From Aid Dependence to Economic Sovereignty: Evaluating Pakistan–USA Economic Relations in the War on Terror Era

Abstract

Following the terrorist attacks of 11^th September 2001, Pakistan positioned itself as a pivotal partner in the United States-led War on Terror, standing at the crossroads of strategic security cooperation and economic engagement. This study interrogates the evolution of that partnership, concentrating on the ways in which security-centred collaboration shaped macroeconomic policy choices, external assistance inflows, commercial patterns, and Pakistan’s wider development trajectory. Employing a qualitative design grounded in governmental archives, policy reports, and peer-reviewed scholarship, the analysis reveals that financial transfers from Washington provided important short-term support yet simultaneously entrenched a reliance on external aid, thereby intensifying pre-existing structural vulnerabilities. Bilateral trade remained markedly uneven, characterised by narrow product concentration and persistent obstacles to Pakistani market entry. Moreover, conditionalities embedded within United States assistance packages constrained economic sovereignty, influencing domestic governance practices and reform agendas. The investigation also situates the relationship within a shifting geopolitical environment marked by the ascent of the People’s Republic of China and Islamabad’s gradual reorientation toward regional affiliations, developments that began to recalibrate conventional Pakistan–United States economic parameters. The findings underscore an urgent need for Pakistan to recalibrate away from a dependence-oriented model toward one anchored in reciprocal trade and productive investment. Such a shift would better align national development objectives with contemporary geopolitical realities, fostering a partnership with the United States that is more balanced, sustainable, and conducive to long-run economic resilience. Achieving this transformation demands a coherent industrial policy, diversified export bases, and transparent governance to attract stable foreign capital flows.