Shocks and Strategies: Rethinking South Asia’s Trade in the Tariff Era

(Organised by the Centre for Social and Economic Progress (CSEP) on September 9, 2025)

The Centre for Social and Economic Progress (CSEP) hosted a panel discussion on the impact of the United States (US) tariffs on South Asia, with perspectives from Bangladesh, Pakistan, Sri Lanka, Nepal, and India. Subject matter experts from the aforementioned nations explained particular effects of the recently imposed US tariffs on their nations, highlighting average effective tax rates, differing impacts on product ranges, comparative analyses, potential future strategies and scope for regional cooperation. Most speakers expressed concerns about high US dependency, aggravated by insufficient regional cooperation, and advocated for the need for diversification of both products and markets to strengthen their own economic positions, and in doing so, of the South Asian region.

Chair

Sanjay Kathuria, Visiting Senior Fellow, CSEP

Speakers

i) Mustafizur Rahman, Distinguished Fellow, Centre for Policy Dialogue (CPD), Bangladesh

ii) Vaqar Ahmad, Economist, Policy Expert and Former Civil Servant, Pakistan

iii) Subhashini Abeysinghe, Research Director, Verité Research, Sri Lanka

iv) Paras Kharel, Executive Director, South Asia Watch on Trade, Economics and Environment (SAWTEE), Nepal

v) TG Srinivasan, Visiting Senior Fellow, CSEP, India

Opening Remarks 

1. The Chair, Sanjay Kathuria, set the tone for the discussion by sharing that the average effective tariff rate post Trump 2.0, had led the world uncertainty index to go beyond the charts, increasing fivefold between August 2024 and August 2025. 

2. As businesses are hit with uncertainty, a lack of decision-making makes making investments very hard. Except for China, rather than making retaliatory responses, countries sought to make deals with the US. In South Asia, there were no signs of looking within the region. He invited the panellists to examine the overall and sectoral impacts of the tariffs on their respective countries, the implications and response so far, and future strategies. 

3. Before moving to country-wise discussions, TG Srinivasan, Visiting Senior Fellow, CSEP, briefly explained average effective tariff rates before and after the 90-day pause using a presentation. India had the steepest increase, China had the highest tariffs imposed, Bangladesh’s already high tariffs (15 per cent) had risen further (35 per cent), while Nepal faced the least increment. 

4. Using quantitative data to explain, he showed that India and Sri Lanka displayed far more dependency on the US than Pakistan, Bangladesh, and Nepal, whose dependency was the least. The gravity model of bilateral flow, according to Fontagné and others, was used, as the share of each country was shown using substitutional elasticity. While India lost nearly 35 billion dollars, differential country tariff rates led Nepal and Pakistan to gain. Srinivasan displayed to the attendees the Trump-Tariff simulator by CSEP, highlighting its uniqueness and utility in analysing and comparing countries and products. 

The Panel Discussion 

5. The discussion then turned to Professor Mustafizur Rahman of Bangladesh, who stated his country’s status as a Least Developed Country (LDC), and highlighted that the US is its single largest export destination. He explained that while the average US tariff was already high for Bangladesh, the new hikes represented a significant additional shock, pushing the average rate from 15 per cent to 35 per cent.

6. Rahman noted that the immediate effect of the new tariff regime was a decline in exports, with the new tariffs increasing costs for Bangladesh from an estimated 1.2 billion dollars to 2.8 billion dollars. Given that Bangladesh imposes a mere 3 per cent tariff on the US, amounting to a rough 70 million dollars, Rahman felt it was ironic that the US imposed such reciprocal tariffs based on bilateral insufficiencies. The country also entered into a bilateral discussion with the US, wherein Bangladesh agreed to import certain goods like wheat, cotton, and lentils from the US at higher prices instead of former partners like India, Russia, and Ukraine. 

7. Rahman argued that this episode must serve as a wake-up call. Instead of viewing trade through a narrow, bilateral lens, he highlighted the importance of intra-regional cooperation. He strongly advocated for regional cooperation within South Asia and with blocs like the Association of Southeast Asian Nations (ASEAN), specifically calling to revitalise and deepen the South Asian Free Trade Agreement (SAFTA). This, he stressed, requires forgetting issues from the past to focus on building greater intra-regional trade, investment, and transport connectivity.

8. He concluded by stating that the global community, particularly forums like BRICS, should lead the way. He pointed to the upcoming World Trade Organisation (WTO) Ministerial Meeting in March 2026 as a critical platform to push back against the tariff war. From a broader perspective, he warned that such policies would hurt the entire global economy and consumers worldwide. The high price of non-cooperation between South Asian nations themselves, he finished, is a cost the region can no longer afford.

9. The discussion then shifted to Sri Lanka with panellist Subhashini Abeysinghe. She began by sharing quantitative information using a presentation, highlighting that 25 per cent of Sri Lanka’s total exports were to the US, which was 3 per cent of their Gross Domestic Product (GDP), with a monetary value of 3 billion dollars. Apparel and rubber formed the majority of this export. 

10. Abeysinghe explained that the level of economic pain faced by Sri Lankan products depended on their reliance on the US market, with iron and steel and apparel being the most reliant. She raised the question whether Sri Lanka would be able to export more, facing lower tariffs than its South Asian neighbours, but responded negatively as the country was losing its competitive edge in apparel, despite the industry comprising 40 per cent of its exports. While the 90-day pause spurred higher imports into the US from many Asian countries, imports from Sri Lanka stayed the same.

11. With a 20 per cent tariff rate imposition, Sri Lanka’s situation remains comparable to most competitors, and has led to a decline in US demands, an increase in downward pressure on prices, and increased competition in other export markets. The continuing uncertainty in world trade systems affects buyer demands and investment flow. 

12. According to Abeysinghe, an ideal response includes reducing domestic barriers to trade and investments, a problem Sri Lanka has recognised but has been reluctant to reform. The current crisis thus presents an opportunity to reform, for Sri Lanka to work on its reluctance to enter into trade agreements.

13. Pakistan was brought into the picture, as an economist, policy expert, and former civil servant, Vaqar Ahmad, appreciated the effort to bring the region together. He explained that, for Pakistan, dependence on Western markets was a strategic vulnerability. As Pakistan’s biggest export destination, the impacts of the US tariffs have been documented locally, showcasing the dominance of textiles. 

14. Under the new tariff regime, rates have increased from 8 per cent to 27 per cent for the top 100 items exported, initiating cash flow disruptions. A discussion on trade deals decreased the average tariff from 29 per cent to 19-20 per cent, displaying the effects of trade diplomacy. 

15. Pakistan’s new national tariff policy abolishes most regulatory and customary duties, and is being used as a strategic policy instrument, with a target to achieve a 9 per cent rate by 2030.

16. Reductions moving forward would include the elimination of customs duties, whose slabs have currently changed. Ahmad emphasised the significance of refraining from sectoral policies, instead mulling around a green, industrial society, and explained that the policy aims to address what the US and other partners have hoped for. The scope for regional cooperation was optimistically expressed. 

17. The discussion then shifted to Paras Kharel, Executive Director of SAWTEE, Nepal. He began by contextualising Nepal’s unique position, being on the verge of graduating from its LDC status. This transition would bring its own set of challenges, particularly in terms of trade preferences.

18. He explained that the shock for Nepal is not from high tariffs, but from uncertainty, and the potential loss of preferential access. The United States is Nepal’s second-largest export destination, accounting for 10-11 per cent of its total exports. 

19. Two-thirds of goods exported to the US enjoy zero tariffs, making this a critical market. However, the absolute value of this trade is meagre by regional standards, at approximately $121 million.

20. Kharel highlighted that the weighted average tariff faced by Nepal is 1.2 per cent, meaning the direct impact of new tariffs is less significant than the indirect shock to relative prices, which is crucial for international trade flows. Citing a study by Dr Asanga, he revealed that the new tariffs could actually increase Nepal’s exports to the US by an estimated 33 per cent, benefiting key sectors like carpets, apparel, and dog food.

21. However, this potential gain will be overshadowed by a larger problem: the expiration of the benefits. Nepal received additional trade concessions after the 2015 earthquake, which included a vital exemption of tariffs on 77 product lines. These benefits are set to end in 2025 and are highly unlikely to be renewed, creating a tough scenario for Nepali exporters.

22. Kharel talked of profound uncertainty in the coming future. This makes strategic planning for investment and production nearly impossible. He highlighted the need to strengthen mechanisms to prevent trade dysfunction, positively noting that 12-13 per cent of Nepal’s potential to the US has been utilised. 

23. He placed significance on not just trade costs, but also factors such as reliability among partners. He concluded by emphasising that this new era necessitates a dual strategy: first, an effort to diversify both products and export markets to reduce dependency, and second, an effort for deeper regional cooperation to build a more stable economic foundation.

24. TG Srinivasan then explained the Indian perspective, beginning by explaining the issue as one of intense global competition, where the newly imposed higher US tariffs have put Indian exports at a relative disadvantage.

25. Srinivasan presented a comparative analysis, noting that if India loses market share in the US, its primary competitors, such as Vietnam and Malaysia, are likely to benefit. According to data, other regional players like Thailand and Indonesia are also adversely affected, underscoring the widespread disruptive impact of the tariffs. He highlighted some vulnerable sectors from India’s top exports, including diamonds, gems, jewellery, and pharmaceutical products like insulin.

26. A key part of his analysis focused on the Indian rupee. He noted that the currency has already depreciated by 3.5 per cent in the last five months, a significant movement compared to its typical annual depreciation of only 2-3 per cent.

27. In response to these challenges, Srinivasan suggested a multi-pronged strategic approach. Firstly, he suggested that India should allow the rupee to depreciate further to regain price competitiveness. Secondly, he strongly advocated for aggressive trade diversification and the fast-tracking of deeper Free Trade Agreements (FTAs), particularly within Asia, to reduce over-reliance on the US market. 

28. Finally, he stated that beyond currency and trade deals, the long-term solution is to work on enhancing India’s domestic manufacturing competitiveness. He concluded by acknowledging the US as a dynamic and valuable market, making it imperative for India to adapt and compete rather than withdraw.

Chair's Comments and Questions

29.  The panel discussion was followed by questions initiated by the chair, Mr Sanjay Kathuria. Multiple questions were raised that revolved around the future of the US post-Trump, the depreciation of the Indian National Rupee (INR), and intra-regional cooperation in South Asia.  

30. In response to the audience’s questions, TG Srinivasan explained that the exchange rate was not a tool that could be disregarded. Instead of an increased number of simple FTAs, deeper FTAs were required, and trying to fit deals with the US was not the best option. 

31. He furthered his argument by pointing out that the next American administration may not walk away from current tariff arrangements, and one would have to live with this changing scenario. He concluded by reiterating the need for FTAs, calling them a diversification that must be tried out, given the failure of traditional tools. 

32. Paras Kharel continued the diversification discourse, putting forth heightened Nepalese dependency on India for exports, along with its currency peg to the Indian rupee, as requiring diversification. 

33. Tariff blocks then come as an opportunity to diversify. He called the South Asian Free Trade Agreement (SAFTA) the most tangible agreement out of the South Asian Association for Regional Cooperation (SAARC), pointing out the fact that it still facilitates trade, which signifies it is time to revive it.

34. Professor Rahman recognised the shift in people’s orders and effects on investments, even if reciprocal tariffs only continue under Trump’s regime for the next 3-3.5 years, and thus it cannot be expected what will happen post-Trump. With depreciation over the past two years, increasing productivity is the way forward for getting a competitive advantage. 

35. Abeysinghe revealed the lack of interest by the current Sri Lankan administration in FTAs. Addressing a question, she expressed regret at the failure of recognition of the platform value of the WTO, which provides a forum for multilateral discussion in an amiable manner instead of bilaterally. 

36. She was not optimistic towards SAARC despite recognising that many nations look up to India for leadership. From her perspective, diversification is not about forgetting the US market but avoiding exclusive reliance; for Sri Lanka, diversification in apparel is a necessity as it cannot be competitive alone. 

37. Vaqar Ahmad, on the other hand, was optimistic about SAARC, viewing it as an organisation enabling relations to operate at a regional level while trade flows. He was also in favour of SAFTA and a theoretical advocacy for more liberal FTAs, while taking the business community on board. He expressed concern at waiting for such emotions, such as panic, to deepen ties, even as economies are not taking the situation as panic, as its intensity and perception go down. 

Concluding Remarks

38. The Chair, Sanjay Kathuria, concluded the session with his summarising remarks. He expressed interest in the horizontal side from India with respect to FTAs. Giving the example of India and China’s trade boom, he questioned why South Asia could not follow, as trade allows opportunities to solve other issues. 

39. He advocated for an Asia pivot in line with the panellists, shining light on the beneficiary nature of deeper ties with Asia, as South Asia has long remained underrepresented in value changes and lacks product diversification, with unprecedented concentration in Bangladesh. 

40. He expressed interest in continuing talks further with Vaqar Ahmad in line with his export recommendations, and agreed with Subhashini Abeysinghe with respect to the platform value of the WTO. Thanking the panellists, he was optimistic about continuing further talks soon.

Ends. 

The authors Manjari Bhargava and Nairaa Gandotra, are Assistant Editor and Junior Editor, respectively, at the Ramjas Political Review.

Featured image credit: PTI