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The USA–Pakistan Trade Deal: A Complex Relationship of Opportunity and Strategic Tensions – 2026
USA–Pakistan Trade Deal: The relationship between the United States and Pakistan has always been one of strategic necessity, political complexity, and economic opportunity. Their trade and diplomatic ties have evolved through decades of shifting alliances, wars, and mutual dependencies — from the Cold War to the War on Terror and now into the 21st century of shifting global power dynamics.
To understand the USA–Pakistan trade deal, we must explore not only the numbers and agreements but also the geopolitical layers that have shaped this partnership. Let’s unfold the journey step by step — from historical roots to present-day trade tensions and emerging opportunities.
🏛️ 1. Historical Foundation: Cold War Cooperation
To understand the USA–Pakistan trade relationship, we must first travel back to the tense geopolitical climate of the Cold War — a period that defined alliances not by economics, but by ideology and global strategy. In this context, Pakistan’s early partnership with the United States was less about trade and more about mutual geopolitical convenience.
After Pakistan’s independence in 1947, the newly formed nation was searching for both economic assistance and international recognition. The U.S., emerging as a global superpower after World War II, was looking for reliable allies in Asia to contain the spread of Soviet communism. These two needs — one for aid and the other for influence — brought Washington and Islamabad together.
🌍 The Global Context: Two Worlds, Two Ideologies
By the early 1950s, the world had split into two ideological camps:
- The Western Bloc, led by the United States, advocating capitalism, democracy, and free markets.
- The Eastern Bloc, led by the Soviet Union, promoting communism and centralized economies.
South Asia became a region of immense strategic importance. While India chose a policy of non-alignment, refusing to side with either power, Pakistan quickly aligned itself with the U.S., positioning itself as a frontline state against Soviet influence in the region.
This alignment set the stage for decades of military cooperation, financial assistance, and selective trade engagement between the two nations.
🤝 The Early Diplomatic Courtship
In the early 1950s, Pakistan’s leadership under Prime Minister Liaquat Ali Khan sought American support to strengthen the fledgling nation’s economy and defense. Pakistan argued that, as a Muslim-majority state bordering the Soviet Union, it could serve as a bulwark against communism in South Asia and the Middle East.
The U.S. found this appealing. By 1954, both nations had formally entered into a Mutual Defense Assistance Agreement, paving the way for U.S. military and economic aid to Pakistan.
Soon after, Pakistan joined two major American-backed military alliances:
- SEATO (Southeast Asia Treaty Organization) in 1954
- CENTO (Central Treaty Organization) in 1955
These alliances were designed to contain Soviet influence, especially in Asia and the Middle East. Through them, Pakistan gained access to advanced U.S. weaponry, training programs, and economic aid — while the U.S. gained a strategic ally with a geographic advantage near the Soviet border.
💸 Aid Before Trade – America’s Strategic Investment
During the 1950s and early 1960s, the United States emerged as Pakistan’s largest foreign aid donor. The relationship was primarily aid-driven, not trade-driven.
Billions of dollars flowed into Pakistan through USAID and military assistance programs, helping to modernize infrastructure, agriculture, and industry.
Key areas of U.S. assistance included:
- Agricultural development under the “Green Revolution” initiatives.
- Educational and technical exchange programs to develop skilled professionals.
- Military modernization, providing equipment, aircraft, and training to Pakistan’s armed forces.
This period saw the construction of major industrial and energy projects, including dams, highways, and research centers, many of which were built with American technical expertise.
However, the growing aid dependence also made Pakistan’s economy vulnerable to political conditions set by Washington — a trend that would later cause friction.
🔍 Strategic Geography: Pakistan’s Leverage
Pakistan’s location was its biggest asset. Bordering Afghanistan, Iran, India, and China, it offered the U.S. a gateway into Central and South Asia. In return, Pakistan leveraged its geography for economic and military benefits.
The U.S. established intelligence and communication bases in Pakistan, most notably the Badaber Air Station near Peshawar, used for spying on Soviet activities. In exchange, Washington ensured Pakistan received preferential treatment in military aid and development loans.
For Pakistan, this relationship brought short-term gains — modern weapons, financial aid, and international recognition. But it also tied Pakistan’s economy and foreign policy too closely to U.S. strategic goals, often at the expense of long-term independent development.
⚔️ The Limitations of the Alliance
While the 1950s marked a high point of cooperation, the alliance had built-in contradictions:
- The U.S. viewed Pakistan primarily as a strategic pawn against the Soviet Union and China, not as an economic partner.
- Pakistan, on the other hand, sought security guarantees against India, its immediate rival — a concern that the U.S. often downplayed.
This mismatch of objectives created periodic friction. Pakistan expected Washington to side with it in its conflicts with India, especially over Kashmir, but the U.S. preferred neutrality, unwilling to jeopardize relations with New Delhi.
As a result, while the relationship brought military strength, it offered limited economic diversification. Trade remained small, with U.S. imports largely limited to textiles, leather, and agricultural products, while Pakistan imported American machinery, chemicals, and wheat.
🧭 Setting the Stage for Future Conflicts
By the end of the 1960s, it became clear that U.S.–Pakistan relations were built on shifting sands. What began as a strategic friendship started showing cracks when U.S. foreign policy shifted to balance ties with India.
The 1965 Indo–Pakistan War over Kashmir became a turning point — the U.S. suspended military and economic aid to both nations, which Pakistan perceived as a betrayal.
This decision deeply angered Pakistan and marked the beginning of its strategic drift toward China and, later, a closer relationship with the Middle East.
Nonetheless, the Cold War foundation left behind a strong infrastructure of diplomatic, economic, and military cooperation that would resurface whenever Washington and Islamabad found their interests aligned again — as seen later during the Afghan War (1980s) and the War on Terror (2001 onward).
⚔️ 2. The Breakdown: 1965 & 1971 Wars
The alliance between the United States and Pakistan, once considered a model of Cold War cooperation, began to crumble under the weight of conflicting priorities and regional wars.
The Indo–Pakistan wars of 1965 and 1971 were pivotal turning points that exposed the fragility, mistrust, and limits of the U.S.–Pakistan relationship. What began as a strong military and diplomatic partnership based on anti-communist alignment turned into a strained and uncertain relationship, clouded by disappointment on both sides.
Let’s explore how these two wars fundamentally altered the course of U.S.–Pakistan relations — politically, militarily, and economically.
🇵🇰 Background: Pakistan’s Growing Dependence on the U.S.
By the early 1960s, Pakistan had become one of America’s closest allies in Asia.
Under the Mutual Defense Assistance Agreement, Washington had supplied Pakistan with sophisticated military hardware, aircraft, and training.
American aid had helped modernize the Pakistani army, while U.S. investments in agriculture and infrastructure transformed parts of the economy.
Pakistan’s leaders, particularly President Ayub Khan, believed that the U.S. would support Pakistan militarily and diplomatically if conflict broke out with India — especially given the Cold War-era defense pacts (SEATO and CENTO).
However, Pakistan’s assumption that Washington would automatically back it against India proved to be a costly miscalculation.
⚔️ The 1965 Indo–Pakistan War – The First Major Rift
In August 1965, Pakistan launched Operation Gibraltar, sending forces into Indian-administered Kashmir to incite rebellion and challenge Indian control. This escalated into a full-scale war between India and Pakistan in September 1965.
While Pakistan expected strong U.S. support, Washington instead adopted a neutral stance. President Lyndon B. Johnson’s administration refused to take sides, prioritizing regional stability over alliance loyalty.
In fact, the U.S. went a step further — it suspended all military aid and arms supplies to both India and Pakistan.
This move came as a shock to Islamabad, which had built its entire defense strategy around American weapons and training. Pakistan’s armed forces suddenly found themselves without spare parts and replacements for U.S.-made equipment.
For Pakistan, this was nothing short of a betrayal.
🔍 The Economic Fallout
The suspension of U.S. aid affected more than just defense. Economic assistance under USAID also slowed down, creating pressure on Pakistan’s development programs. The once-flourishing trade and aid ties began to stagnate.
Meanwhile, Washington grew concerned that Pakistan’s leadership was becoming too dependent on military solutions and not investing enough in democratic institutions or economic reforms.
The 1965 war marked the beginning of a strategic realignment in South Asia:
- Pakistan started loosening its ties with the U.S.
- And began strengthening its relationship with China, which had also fought a border war with India in 1962.
This realignment would later transform regional politics — and further strain Washington’s influence in Islamabad.
🌍 The 1971 War – The Final Blow
If the 1965 war created cracks, the 1971 Indo–Pakistan War completely shattered the U.S.–Pakistan alliance.
The background was complex.
East Pakistan (today’s Bangladesh) was rising in rebellion against political dominance and economic neglect by West Pakistan. The Awami League, led by Sheikh Mujibur Rahman, had won national elections, but the military government in West Pakistan refused to transfer power.
This led to a brutal civil war, as Pakistani military forces launched Operation Searchlight in March 1971 to crush the Bengali independence movement. Reports of mass killings, rapes, and atrocities flooded international media, sparking global outrage.
While most of the world condemned Pakistan’s military actions, the United States — under President Richard Nixon and Secretary of State Henry Kissinger — continued to support Pakistan’s regime, led by General Yahya Khan.
💬 Why the U.S. Supported Pakistan Despite Human Rights Concerns
The answer lies in Cold War geopolitics.
In 1971, Nixon was pursuing a historic secret diplomatic opening to China — and Pakistan was the intermediary. Yahya Khan’s government had facilitated communication between Washington and Beijing, paving the way for Nixon’s eventual visit to China in 1972.
Thus, even as Pakistan’s military actions in East Pakistan led to humanitarian disaster, Washington prioritized strategic diplomacy over moral responsibility.
🛳️ The Seventh Fleet Incident – A Symbol of Mistrust
When the war between India and Pakistan erupted in December 1971, the United States dispatched the USS Enterprise, part of the Seventh Fleet, to the Bay of Bengal.
Officially, Washington claimed the move was to evacuate American citizens and ensure stability.
However, for India and much of the world, it looked like a threatening show of force in support of Pakistan.
The move backfired diplomatically — it deepened anti-American sentiment in India and embarrassed the U.S. globally, as the Indian Army achieved a swift victory that led to the creation of Bangladesh on December 16, 1971.
For Pakistan, the war was a devastating loss — it lost half its population and territory, and its economy plunged into crisis.
For the United States, it marked the end of an era. Washington’s political support for Pakistan had achieved little, and its global image suffered due to its perceived complicity in the 1971 atrocities.
📉 Economic and Diplomatic Fallout
In the aftermath of 1971, U.S.–Pakistan relations entered a period of cooling and uncertainty:
- Economic assistance was reduced dramatically.
- Military cooperation was scaled back.
- Pakistan’s trust in the U.S. as a reliable ally was severely damaged.
Islamabad, now under Zulfikar Ali Bhutto, turned toward China and the Soviet bloc for new partnerships. Bhutto initiated Pakistan’s nuclear program in response to India’s growing regional dominance — another step that distanced Islamabad from Washington.
The U.S., on its part, began strengthening ties with India, recognizing its democratic stability and economic potential as a counterweight to China and the Soviet Union.
🧭 Lessons from the Breakdown
The twin wars of 1965 and 1971 revealed the fundamental weaknesses in the U.S.–Pakistan alliance:
- It was built on strategic convenience, not shared values or economic interdependence.
- Pakistan expected unconditional support, especially against India — but the U.S. operated under global calculations.
- Washington viewed Pakistan as a means to an end, not as an equal partner.
- Economic and trade relations were always subordinate to political and military priorities.
As a result, both nations emerged disillusioned:
- Pakistan realized that the U.S. could abandon it when interests shifted.
- The U.S. concluded that Pakistan’s expectations were too narrowly focused on its rivalry with India.
🔄 The Aftermath – Realignment and Reset
After 1971, Pakistan gradually recalibrated its foreign policy, deepening relations with China and maintaining cautious engagement with Washington.
While the 1960s alliance had brought infrastructure, aid, and investment, the wars exposed the reality that the U.S.–Pakistan relationship was transactional, fragile, and dependent on global circumstances.
The 1970s marked a period of diplomatic frost, but not complete disengagement — because soon, the Soviet invasion of Afghanistan in 1979 would once again bring Pakistan back to the center of American strategic calculations.
💰 3. The Economic and Trade Reconnection in the 1980s
The Soviet invasion of Afghanistan (1979) changed everything. The U.S. once again turned to Pakistan — this time as a frontline state in its campaign to defeat Soviet forces.
The 1980s saw a renewal of aid and trade agreements:
- Pakistan received over $3.2 billion in U.S. assistance between 1982 and 1987.
- Trade between the two nations rose steadily as U.S. businesses re-engaged with Pakistan’s textile, cotton, and manufacturing industries.
- Washington also granted duty-free access to some Pakistani goods under the Generalized System of Preferences (GSP).
However, this partnership was tied to geopolitical conditions, not pure economics. Once the Soviet Union withdrew from Afghanistan in 1989, American interest quickly faded again.
🚫 4. Sanctions, Isolation, and Tensions (1990s)
In the 1990s, the relationship deteriorated sharply. The U.S. imposed sanctions on Pakistan under the Pressler Amendment (1990) due to concerns over Pakistan’s nuclear weapons program.
This decision froze much of the aid and halted military and economic cooperation. The U.S. suspended $1.2 billion in assistance and even blocked delivery of F-16 fighter jets that Pakistan had already paid for.
During this decade, trade between the two countries stagnated. Pakistani exports — mainly textiles, leather goods, and sports equipment — continued modestly, but the overall relationship was politically strained.
⚔️ 5. Post-9/11: The Strategic Revival and Trade Growth
The September 11, 2001 terrorist attacks once again transformed the U.S.–Pakistan dynamic. Pakistan became a major non-NATO ally in America’s War on Terror.
In return, Washington lifted sanctions, re-established military and financial cooperation, and opened up trade and investment channels.
Between 2001 and 2010:
- The U.S. provided over $30 billion in aid (military and civilian combined).
- Trade between the two countries tripled, with Pakistan exporting textiles, rice, surgical instruments, and leather goods.
- American companies began investing in Pakistan’s energy, agriculture, and technology sectors.
Yet, this phase also exposed deep mistrust. U.S. policymakers accused Pakistan of harboring terrorist networks, while Pakistan accused the U.S. of using it as a pawn and violating its sovereignty (especially after the 2011 Osama bin Laden raid in Abbottabad).
Thus, even as trade grew, political distrust overshadowed economic potential.
📊 6. The Trade Landscape Today
As of 2024, the United States remains one of Pakistan’s largest trading partners.
According to recent data:
- Total bilateral trade exceeds $12 billion annually.
- Pakistan’s exports to the U.S. include textiles, leather goods, surgical instruments, and IT services.
- U.S. exports to Pakistan include aircraft, machinery, medical equipment, and agricultural products.
The U.S. is Pakistan’s single largest export destination, absorbing nearly 20% of Pakistan’s total exports, particularly in textiles and garments.
In contrast, Pakistan imports relatively little from the U.S., creating a trade surplus in Pakistan’s favor — a rare case for a developing country.
However, there is no formal Free Trade Agreement (FTA) between the two nations, despite repeated discussions. The U.S. continues to support Pakistan under trade preference programs, but Washington has often tied expanded access to labor rights, security cooperation, and transparency conditions.
⚙️ 7. Key Trade Sectors and Cooperation
🧵 Textile Industry
Pakistan’s textile exports dominate its trade with the U.S., with products like cotton yarn, denim, and home furnishings leading the list. The GSP program offers tariff relief for several of these categories, though not for key apparel products — a long-standing demand from Islamabad.
💻 Information Technology
In recent years, Pakistan’s IT export sector has grown rapidly. U.S. tech companies are now sourcing software services and digital solutions from Pakistani startups. The freelance and remote tech economy has become a bridge between the two countries’ youth populations.
🌾 Agriculture and Food
The U.S. exports soybeans, corn, and cotton to Pakistan, while importing mangoes, rice, and spices. Joint research in agricultural biotechnology has also seen progress under USAID-supported programs.
⚡ Energy and Infrastructure
The U.S. has invested in Pakistan’s energy diversification, including renewable energy and hydropower projects. The U.S.-Pakistan Clean Energy Partnership is one such initiative aimed at sustainable development.
🔥 8. The Current Conflict Points
In the modern geopolitical landscape, the USA–Pakistan relationship stands at a crossroads — complicated, strategic, and often filled with mutual suspicion. While trade and aid still connect the two nations, deep-rooted political, security, and diplomatic tensions have created multiple layers of conflict that continue to test the endurance of this long-standing yet fragile partnership.
Let’s explore the major conflict points that define today’s uneasy relationship between Washington and Islamabad:
⚖️ 1. The Afghanistan Factor – The Heart of the Rift
The U.S. withdrawal from Afghanistan in 2021 became a defining moment in reshaping Pakistan–U.S. relations. Washington accuses Islamabad of providing safe havens to the Taliban, indirectly enabling the group’s return to power. For years, U.S. officials have claimed that Pakistan’s intelligence agency (ISI) maintained covert links with Taliban leadership — even as Pakistan publicly supported U.S. counterterrorism efforts.
From Pakistan’s viewpoint, it was placed in an impossible situation — caught between Western expectations and its regional security concerns, especially regarding India’s influence in Afghanistan. The result? A complete trust deficit that continues to poison diplomatic dialogue.
💣 2. Counterterrorism Disagreements
The United States views Pakistan as a “double-edged partner” in its counterterrorism operations. Despite billions in U.S. military and financial aid, Washington argues that Pakistan has failed to dismantle terror networks like the Haqqani Network and Lashkar-e-Taiba, which threaten U.S. interests and regional stability.
Pakistan counters that it has sacrificed more than 70,000 lives in its fight against terrorism and accuses the U.S. of ignoring its sacrifices while favoring India’s narrative. The constant blame game has turned what was once a “strategic partnership” into a transactional relationship dominated by suspicion.
💰 3. Declining Trade and Aid
Once a major recipient of U.S. aid, Pakistan now finds itself facing reduced trade volumes and shrinking investment opportunities. The U.S. suspended security assistance worth hundreds of millions of dollars under the Trump administration, citing a lack of “decisive action” against terrorist groups.
Moreover, Washington’s focus has shifted towards India’s booming market and growing tech sector, leaving Pakistan struggling to attract American business interest. U.S. companies increasingly view Pakistan as politically unstable and economically fragile, further weakening economic ties.
🛰️ 4. China–Pakistan Alliance – The Real Strategic Headache
Perhaps the biggest irritant in Washington’s eyes is Pakistan’s deepening relationship with China. The China–Pakistan Economic Corridor (CPEC), valued at over $60 billion, is part of Beijing’s Belt and Road Initiative — a project the U.S. perceives as a geopolitical tool to expand Chinese influence.
This alliance not only binds Pakistan economically to China but also strategically alienates it from the West. American policymakers worry that Pakistan’s dependence on Beijing is transforming it into China’s regional proxy, thereby limiting Washington’s leverage in South Asia.
⚙️ 5. Nuclear Tensions and Non-Proliferation Concerns
The U.S. has long been uneasy about Pakistan’s nuclear program, particularly its rapid development of tactical nuclear weapons. Washington fears that these weapons could fall into the hands of extremist groups or destabilize regional security.
Pakistan, meanwhile, argues that its nuclear arsenal is a defensive necessity against India’s conventional superiority. Any U.S. attempt to restrict or question its nuclear policy is viewed in Islamabad as an infringement on national sovereignty.
🗳️ 6. Political Instability and Human Rights Criticism
The U.S. frequently expresses concern over Pakistan’s democratic backsliding, curbs on media freedom, and military influence in politics. Recent political turmoil — including the ouster of former Prime Minister Imran Khan and the ensuing protests — has further strained perceptions in Washington.
At the same time, Pakistan accuses the U.S. of “political interference” and favoring certain power blocs, fueling anti-American sentiment among the Pakistani public.
🌐 7. Diverging Global Alignments
In the emerging multipolar world, Pakistan’s foreign policy has tilted away from the West. It is strengthening ties with China, Russia, Turkey, and Gulf states, while the U.S. is consolidating alliances with India, Japan, and Australia through the QUAD framework.
This divergence in global outlook means that Pakistan and the U.S. no longer share a common strategic vision. The era of Cold War–style alignment is long gone, replaced by interest-based diplomacy where cooperation is conditional and temporary.
🧩 8. Technology, Sanctions, and Trade Restrictions
Another growing area of conflict lies in technology transfer and sanctions. The U.S. has repeatedly restricted Pakistan’s access to advanced defense and dual-use technologies, citing proliferation risks. Additionally, Pakistan’s grey-listing by the Financial Action Task Force (FATF) — partly under U.S. pressure — damaged its international credibility and foreign investment inflows.
Islamabad perceives these moves as economic bullying, while Washington justifies them as counterterrorism safeguards. The result is a lingering bitterness that extends into trade, defense, and diplomatic circles.
⚖️ 9. Humanitarian and Economic Crisis Response
While the U.S. remains one of Pakistan’s top donors for humanitarian assistance — especially during floods and disasters — Islamabad argues that aid is not enough and that true partnership requires fair trade and investment, not conditional support.
Washington, however, insists on reforms, transparency, and governance improvements before committing to deeper economic cooperation. This mismatch in expectations continues to hinder meaningful progress.
🔮 10. The Way Forward – Between Realism and Opportunity
Despite all the friction, the U.S. and Pakistan are not enemies. Their relationship is best described as “complicated but necessary.” The U.S. still needs Pakistan’s cooperation in areas like counterterrorism, regional stability, and climate resilience, while Pakistan sees the U.S. as a vital partner for trade, technology, and education.
For this uneasy alliance to thrive, both nations must move beyond transactional politics and rebuild trust through transparent dialogue, people-to-people partnerships, and economic cooperation.
In a world shifting toward new power centers, the future of U.S.–Pakistan relations will depend not on nostalgia or aid, but on mutual respect, balanced diplomacy, and shared long-term goals.
🌍 9. Future Prospects – Toward a Balanced Trade Partnership
Despite the tensions, both countries recognize the need for stable trade relations. In a shifting global economy, Pakistan offers cheap manufacturing labor, a growing tech sector, and a strategic location connecting South Asia, Central Asia, and the Middle East.
The United States, on the other hand, remains Pakistan’s most valuable export market and a source of technology, investment, and innovation.
Possible Future Developments:
- Renewed GSP benefits with expanded textile access.
- Digital trade frameworks for IT cooperation.
- Green energy partnerships focusing on solar and wind power.
- Defense industry localization, allowing Pakistan to co-produce defense equipment with U.S. firms.
However, for these to materialize, both nations must move beyond transactional politics and embrace long-term economic diplomacy.
🕊️ Conclusion: Trade as a Bridge Beyond Politics – USA–Pakistan Trade Deal
The USA–Pakistan trade relationship is not just about commerce — it is about strategic patience, economic resilience, and mutual adaptation. Over the decades, it has withstood wars, sanctions, mistrust, and shifting alliances.
While Washington often views Pakistan through the lens of security and terrorism, and Islamabad sees America as an unreliable partner, trade remains the one domain where both sides continue to find common ground.
If managed wisely, this trade relationship could evolve from a conditional partnership into a mutual growth alliance — one where geopolitics is replaced by shared prosperity.
In the 21st century, as the global order realigns around new powers like China and India, both the U.S. and Pakistan must realize that economic cooperation — not political dependency — is the only path forward.
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