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US-India trade: 50 percent tariff hurts India, big relief for Nepal

cnnnews.com By Canada Nepal

August 11, 2025
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Kathmandu. While India is suffering after the US imposed a 50 percent tariff, the same policy has emerged as a great opportunity for Nepal.

The US has imposed a 25 percent reciprocal tariff on India, which has come into effect since Thursday.

In addition, US President Donald Trump has imposed an additional 25 percent tariff on India’s oil imports from Russia, accusing it of buying oil from the country. The tariff, imposed by Trump through an executive order, will take effect from August 27.

However, the US has imposed only 10 percent reciprocal tariffs on Nepal. In such a situation, if trade talks with India fail and a 50 percent tariff is imposed on India, there will be a 40 percent difference in tariff rates between Nepal and India.

How much did Trump impose on which country?

Even if Trump withdraws the additional 25 percent tariffs recently imposed, the tariff rate difference between the two countries will still be 15 percent.

“Even a 15 percent difference in exchange rates is very big in international trade. Nepal should be able to use this situation to its advantage,” said Dr. Paras Kharel, executive director of the Kathmandu-based South Asian think tank Savati.

The US is Nepal’s second largest export destination. In the last fiscal year 2081/82, goods worth Rs 18.32 billion were exported from Nepal to the US. This is 6 percent more than in the previous fiscal year 2080/81. In the same year, goods worth Rs 17.31 billion were exported.

Nepal mainly exports carpets, rugs, ready-made garments, felt goods, and pottery and other metal utensils.

Kharel says that Nepal will also benefit from the US imposing a 19-20 percent customs duty on South Asian countries Bangladesh, Pakistan, and Sri Lanka, in addition to India.

Even a difference of only 15 percent in customs rates is very big in international trade, Nepal should be able to use such a situation to its advantage – Dr. Paras Kharel, Executive Director, Savati
Carpets, textiles, chhurpi and other goods have been exported to the US more from India than Nepal. Similarly, in terms of ready-made garments, Bangladesh is the largest exporter in South Asia.

“In terms of exchange rates, Nepal now has a significant competitive advantage over these countries. In that case, Nepal should definitely be able to benefit from Trump’s new tariffs. Even in such a situation, if Nepal cannot benefit, it should be understood that Nepal is actually a country that cannot do business,” he said.

He also said that there has been a degree of certainty in US tariff rates after Trump implemented the new reciprocal tariffs on August 7.

“Reciprocal tariffs were imposed on April 2 and were suspended in the meantime. It was not certain whether they would be implemented or not. However, the tariffs currently in place can be expected to be in place at least throughout Trump’s term,” he said. “In such a situation, Nepal should move forward in a way that increases investment, attracts foreign investment, and seizes the opportunities that have opened up in the United States.”

Nepal Export Council Chairman Naresh Lal Shrestha says that with the GSP period of Nepal expiring and the 10 percent customs duty imposed on Nepal, there is an opportunity for the country not to increase it. “After this, we can expect investment from abroad to come into Nepal and exports to increase,” he says.

However, he says the government still needs to negotiate with the US government to ensure that the tariff rate is reduced further or not increased beyond the current 10 percent.

Pashupati Dev Pandey, President of the Nepal Readymade Garment Manufacturers Association, is also excited about the latest policy regarding reciprocal tariffs.

“It is still not clear which countries the US will impose tariffs on. Many countries are still in the process of trade negotiations, so the rates may fluctuate,” he said. “However, if the tariffs currently imposed on India, Bangladesh, Pakistan, Nepal, etc. continue, it will greatly expand Nepal’s production and exports,” he said.

He said that currently, the US accounts for about 40 percent of the annual export of ready-made garments worth Rs 10.5 billion.

“Currently, about 4 billion ready-made garments are being exported to the US. If the current rate remains, this is likely to increase by 50-100 times within a few years,” he said.

He says that there will be a qualitative expansion in the export of goods, especially carpets, garments, felt, and pashmina.

He says that orders for Nepali industries are expected to increase after the US increased tariffs on neighboring countries in Nepal.

“As orders from abroad increase, production increases, and then the capacity of the industry also increases,” he said. “In such a situation, big foreign brands are transferring technology to Nepal.”

He says that if this policy works in the long term, the ‘backward-forward linkage’ of export-oriented Nepali industries will become even stronger.

On April 2, President Trump announced reciprocal tariffs, which he suspended for three months on April 9.

“Meanwhile, inquiries for goods in Nepal had started increasing,” Pandey said. “Tariffs have been re-imposed after a three-month suspension. Now Nepal’s exports will definitely increase.”

He said that the government should play a role in reducing interest rates, reducing administrative burdens, and creating a conducive environment for exports to expand trade.

He says that the Nepalese government should take the initiative to make exports to the US more concessional.

‘Tariffs have been re-imposed after a three-month suspension. Now Nepal’s exports will definitely increase. – Pashupati Dev Pandey, President, Nepal Readymade Garment Manufacturers Association
‘After the earthquake, the US had given Nepal preferential market access for 77 different items. The Nepal government should take the initiative for similar preferential market access. We want the initiative for trade talks with the US under the leadership of the Foreign Minister,’ he says.

After the 2015 earthquake, the US granted duty-free entry to 77 types of Nepalese goods under the Nepal Trade Preference Program (NTPP). According to Kharel, executive director of Savati, 8.5 percent of Nepal’s total exports go under this program. The facility expires in December this year.

In addition, the preferential market access (GSP) facility provided by the US to Nepal has not been renewed since 2020. Kharel says that 12.5 percent of goods are exported to the US under this facility.

He says that the US is now less likely to renew both the NTPP and the GSP.

He said that various rates of customs duty have been imposed on 11 percent of goods exported from Nepal.

“Apart from that, 66 percent goes to zero customs duty,” he said. “Nepal also received zero customs duty on such goods, and other countries also received the same facility.”

Now, he said, the customs duty imposed on all these items will be increased to the country in which they were imported. “While Nepal has a 10 percent customs duty, only 10 percent will be levied on those items, India will have to pay up to 50 percent and Bangladesh will have to pay 20 percent customs duty on the same items,” he said.

Goods that are unique to Nepal, such as Chhurpi (dog and cat feed) made from the milk of Himalayan cows and buffaloes, will not be significantly affected even if the customs duty on such goods increases by 10 percent, Kharel says, as such goods are not exported from other countries.

“India also exports such items. However, India is charged at least 25 percent customs duty, Nepal 10 percent, and Nepal gets a 15 percent benefit from this,” Kharel said.

He said that under the NTPP, carpets and shawls will now be subject to a 10 percent customs duty, but the same goods will be subject to a much higher customs duty when exported from India or Bangladesh, which will increase Nepal’s competitiveness. The countries that export the most carpets to the US are China, India, and Turkey.

Nepal will pay 10 percent customs duty on such goods. India will pay 50 percent customs duty and Turkey will pay 15 percent customs duty if the current situation continues.

Similarly, he said that ready-made garments and other goods that are regularly subject to customs duty are cheaper in the US than in Nepal in terms of customs rates.

“Currently, the US is charging 13 percent customs duty on ready-made garments, now Nepali garments will be charged 23 percent customs duty by adding 10 percent. Nepal will benefit from the additional customs duty imposed on the same goods by India and others when they export them,” he said.

Nepal was exporting large quantities of garments even before the Multifiber Agreement was terminated.

Nepal, Bangladesh, and Laos are set to graduate from Least Developed Countries status in 2026. The US has imposed a 40 percent tariff on Laos and a 20 percent tariff on Bangladesh.

However, with lower tariffs on Nepal, there will be a high risk of goods from other countries coming to Nepal and being exported to the US. Trump has announced that if such transshipment is proven, the country from which the goods were sent will be subject to the same tariffs as the country from which they were sent.

“We should be very careful to prevent goods made in countries including India from being exported to Nepal,” says exporter Pandey. “For that, a joint mechanism between the government and the private sector should be formed.”

Trade expert Kharel also says that the country should be protected from the risk of transshipment. ‘Looking at the trade agreement with Vietnam, the US seems very aware of the transshipment of goods from one country to another for the sole purpose of obtaining customs facilities,’ he said. ‘Just as it is aware of goods produced in Vietnam coming to China, it will also pay attention to the possibility of goods produced in Nepal coming to India. In that case, Nepal itself must work to reduce that risk.’

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