In the face of global trade uncertainties, Nepal must proactively adapt to geopolitical shifts while diversifying its economic partnerships. Strengthening regional ties, investing in domestic industries, leveraging supply chain shifts, and prioritizing digital transformation will be key to sustaining economic growth and reducing external dependencies. A well-calibrated trade strategy, backed by strong governance and infrastructure development, can enable Nepal to navigate the evolving global trade landscape with confidence.

Adapting to geopolitical realities

Nepal should reduce dependence on major powers like the US and China by expanding trade partnerships within South Asia and beyond. Strengthening economic ties with regional and interregional platforms such as BBIN, SAARC, BIMSTEC, ASEAN, IORA, and the African Union can provide alternative markets and enhance economic resilience. Additionally, closer engagement with EU agencies and Middle Eastern economies can help diversify Nepal’s trade and investment sources.

However, deepening foreign trade relations demands strong governance and accountability. Nepal must implement stricter scrutiny on foreign aid to ensure effective fund utilization, while also building trust with international donors.

Overcoming institutional challenges

A major roadblock to regional trade integration is bureaucratic inertia and political unwillingness to implement complex initiatives. Keay challenges include:

• Limited political commitment to advancing regional economic cooperation.
• Under-resourced institutions that lack the capacity to negotiate and implement effective trade policies.
• A shortage of skilled professionals with expertise in international trade and economics.

To overcome these obstacles, Nepal must prioritize institutional reforms and invest in building a capable workforce equipped to navigate the intricacies of global trade.

Solution: Invest in human capital

Nepal must empower its workforce with skills in IT, AI, and fintech to make the economy more adaptable to global shifts. Skilled labor will be a critical factor in leveraging the ongoing supply chain shifts from China to South Asia, where Nepal can benefit through IT outsourcing and low-cost manufacturing.

Diversification and self-sufficiency

To strengthen its economic base, Nepal must focus on domestic revenue generation. Key strategies include:

• Taxation reforms to enhance revenue collection and reduce reliance on foreign aid.
• Industrial growth and public-private partnerships (PPPs) to boost productivity and innovation.
• Regulatory simplification to eliminate bureaucratic red tape and foster a business-friendly environment.
• Digitization of trade and business processes to minimize corruption and improve efficiency.

Strengthening domestic industries

Nepal must reduce reliance on imports by fostering growth in agriculture, manufacturing, and services. Instead of exporting raw materials, Nepal should develop processing and manufacturing capabilities to create value-added products. Agro-based, herbal, natural fiber, and bamboo industries hold significant potential to generate employment and exports.

FDI and trade policy reforms

To attract FDI, Nepal should offer incentives in manufacturing, energy, and technology sectors. Simultaneously, tracking global trade policies—especially tariffs imposed by the US on China, the EU, and India—can help Nepal identify trade opportunities and capitalize on shifting market dynamics. Key considerations include:

• Analyzing how global firms and markets are adjusting to US tariffs and leveraging these shifts to Nepal’s advantage.
• Assessing the impact of rising consumer costs in the US and negotiating preferential market access for Nepali products.
• Capitalizing on the supply chain shift from China, which is expected to redirect five percent of global production to South Asia. Nepal can position itself as a hub for IT services and cost-effective manufacturing, provided it reforms labor laws to ensure fair wages and job security.
• Rather than pursuing retaliatory trade measures, Nepal should adopt a strategic diplomatic approach, negotiating preferential market access while quietly building trade capabilities.

Infrastructure and trade facilitation

The government must focus on policy reforms, trade facilitation, and accreditation to ensure that Nepali products meet international standards. Key infrastructure investments include:

 

• Developing transshipment ports to enhance access to international markets.
• Strengthening logistics and port-road connectivity to reduce trade bottlenecks.
• Enhancing trade-related services to streamline export and import processes.

Nepal must also maximize economic diplomacy by leveraging the Hub and Spoke Mission approach. Appointing trade specialists and improving foreign policy foresight and scenario planning within the Ministry of Foreign Affairs can strengthen Nepal’s position in international trade negotiations.

Conclusion

Given the shifting geopolitical landscape and evolving US trade policies, Nepal must tread carefully to safeguard its trade interests. The US’s increasing reliance on tariffs and sanctions as economic tools, along with rising tensions between major global economies, calls for a strategic and diversified approach in Nepal’s trade policies. To strengthen resilience, Nepal must focus on regional cooperation, trade diversification, and digital transformation while ensuring robust governance and policy reforms.