Last year, on April 2, the Trump administration declared a nationwide crisis over the national trade deficit, citing it as Liberation Day, where Trump announced “discounted reciprocal tariffs” for all nations that the United States traded with. Nepal too was affected by this move, with the administration assessing a 10% blanket tariff on imports of Nepalese products into the United States.
When Wall Street plunged overnight and global markets turned red, few Nepali exporters realized that a decision made in Washington would soon affect their livelihoods. The move was reminiscent of the first Trump administration, which used Section 232 and 301 to impose tariffs on global steel and aluminium imports. Various nations criticized the policy, but as pledged by Trump, the tariffs were not removed. A joint survey conducted by Reuters and IPSOS found that 57% of Americans oppose tariffs, making it a controversial move both nationally and internationally.
Nepal’s economy mainly has three exports: tea, handicrafts, and carpets. These exports account for an aggregate amount of more than NPR 17 billion. Comprising 5% to 7% of total exports by value, it is one of Nepal’s emerging sectors for economic and financial growth. In 2024, Nepal’s goods trade with the US stood at $240 million USD, or NPR 34 billion. Trump’s tariffs on such exports have made it significantly more expensive for the US to import.
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According to an issue note from South Asia Watch on Trade, Economics and Environment (SAWTEE), a 10% tariff imposition on Nepali goods will result in a 0.0096% decline in national output. This may seem minor, but it is equivalent to losing the annual income of thousands of small exporters or several medium-sized manufacturing firms. Nepali businesses will be unable to compete against products from other countries in terms of quality and price, possibly discouraging business confidence and foreign investment.
At the international stage, economic powerhouses like India have faced severe economic and welfare loss. Trump’s additional 25% tariff, along with the original 25% tariff introduced on Liberation Day, has caused a 0.2% to 0.5% reduction in India’s GNP. This means that a cloth manufacturer from Odisha would not be able to compete against US cloth manufacturers in their domestic market. India’s clothing industry, for example, has seen a potential 70% drop in US order volumes, threatening up to 200,000 jobs in manufacturing centres like Tirupur, Noida, and Surat. The fourth-largest economy, in comparison, has faced a much more alarming economic decline than Nepal’s $44 billion economy.
Data from the United States Trade Representative suggests bilateral trade with the US hovers at an estimated $1.7 billion in 2024, with the US having a trade surplus of more than $799 million. This data clearly exemplifies that while India is Nepal’s largest trading partner, growing overdependence on trade with the US makes the impact of tariffs on Nepali exports overwhelming. For this reason, Nepal must adopt an export diversification policy, trading more with Asian economies and powerhouses. At present, Nepal’s exports lack goods of standard quality for export. Exporting more goods to demand-hungry economies like South Korea and Japan, while maintaining quality and standardization, can allow Nepal to recover from US tariffs.
Furthermore, policymakers should craft strategies to increase exports. Subsidising certain exports, providing tax incentives for manufacturing, and simplifying business registration will inevitably increase foreign investment and trade. Implementing more industrial zones, ensuring appropriate distribution of electricity, and providing other amenities for industries will incentivize entrepreneurs to establish industries in tier 2 and tier 3 cities as well. Vocalizing policy issues on international platforms like the World Trade Organization, and advocating for exemption rights for landlocked countries, will solidify Nepal’s position in South Asia as a key exporter of goods.
Trade resilience and structural transformation within the economy are crucial. Reports from the Nepal Rastra Bank and National Statistics Office clarify that Nepal’s economy is heavily dependent on agriculture, which constitutes more than 25.16% of the economy, while the industrial sector makes up only 12.83%. Value chain upgrading is important so that Nepal can export goods that are competitive in terms of price, quality, and utility. Shifting Nepal’s economy from an agricultural to an industrial one requires effective on-ground implementation of policies and reducing regional disparity between regions.
While Nepal cannot directly influence protectionist shifts in other economies, it can strengthen its current stance using export diversification and other protective policies. Trump’s tariffs, therefore, should not be seen as an external shock but as a warning—that sustainable economic growth relies on structural transformation rather than dependence on a few foreign markets.
The author is studying A-Level at Rato Bangala School
