US President Donald J. Trump announced new tariffs sending shockwaves to the world. The US imposed a general 10% tariff on all imports into the US, and up to 50% on imports from some nations, such as China and Vietnam. The tariff calibration has ignited fears of trade wars as countries will respond with counter-tariffs, resulting in global supply chain disruptions and inflation. Capital and stock markets are also showing increased volatility, while economists warn that the situation will push smaller economies, such as Nepal, into financial trouble. Despite such ominous blanket tariffs, economists believe, there is some silver lining for Nepal. Though Nepali exports will also be a subject of a 10 percent tariff, the country can reap benefits should it maneuver the new situation prudently. As manufacturing costs in China, India, and even Vietnam are to soar because of massive tariffs, the buying behavior from businesses in the US may change too. They will look to spend less. Herein lies the opportunity for Nepal to capitalize on this new situation.
Nepal has always been recognized for its cheap labor and developing manufacturing capabilities. Even with the 10 percent tariff, products made in Nepal could still be cheaper than those made in countries with tariffs of 25, 30, or even 50 percent. This gap allows for Nepal to promote or advertise itself as an attractive destination for global manufacturers and investors. Trade analysts advise that this is the moment for Nepal to seize this opportunity to attract foreign investments in ready-made garments, felt products, carpets, and other export-centric industries. Purushottam Ojha, formerly the Commerce Secretary, noted that it’s important for Nepal to boost its exports of Pashmina, woolen carpets, and garments that have relatively steady demand from the US. Biswash Gauchan, also an economist, reiterated the idea that Nepal must now consider positioning itself as a core manufacturing center within the region. The logic here is quite simple- if producing goods in China, Vietnam, or India becomes too expensive because of high tariffs, then Nepal can be a viable destination for a low-cost alternative.
Blessing in Disguise
Nepal exports substantial woolen carpets, dog food, felt clothes, pashmina, and handicrafts to the US. Nepal even had a trade surplus with the US until two years ago. Nepal exported goods worth Rs 17.31 billion to the US in the Fiscal Year 2023/24, against imports of Rs 19.48 billion. Last year, Nepal had a slim trade surplus with exports of Rs 19.57 billion compared to imports of Rs 19.42 billion. At present, Nepal has special duty-free access to the US market for 77 items under the Trade Preference Program which remains valid until December 2025 regardless of the new tariff. Nepal can well diversify manufacturing by luring multinationals and other interested groups by cashing on situations created by the new tariffs.
However, Nepal needs to improve its investment environment to gain any benefits from the new situation. Entry of foreign companies to do business here should be made an easy proposition, which means better infrastructure, simpler customs, and less or no bureaucratic hassle for interested companies and investors. The government has to promote Nepal globally as a source of low-cost and ethical manufacturing destination. Nepal sees opportunity amidst the global economic disruption caused by Trump's tariffs. Nepal must make shrewd decisions to benefit from the new tariff wars.