S. 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. Overall, we didn't have a huge reliance 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. 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. Can we import more cotton? Can we import more soybean 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. 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? 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 and trade.

If you know the Belt and Road Initiative of China, the China-Pasthan economic... Yes, China's big effort internationally to build infrastructure, ports, lending, and assisting with construction all around the world. Indeed.

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.

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.

In short, Mohamed says both China and the U.S. are strategic allies, so Pakistan will continue to work with both countries. It's an and-end discussion. It's not an end-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 is doing. Many countries are doing nothing, just waiting for the dust to settle. And others are just quietly trying to cut a deal.

Mohamed's answers today suggest that's what Pakistan's trying to do, while still staying friends with China. This episode was produced by Lily Kiroz and engineered by Jimmy Keeley. It was fact-checked by Sierra Juarez, Kikin Canon edits the show, and the indicators of production of NPR.