Trump’s tariff shakeup: How South Asia faces a trade tsunami

The latest article published in The Diplomat journal, offers an in-depth analysis of the far-reaching implications of Donald Trump’s new tariff rules for South Asia.

On April 2, Donald Trump’s announcement of new tariff rules for more than 180 countries sent shockwaves through the global trade landscape. South Asia, home to over 2 billion people and economies heavily reliant on exports to the U.S., will be profoundly impacted. With tariffs ranging from 10% to 44%, countries in the region face significant disruptions to their trade relations with the U.S., and will need to respond quickly to avoid further economic setbacks.

Under the new rules, a 10% minimum tariff will be applied to all South Asian countries. For nations with large U.S. trade deficits, tariffs are set at half of what the country imposes on U.S. imports, though this calculation has been disputed. India, the largest economy in the region, which exported $77.5 billion worth of goods to the U.S. in 2024, faces a 26% tariff, a major increase from the previous under-2% average. Similarly, Bangladesh, which had a 15% tariff, now faces a 37% tariff on its goods, primarily in the apparel sector. Pakistan and Sri Lanka will face tariffs of 29% and 44%, respectively, while smaller nations like Nepal, Bhutan, Maldives, and Afghanistan will see a 10% universal tariff, still a notable increase.

The timing of these tariff hikes is particularly challenging for many of these countries, which are already grappling with inflation, political instability, youth unemployment, and post-COVID recovery. Bangladesh is among the most vulnerable, with its economy deeply tied to its garment sector. The U.S. is Bangladesh's largest market for ready-made garments (RMG), which account for a large portion of its exports. The new 37% tariff could make Bangladeshi products less competitive compared to those from India, Vietnam, or other countries in Southeast Asia.

The potential impact on Bangladesh is already a concern for local exporters, with fears that U.S. buyers may reduce orders or switch to cheaper alternatives. The country’s political instability and strikes in the garment sector only exacerbate the situation. India's jewelry sector, another key export, will also feel the sting of a 26% tariff. The U.S. is a key market for Indian gems and jewelry, which make up a significant portion of India's annual exports. With a weak demand from China and a 14.5% decline in overall exports, the new tariffs could further hinder India's recovery.

However, the impact on India’s economy might not be as severe as on Bangladesh, as India has a more diversified export basket, including pharmaceuticals, machinery, and electronics, which could cushion the blow. Interestingly, India’s apparel sector might even benefit. With Bangladesh, Sri Lanka, and Vietnam facing steeper tariffs (37%, 44%, and 46%, respectively), India could seize an opportunity to increase its share in the U.S. market, especially in the RMG sector, where it has long trailed behind competitors. India’s RMG exports to the U.S. have already seen growth, with an 11.5% increase in January 2025 compared to the previous year.

Pakistan, already facing multiple crises such as high inflation, fuel costs, and low foreign exchange reserves, will also feel the impact of a 29% tariff. The textile industry, one of the few strong sectors in Pakistan, could be severely impacted, potentially leading to job losses and economic instability in cities like Faisalabad and Karachi.

Sri Lanka, still recovering from its 2022 economic collapse, faces the highest tariff in the region—44%. The U.S. is Sri Lanka’s largest apparel market, accounting for over 40% of its apparel exports. The tariff hike could threaten Sri Lanka’s factories, risking order cancellations and layoffs. While Sri Lanka maintains good relations with China and India, it cannot easily replace the demand from U.S. buyers.

Smaller South Asian countries, including Nepal, Bhutan, and Afghanistan, are less dependent on U.S. exports but will still face challenges. These nations, with relatively low export volumes, will see their goods subject to a 10% tariff, which could hinder their ability to expand future trade.

Despite these challenges, the situation is not entirely bleak. South Asia’s competitors in Southeast Asia, such as Vietnam, Cambodia, and Indonesia, also face steep tariff hikes. Vietnam, a major exporter of garments and electronics, faces a 46% tariff, while Cambodia faces a 49% tariff. Indonesia’s major exports, including apparel and electrical machinery, are now subject to a 32% tariff. With these tariff hikes, South Asian countries could now appear more competitive to U.S. buyers, especially in markets like apparel and textiles, where price sensitivity is key.

Though the tariffs will create short-term disruptions for South Asia’s exporters, the region has the opportunity to capitalize on the higher tariffs imposed on competitors. Bangladesh’s garment sector, India’s diverse export basket, and Pakistan and Sri Lanka’s established textile industries all have the potential to maintain or grow their market share if they adapt quickly. With strategic policy shifts and market diversification, South Asia could recover and even thrive amidst these challenges.

In conclusion, while South Asian countries face a difficult road ahead with the new tariffs, the relative parity created by similar tariffs on Southeast Asian and Chinese competitors could provide a unique opportunity for the region to retain its position in the global market, if it responds strategically.

By Tamilla Hasanova