The global trade landscape is rapidly evolving amid geopolitical tensions, economic uncertainties, and evolving tariff policies. Notably, the United States has imposed steep tariffs from 10%- 145% under a reciprocal tariff announcement, depending on trade records of respective economies. Nepal, which maintains a balanced trade relationship with the United States in terms of import and export volumes, currently operates under a baseline tariff of 10%. Historically, Nepal has benefited from preferential market access to the U.S. through initiatives such as the Generalized System of Preferences (GSP) and the Nepal Trade Preference Program (NTPP). These trade facilitation schemes have granted duty-free or reduced-tariff entry for a range of Nepali products, most notably textiles, apparel, and handicrafts.Recent developments in U.S. trade policy, particularly the imposition of significantly higher tariffs on exports from competing countries, may present a strategic window of opportunity for Nepal. With competitor nations facing elevated entry costs, Nepali products may become comparatively more attractive in the U.S. market. Capitalizing on this advantage requires Nepal to enhance its export readiness, maintain compliance with U.S. market standards, and scale up production of high-demand goods to effectively fill the competitive void.
Globally, peer economies like Vietnam, Malaysia, and Mexico have demonstrated how countries can pivot in response to shifting trade dynamics. In the wake of the U.S.-China trade war, Vietnam rapidly attracted investment from companies relocating their supply chains. By building robust production systems, streamlining export procedures, and offering investor-friendly environments, these countries have leveraged trade disruptions to their advantage. In contrast, Nepal continues to struggle with fundamental constraints—poor infrastructure, limited skilled labor, and bureaucratic hurdles that stifle export growth. Nepal's trade with the U.S. reached USD 241 million last year, amid the weak supply capacity to meet global demand for its niche, high-value products such as pashmina, tea, coffee, and handmade paper. The main bottlenecks include weak backward linkages in production, low productivity, and an underdeveloped supply chain ecosystem. Nepal’s small importer base and poor connectivity to international markets further limit its ability to respond to emerging global trade opportunities. Unless these gaps are addressed, Nepal risks missing out on the advantages created by global tariff realignments.
As shifting U.S. tariffs disrupt global trade flows, Nepal has a rare chance to boost exports—if it can strengthen supply chains, diversify products, reduce the cost of production, establish a specialty product base, and fully utilize preferential trade schemes.
Dealing with reciprocal tariffs
In the face of an increasingly volatile international trade environment, addressing reciprocal tariffs requires a multifaceted strategy. While tariff-related challenges must be managed proactively, they are not the sole determinant of trade performance. A comprehensive approach that includes market diversification, quality enhancement, alignment with evolving international standards, and strengthening of trade negotiation capabilities is essential for promoting Nepal’s trade interests.
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Nepal must prioritize the development of niche markets through the production and export of specialized, high-value, and innovative products. Equally important is the strategic reduction of production costs to enhance price competitiveness in global markets. These efforts, combined with sustained market research and adaptability, will enable Nepal to navigate tariff uncertainties and seize emerging trade opportunities.Given the ambitious trade targets being set by key global players, such as the joint India–U.S. initiative to boost bilateral trade to USD 500 billion by 2030, Nepal must also adopt a forward-looking approach. This involves setting clear trade expansion goals and engaging in proactive negotiations with prospective trade partners.
To mitigate the persistent trade deficit and strengthen its trade balance, Nepal should reinforce and recalibrate trade relations with major partners, including India, China, the United Kingdom, the United States, Japan, and the European Union. Constructive engagement and strategic bilateral or multilateral negotiations are critical in redefining trade terms that are mutually beneficial.Although tariffs are inherently unpredictable and often influenced by geopolitical and economic shifts, other trade facilitation measures—such as product innovation, institutional reform, infrastructure development, and human capital investment—can and should be implemented with a long-term vision. Similarly, reducing the cost of production and operation, enhancing quality, promoting indigenous products, and promoting them as specialty products in targeted markets can also strengthen Nepal’s presence in the international arena. These foundational strategies will enhance Nepal’s resilience in the global trade arena and ensure sustained economic growth.
LDC graduation and Nepal
Moreover, Nepal is set to graduate from its Least Developed Country (LDC) status by 2026. This transition, while marking developmental progress, will also lead to the phasing out of many trade privileges currently enjoyed under schemes like the GSP. The European Union offers the GSP Plus scheme for post-LDC countries, which could help Nepal retain access to EU markets. However, eligibility for this scheme requires the ratification and implementation of several international conventions related to human rights, labor, environment, and good governance. Nepal must act swiftly and decisively to qualify and prepare its export ecosystem for the post-graduation reality.
To seize the opportunities offered by the current global trade climate, Nepal must boost investment in strengthening its domestic production capacity. Modernizing agriculture, revitalizing cottage industries, and supporting small and medium enterprises (SMEs) will be crucial. Government-led initiatives should prioritize productivity enhancement, consistent supply chains, and meeting global quality benchmarks. Training programs and technical assistance for exporters are also needed to improve compliance with international standards, particularly in high-potential markets like the United States.
Simultaneously, Nepal should focus on product diversification, particularly in premium goods with cultural and ecological significance. Sectors such as pashmina, large cardamom, medicinal herbs, and organic tea and coffee hold considerable promise if supported by improved branding, packaging, and logistics. Infrastructure development, especially in transportation and customs efficiency, must be accelerated to facilitate smoother trade. Finally, strategic collaboration among policymakers, private sector stakeholders, and development partners is essential to build a competitive and resilient export environment.
Nepal demonstrated weak performance in terms of exports to key international markets such as the US, the European Union, the UK, and Asians. Even the vast markets of India and China are pathetically untapped by Nepal, despite comparatively easy access and privileged markets for Nepal’s exports, even those that enjoy privileged access to these countries.
To soften the economic shock of graduating from least‐developed‐country status, Nepal should treat the transition as a deliberate project, drawing lessons from peers that have managed it successfully. The government needs to step up trade‑promotion efforts so that any preferences lost in established markets are offset by winning new buyers in the same regions. At the same time, it must diversify export destinations, shifting some focus from traditional Western markets to markets within Asia. Since bolstering private‑sector competitiveness is critical for trade capacity enhancement, Nepal should upgrade productivity and meet international standards so flagship exports such as handicrafts, pashmina, and coffee can thrive even without duty‑free, quota‑free access and can show resilience in volatile international tariffs and non-tariff measures.
Losing least‑developed‑country status will indeed strip Nepal of the special tariffs it now enjoys in 25 markets, most notably the EU’s Everything But Arms (EBA) scheme. A study of the International Trade Center indicates that exports of synthetic textiles and carpets are the most exposed. Yet the projected hit to total exports is modest, and graduation itself is a vote of confidence, signalling that Nepal’s fundamentals are strengthening.
In light of shifting global trade dynamics and Nepal's impending graduation from LDC status, the country stands at a pivotal juncture to redefine its export strategy. While rising tariffs globally may open new competitive avenues—especially in markets like the U.S.—Nepal's persistent structural bottlenecks threaten to undermine this potential. To seize the moment, Nepal must move beyond dependence on trade preferences and build long-term competitiveness through targeted investments in production capacity, regulatory reform, quality enhancement, and supply chain resilience. The government, private sector, and development partners must align on a strategic export vision, emphasizing niche high-value products, market diversification, and compliance with international standards. Swift action and strategic foresight will determine whether Nepal emerges as a resilient global trading partner or remains sidelined in an increasingly competitive trade environment.
