US President Donald Trump has announced a steep 50 percent tariff on imports from India, effective Aug 27, a move economists say marks another escalation in Washington’s trade war tactics.
The tariffs do not stop with India; Bangladesh, Pakistan and Sri Lanka have also been hit with higher rates. Nepal, however, faces a comparatively modest 10 percent tariff. Economic experts believe this lower rate could give Nepal a temporary edge in the US market, especially in products like hand-knotted carpets and readymade garments. But they caution that the benefit will only materialize if Nepal can ramp up production.
According to the Department of Customs, Nepal exported goods worth Rs 18.32bn to the US in the last fiscal year, while imports from the US reached Rs 25.97bn, leaving Nepal with a trade deficit of more than Rs 7bn. The US is Nepal’s second-largest export destination after India, with roughly 320 products shipped to the world’s largest economy annually.
Former Finance Secretary Chairperson of High-Level Economic Reforms Advisory Commission, Rameshore Khanal, believes higher tariffs on Indian goods could push some US buyers toward Nepal. India sends about 18 percent of its exports to the US, including garments and pharmaceuticals. If those products become more expensive, Nepal could see new demand for similar items, he added.
“Bangladesh and India will struggle to compete in garments if their export tariffs to the US remain double or more than Nepal’s,” Khanal said. “This could also attract foreign investors to set up manufacturing in Nepal to take advantage of the lower rate.”
Still, a recent study by the South Asia Watch on Trade, Economics and Environment (SAWTEE) warned that Nepal’s advantage might be short-lived, as the US could change its tariff policy if it signs new trade deals with larger economies. The study, titled “Decoding US’ Reciprocal Tariff: A Nepal Perspective”, urges Nepal to prepare a long-term trade strategy, improve the investment climate, diversify export markets and expand its product base to reduce foreign trade risks.
Industry leaders say the immediate impact on Nepal will be minimal, as the US tariffs target finished goods exported from India, not raw materials that may be re-exported via Nepal. “Only if global prices of certain goods rise will Nepal feel the effect,” said Akash Golchha, executive member of the American Chamber of Commerce in Nepal. “It will only be a problem for India because the revised rate applies to them.”
According to Golchha, even if a product is an American brand, if it is manufactured in India and sent to Nepal, it makes no difference. “This is for finished goods, not raw materials. If India imports raw materials from the US, manufactures them, and sends them to Nepal, there is no duty on that,” he said. “Since the US has raised tariffs only on India’s exports, goods going from Nepal will not be affected.”
Still, the shift in trade flows could lower prices for some imports into Nepal, as Indian manufacturers look for alternative markets to offload goods originally intended for the US.
Kshitij Dahal, senior research officer at SAWTEE, also said higher US tariffs would not make any impact on Nepal. “There are chances of Indian and Bangladesh garment manufacturers entering Nepal to open their factories to benefit from low tariffs for Nepal,” he added. Dahal expects foreign direct investment to come into the country to benefit from low tariffs. “However, since it is uncertain how long the US will maintain such tariffs, it is difficult to be certain about these possibilities for Nepal.”
While the new tariffs offer an opening for Nepal’s exports, the uncertainty over how long the US will maintain these rates makes it difficult to plan investments. Trade experts say Nepal must act quickly to exploit its comparative advantages in the US where it already enjoys preferential US access for 77 products.
Khanal believes Nepal should court garment manufacturers from Bangladesh and India to relocate production to Nepal. “With the US not raising tariffs on Nepal and the MCC compact moving forward, there is a real chance of attracting investment in Nepal and boosting exports,” he added.
