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On April 2, US President Donald Trump introduced a new tariff rule for more than 180 countries on what he called “Liberation Day.” Tariffs are taxes levied on goods crossing international borders. Under the new rules, there will be a baseline 10 per cent tariff on all imports into the United States, with even higher rates on countries that run substantial trade surpluses with the US. In practice, when a government imposes a high tariff on a product, the cost of importing that item increases for domestic consumers. More importantly, when a massive consumption-driven economy like the US erects high tariff walls, it creates disruptions across the global trade landscape. 

Like many other regions, South Asia, a subcontinent of over 2.04bn people and a $5.3trn economy, will be severely impacted—particularly with the imposition of rather higher “reciprocal tariffs.” The policy places some South Asian countries like India (26 percent), Bangladesh (37 percent), Sri Lanka (44 percent) and Pakistan (29 percent) at a distinct disadvantage, with almost prohibitively high tariffs. At the same time, small exporters like Nepal, Bhutan, Afghanistan and the Maldives, whose trade volumes with the US have remained relatively low, face a universal 10 percent tariff, a gentle rap on the knuckles in comparison but a barrier nonetheless. While it was always an uphill battle for South Asian nations—and the Global South in general—to compete in the face of the structural inequities arraigned against them in the global export market, they now have their task cut out for them. America’s reciprocal tariffs will create new challenges for some South Asian nations seeking to export their way to prosperity and economic stability.

In 2024, India continued to dominate South Asia’s trade with the US, exporting goods worth $77.5bn while paying low average tariffs of under two percent. Meanwhile, Bangladesh, the region’s second-largest exporter to the US, faced a much steeper tariff of about 15 percent. Despite these challenges, Bangladesh’s apparel sector, primarily driven by ready-made garments, has managed to grow. Its exports to the US rose by 0.7 percent year on year, reaching $7.5bn by 2024. Sri Lanka, another major South Asian trade partner of the US, is still in the process of rebuilding after its 2022 economic collapse. It now faces the highest tariff in the region: 44 percent. This poses an extreme challenge to Sri Lanka’s export economy.
America remains Sri Lanka’s largest single-country market for apparel, accounting for over 40 percent of the sector’s total exports, which surpassed $5.5bn in 2023. These countries, which rely heavily on the US as their top export market, have been hit especially hard by both the 10 percent baseline tariff effective from April 5 and specific reciprocal tariff rates effective from April 9. Even a slight decline in orders from the US could result in job losses and economic instability, and the likelihood of order cancellations, workforce reductions and escalating debt burden.

The US is Nepal’s third-largest buyer of carpets, with imports valued at $48m in 2024. The newly-imposed 10 percent tariff could also pressure Nepali carpet exporters to either absorb additional costs or risk losing their market share to competitors. Nepal’s niche export products, including hand-knotted carpets, pashmina, RMG, leather and tea, may face reduced competitiveness in US markets, which accounted for $112m in exports in 2024. The new trade barrier could pose fresh challenges for these sectors by threatening to impact their growth and market share. However, amid the crisis, there is a potential silver lining for a country like Nepal. While Sri Lanka, India, Bangladesh, and even Nepal’s northern neighbour China risk losing their price competitiveness due to the overwhelmingly high reciprocal tariffs, Nepali manufacturers, especially large-scale and medium-scale makers of export-worthy products, can seize the window of opportunity this may open by positioning themselves as a reliable and cost-effective alternative. 

The shifting sands of American trade policy create new uncertainties for India’s diverse set of export industries, Bangladesh RMG’s sector, and the textiles hubs of Sri Lanka and Pakistan. Southeast Asian competitors like Vietnam, Cambodia and Indonesia will also be adversely affected by the high reciprocal tariffs levied on them, accounting for 46, 49 and 32 percent, respectively. China, another low-cost manufacturing competitor and the world's premier exporter, is already subjected to a 20 percent tariff due to its alleged involvement in the fentanyl trade. China will now face an additional tariff, raising the total rate to a staggering 54 percent. This sharp increase represents a major escalation in trade tensions between the US and China, the two largest economies, and it renders the international market vulnerable to significant disruptions in the flow of goods.

These changes may be compelling enough for many companies that previously focused on manufacturing in Southeast countries like Vietnam to turn to smaller South Asian countries like Nepal in order to bypass US tariffs. This could substantially benefit Nepal. The baseline rate of 10 percent imposed on Nepal—significantly lower than tariffs imposed on Vietnam, Indonesia and China—means that Nepal may have a notable competitive advantage over other Asian economies. Businesses will increasingly seek alternatives to traditional manufacturing hubs such as China and Vietnam. Nepal, benefiting from low labour costs and affordable manufacturing conditions, is strategically positioned to attract attention as a viable alternative destination within global supply chains. Brands and retailers that had outsourced production to countries like Bangladesh, Sri Lanka, and Vietnam to avoid tariffs on Chinese goods may now view those destinations as less attractive under the revised US policies. Consequently, Nepal stands to benefit considerably as companies look to diversify and stabilise their international production bases. 

By effectively leveraging its reputation for ethical manufacturing, Nepal could appeal strongly to socially-conscious consumers, particularly in North America and Europe, presenting its products as both sustainable and responsible alternatives in the global marketplace. Importantly, Nepal enjoys duty-free access to the US market for 77 specific products under the Trade Preference Program, an arrangement which remains effective until December 2025 despite recent tariff changes, and this only enhances Nepal’s attractiveness as a manufacturing and export hub. By strategically leveraging the shifting trade landscape, Nepal can position itself as a competitive and stable destination for industries to mitigate tariff-related risks. 

This cannot be achieved unilaterally, though. Nepal will need to rope in businesses and governments in its region, South Asia, by positioning itself as an attractive investment destination. Given its relative tariff advantage, manufacturers from other South Asian countries such as India, Sri Lanka, and Bangladesh can leverage Nepal as a strategic investment destination, establishing joint ventures or manufacturing facilities to lower their tariff exposure considerably in the American market. Promoting complementary manufacturing—where initial production occurs in Sri Lanka or India, for example, and final assembly or processing takes place in Nepal—can optimise the tariff differential effectively while, at the same time, ensuring that both Nepal and its South Asian partner countries have the opportunity to be involved in the supply chain. The creation of bilateral Special Economic Zones (SEZs) in Nepal can also attract South Asian and international businesses seeking tariff-efficient production locations. Nepal and individual South Asian countries should also consider initiating negotiations for a bilateral Preferential Trade Agreement (PTA), particularly targeting niche sectors like herbal products, tea, spices, textiles and handicrafts. The South Asian Free Trade Area (SAFTA), if implemented in the right spirit, can also serve as an enabler. 

While the ‘new normal’ will undoubtedly create instability and erect more barriers for South Asian exporters, it is usually possible to find a silver lining, even around the darkest clouds. This testing new phase in the life of the global economic order presents an unprecedented opportunity for strategic cooperation between Nepal and the rest of South Asia. Bolstering regional bilateral and multilateral ties is the right way to stimulate economic resilience.

Chairperson of the High-Level Economic Reforms Commission, Rameshwor Khanal, recently submitted the commission’s report to the Deputy Prime Minister and Finance Minister, suggesting a number of measures to boost the economy. 

The measures include suggestions like making the economy borderless to benefit from the global economy, a radical suggestion in a country like ours where the government does not admit that anything is wrong and the central bank paints a rosy picture even when there’s a 3-4 percent economic growth.
In our case, most economic forecasts are as reliable as weather forecasts, if not more.

What steps does a weak economy need to achieve a healthy growth? Before jumping into the report, let’s take some lessons: 

Investing in human capital

First, smaller countries like ours should identify what they have. If a country is small, it would be appropriate to increase human capital just like what Singapore did.

Having a good leader makes a great difference. Singapore is a shining example. The former prime minister of Singapore, Lee Kuan Yew, transformed a poor country into the world’s second richest in terms of GDP per capita in six decades by prioritizing education, infrastructure, services and industry.

Rwanda is another example. It spends 22 percent of its entire GDP on education, while Singapore spends up to 24 percent of its entire GDP.

Increased infra investment 

Take the example of China, whose public transport infrastructure is one of the best. Japan cannot match China's numbers but the quality of its public transportation, roads and high-speed rail makes it the best in the whole world!

Rails and roads should be a priority for poor countries too. The Covid-19 pandemic not only challenged human health, but also dealt the global economy a serious blow.

Emphasis on policy reforms

The above-mentioned report has presented a roadmap for economic reforms by suggesting steps for the creation of a private sector-friendly environment.

Economic policies should be formulated to create economic opportunities and build an economy where all sectors can compete equally, the report goes. In terms of monetary policy, the report recommends reducing the band of the interest rate corridor, reducing interest rate fluctuations by making liquidity management more active, confining inflation to a single digit by keeping it in a range of 4-6 percent. It has called for discussions, research and preparations on alternatives to a fixed exchange regime with the Indian currency. 

The report suggests radical changes aimed at institutional reforms. In particular, it suggests that every ministry, department and central-level body should formulate and implement a periodic improvement strategy by determining indicators to promote business-friendly and investment-friendly nature of its work and to provide services to citizens.

In the light of these suggestions, is it possible to not transfer secretaries deputed at federal ministries for at least two years in an unstable political situation?

Is it also possible to not transfer employees deputed at ministries for five years and let teams undertaking development projects work for five years?

Citing increased expenditure on social security, training and pensions, the report has recommended increasing the age for mandatory retirement of government employees to 60 from 58 years. This suggestion makes sense, given that the current average life expectancy is 73 years.

Against old and regressive acts

What’s more, the report recommends repealing 15 old and regressive acts, a demand that the private sector, especially the Confederation of Nepalese Industries (CNI), has been raising for a long time. They include Income Stamp Duty Act (2019), Black Market and Certain Other Social Offenses and Punishment Act ( 2032), Private Forest Nationalization Act ( 2013), Administrative Procedure (Regulation) Act (2013), Revenue Leakage (Investigation and Control) Act (2052), Foreign Investment Prohibition Act (2021), Nepal Agency Act (2014), Provincial Development Plans (Implementation) Act (2013), Import and Export (Control) Act (2013) and Social Behaviour Reform Act.  

The report is against increasing social security allowances for the next five years, recommending that the allowances should be reviewed every two years after that, on the basis of price inflation. The government is currently providing senior citizens a monthly old-age allowance of Rs 4,000, among others. Although this is a good suggestion in terms of treasury, it is difficult to implement before the elections.

On BFIs, derivatives market

The report recommends amending Banks and Financial Institutions Act to allow the operation of peer-to-peer lending institutions, allowing crowdfunding through the Securities Act and putting in place a licensing policy and regulatory arrangement for the same. It has suggested that the Securities and Exchange Board of Nepal (SEBON) should create necessary infrastructure for the development of the derivatives market. Legal and regulatory arrangements should be made for angel financing and arrangements made for registering potential angel investors, the report suggests: Since such investors invest in start-ups and bear the risk, only 10 percent income tax should be levied on the income received from such investments, it states. 

Furthermore, the report has suggested reducing transaction fees for large-scale share transactions while standing against the opening of a new stock exchange. It has recommended restructuring Nepal Stock Exchange and increasing its capital with the participation of the private sector.

The commission has expressed belief that the suggestions proposed in the report will be helpful in creating economic opportunities and expanding entrepreneurs’ access to available economic opportunities, expanding employment within the country, and achieving high and sustainable economic growth.

To what extent will the government be able to implement the suggestions given through the report? Let’s wait and watch.  

Frustration and nihilism will never herald any solution nor drive to find success. Nonetheless, politics and political turmoil of Nepal has grossly failed to evacuate people from torrent of relentless hopelessness. For ages, people have desperately anticipated basking in the bright light of prosperity and all-round development. Several series of upheavals and mass movements were cast and were heartily corroborated for the same aspiration. But the entire drive seemingly appears to be recklessly and reflexively on reverse gear. Apocalyptic signs are rife; rapidly evolving situations portend an ocean of apathy from concerned authorities. 

Of late, as a consequence, the height of dismay is countlessly compounded that even after many series of political changes the country has not yet reached and received the expected pace of development. Dynamics of welfare state and development is a subject that is continuously raised by the leaders of all political parties. From the last few years, the discussions about slow progress and sluggish development pace are attributed to brain-drain. It is believed that brain drain is the main reason for the under-development of the country and urged for diasporas’ return to accelerate it.
A large section of society is impressively whitewashed to conceive a faulty narrative of brain-drain in Nepal. The latest data shows that nearly 5m Nepalis are abroad. In-deed it has chained our mind, blurred the logical reasoning too. Nowadays, approximately 2,000 people prepare foreign trips every day under various pretexts and wishes. According to the World Bank’s report ‘Large Scale Migration and Remittances in Nepal’, Nepal is the third country in the list of remittance dependent countries after Tajikistan and the Kyrgyz republic.
It is undoubtedly true that many people have gone abroad. But to think that there is brain-drain in the country—merely because more people have gone abroad and everyone is obsessed with foreign countries—is a fantastic delusion. Exploring the details will evidently chart another bleak picture of reality. 

Not everyone who has gone abroad can or should be considered a brain drain. Most of those who went there do not contribute at the level of the brain. They are used only as tools or physical labor; they have lived as a laborer, literally. The number of people who are really contributing with brains and are doing intellectual work is very infinitesimal and far more negligible to count or graph. Also, if those people don’t return here, there shall be no scarcity of people with that level of expertise or brains in the country. Certainly, a dense number of experts, qualified, capable, skilled, intelligent personalities for various required fields are still readily available in the country.
Those who have contributed intellectually abroad do not even feel disappointed to leave the country. They assume it as an achievement and present it as pride. After the foreign trip is decided, they throw a lavish party and write statuses as if they are the winners. They abuse the people living here and blame us as if others, especially those who opt stationing in the nation itself, are unable to do anything worthwhile. Their wives, children and family members too accompany them for permanent settlement. Most of them opt in selling property here and grapple with the best in settling abroad itself. They contribute very little or no remittances at all. They did not go there on being deprived of opportunities, rather they flew after pouring crores of rupees. Michael Mathiesen’s book ‘Brain drain: Beyond the Green New Deal’ states that brain drain is not something that should be worried much about and should be included in the adoption of control measures. Instead, labor drain is becoming more of a problem than brain drain. 

Today, there is a stark need for general labor in the country. India is the country with the largest number of emigrants in the world. Nepal ranks seventh in the list of countries that send remittances to India. It seems that about three to four billion rupees is taken annually by various workers of Indian origin. This capital flight is not caused by doctors, professors, technicians, engineers and experts. The pool of human resources used in different types of labor market i.e. including house builders, hair saloon operators and construction site employees cause a capacious pecuniary deficit. Almost the same amount is spent on food imports annually. The basis of the necessity to import food is the exorbitant migration or flight of labor force from Nepal.

That group of people are deeply in a dismal situation because they have to stay away from their country and family. Here, various problems and discomforts such as family disintegration, sexual misconducts, and crises in parental intimacy are rampant. That group of people who have gone abroad as a labor force is also really suffering much. Existing data pool gives a hint that the works done by most of them are not only risky, comparatively unattractive and exploitative but also dirty, dangerous and disgusting. Most scholars researching the domain of season migration as well as foreign employment call it a 3D job to highlight the pathetic compulsion. By sweating it out day and night, they are also sending huge remittances to the country. There is also an extreme shortage of the labor they are doing there. But those about whom we are having a superficial debate do not contribute, nor is the country standing still in their absence.

Some of the experts and leaders opine that those who have gone abroad are gems for the country; and praise that they will magically change the country if they return. Such a senseless meta-narrative is obviously deep mental stress and abuse on the dutiful group of experts who want to contribute as much as possible to the country by staying in the country. 

Migrant groups’ purported leaders often arrange/sponsor foreign travel arrangements for leaders. There will be extra visits and hospitality as well as occasional gifts and favors. That’s why our leadership might have felt an involuntary attraction toward the group. Have the country’s needs, gross domestic requirement, also been studied in this regard? Regarding brain-drain, both the contribution to the country and the loss to the society due to their absence are almost nil. Our country requires more people who are apt for the labor market. Our country is suffering multifaceted losses due to the lack of people who are to be consumed in the labor market. They also contribute to running the country. Therefore, the discussion of intellectual escape (brain drain) is only amateurish self-righteousness; but the deep attention should be paid on labor drain. They should be the priority of discussion and management. Let’s relieve ourselves from the illusive debate of brain drain and begin questioning it.

Nepal is facing serious problems, with politicians often fighting both on the streets and in the House of Representatives. This situation is causing a lot of frustration among the people. What’s even more troubling is that many of the promises politicians made during the election seem to have been forgotten. They had promised to work for the improvement of the poor and disadvantaged, to provide better governance, and to control the widespread corruption in the country. They also talked about creating jobs for the unemployed and building a prosperous future for everyone.

Forgetting these promises, political leaders appear more focused on their own fights and struggles for power rather than working on the issues that really matter to the people. This leaves the citizens feeling neglected and disappointed, as they see little change in their lives.

Critical issues surrounding economic development in Nepal remain largely sidelined by the political ambitions of its leaders. Instead of tackling the pressing challenges that the country faces, political parties focus on activities that primarily serve their own interests, elevating their short-term popularity. These pursuits, however, often come at the expense of long-term progress and stability. The result is an economy that remains stagnant, with little hope for meaningful advancements. In fact, Nepal’s economic trajectory is increasingly concerning, as it is not only stagnant but also showing signs of deterioration.

A significant indicator of this stagnation is the excess liquidity in the country’s banks. The banking sector holds a substantial amount of idle capital, which could be utilized to drive growth and development. Instead of channeling this surplus into projects that could boost local industries, create jobs or improve infrastructure, banks continue to sit on their excess reserves. Political leaders who should be guiding the economy toward prosperity fail to intervene or prioritize this issue. Rather than focusing on using these resources effectively to stimulate the economy, their attention remains on consolidating state power and enriching themselves and their allies. This self-serving approach undermines the potential for long-term economic improvement and leads to further inefficiency in financial systems.
 

This cycle of mismanagement has persisted for decades, as political parties swap power but offer little in terms of vision or action to address the nation’s economic challenges. There is a glaring lack of leadership when it comes to creating comprehensive and sustainable economic policies that could foster growth and reduce inequality. The political establishment is not concerned with building a robust economic foundation; rather, it is preoccupied with gaining and retaining power, a pursuit that fails to benefit the nation at large.

As a result, Nepal has witnessed a prolonged period of stagnation, with the country’s economic growth hovering around a meager four percent annually over the past three decades. This rate of growth is insufficient to meet the needs of a growing population, and it has left many people—especially the youth—facing limited prospects. The consequences of such stagnation are profound. Employment opportunities remain scarce, particularly for the younger generation, which has significantly contributed to a migration trend. Young people, regardless of whether they are skilled, semi-skilled or unskilled, are increasingly compelled to seek better job prospects abroad. This exodus has become a key issue, as the country’s brightest talents leave in search of opportunities that Nepal fails to provide.
 

The outflow of skilled labor is particularly damaging, as it depletes the nation of its human capital—one of the most important resources for driving economic growth. This not only exacerbates the immediate problem of unemployment but also hinders the country’s long-term development. Skilled workers who might have contributed to the local economy through innovation, entrepreneurship or professional expertise are instead investing their talents in foreign markets. This brain drain leaves Nepal with a weakened workforce and a limited ability to compete in the global economy.

At the heart of this crisis lies a fundamental failure of leadership. The absence of a coherent and forward-thinking economic strategy has created a vicious cycle where the political class remains disconnected from the needs of the people. Rather than working to create a sustainable economic environment that could provide jobs and opportunities for future generations, leaders remain mired in power struggles and self-interest.

It is evident that Nepal needs a shift in priorities. Political leaders must refocus their efforts on creating a long-term vision for economic development that goes beyond short-term gains. This includes harnessing financial resources effectively, investing in industries that can generate employment and fostering an environment conducive to innovation and entrepreneurship. Only by addressing these issues with a clear, unified approach can Nepal hope to break the cycle of stagnation and build a future that offers prosperity for all its citizens.

In such times, the public may lose trust in the government, and it can be difficult for the leaders to inspire hope. The promises made to improve the living conditions of the poor and to address corruption should not be forgotten. It’s also crucial that politicians remember their pledge to ensure good governance and create jobs for the neediest.

Politicians must focus on actions that directly benefit the citizens to regain the latter’s trust. The politicians need to stop fighting among themselves and start working together for the common good. It’s important for them to take responsibility and make real efforts to fulfill the promises they made during their campaigns. Transparency and accountability are key. The people of Nepal deserve leaders, who are dedicated to making their lives better and improving the country's future.

Ultimately, the people should not feel ignored. Political leaders must be reminded of their duty to serve the citizens and improve their well-being. If they focus on their promises and take meaningful steps toward change, they can restore the trust and hope of the public.