After the re-election of American President Donald Trump, the debate about the aid cuts including US-Aid could not be settled, the discussion is going on about the effect of the new customs duty (tariff) imposed on Nepal and other countries on April 2.

However, since the tariff on Nepal is relatively low (10 percent), there are also those who see it as an opportunity. However, due to the open economy, dependence on imports and exports, instability in the multilateral trading system and the increasing fragmentation of the global system, the impact of this tariff could be multifaceted.

The possibility of exports

There is a discussion about the possibility of Nepal increasing its exports to the United States. America, which is Nepal's second largest export destination after India and the most profitable market for trade. There, Nepal exports goods worth about 16 billion Nepalese rupees annually. While the US imposes a relatively low customs duty (10 percent) on Nepal, Nepali goods may be relatively more competitive in the US market due to the higher tariffs imposed on other South Asian countries (eg, 37 percent in Bangladesh, 26 percent in India).

Therefore, it is understood that there is an opportunity to produce export goods of countries with high customs duties and send them to the US. However, the development of the ability to produce new types of goods will not happen overnight. The export success of countries like China, Bangladesh or India shows that long-term planning, strong supply chain, mass production and skilled manpower are essential for this. Lack of new product production capacity and weak supply chain are major challenges of Nepal.

On the other hand, cheap labor, relatively low production costs and concessional trade facilities provided by the US have provided competitiveness in the goods that Nepal is currently exporting to the US. However, on the one hand, preferential trade facilities will expire at the end of 2025 and on the other hand, if the US increases the customs duty even on these goods, their prices may increase and the demand in the US market may decrease. This can have a direct impact on these export industries of ours and the workers dependent on them. Thus, Trump's trade policies are likely to create some confusion and uncertainty in Nepal's export sector. 

In addition to commodity exports, Nepali IT firms, which constitute the main source of revenue to the US (more than 75 percent, according to the IIDS study), are also likely to be affected by Trump's tariffs. Due to the instability of Trump's policy, American companies tend to delay and cancel their projects and contracts, so it may affect Nepali service exporters. impact on

dispatch 

The impact on the employment of Nepali workers working abroad can have a direct impact on Nepal's remittances. In terms of remittances, which are the mainstay of Nepal's economy, the impact of customs policy is even more profound. About 28 percent of Nepal's GDP comes from remittances. A significant part of which is obtained from Gulf countries, Japan, South Korea and the United States of America.

The tariff policies implemented by American President Trump may increase inflation (prices) in the United States and its direct impact on remittances sent by Nepalese migrant workers is likely. In addition, the US is putting pressure on countries like Japan and South Korea to buy their agricultural products, petroleum products and industrial goods, which are in the midst of tariff negotiations.

Such pressures may change the import structure of those countries. As a result, the employment of Nepali workers working in the construction, agricultural production and service sectors there may be at risk. As a large number of Nepali youth in the mentioned countries are mainly involved in construction, agricultural production and service sectors, if there is a contraction in employment opportunities in these sectors, it will have a direct impact on the livelihood of millions of Nepali families. 

Chinese concern 

Trump administration's policy of customs duty seems likely to affect Nepal's imports, which may also pose a challenge to domestic production and employment opportunities. About 71 percent of the total consumption is dependent on imports, and Nepal is particularly dependent on India and China. After losing access to the US market, there are signs that China will divert its products to alternative markets.

which seems to increase the flow of Chinese goods to developing countries which is now a major concern for many developing countries including India, Vietnam, Malaysia. There is a high possibility that domestic production, especially small and medium enterprises, will be pushed out of competition by the excessive flow of cheap Chinese goods in Nepal. This may lead to a decrease in the number of consumers dependent on Nepali products and the risk of job loss. Even now, the increase in Chinese imports seems to have a negative impact on Nepal's clothing, footwear, and small-scale industries.  The possibility of

transfers 

Another important issue is the possibility that countries with low customs duties such as Nepal can be used by third countries with high customs duties to evade duties on their goods. For example, after US President Trump announced customs duties on China in 2018, there are examples of not only foreign companies producing in China, but also Chinese companies being transferred to third countries such as Vietnam, Indonesia, and Malaysia to evade the customs duties.

Likewise, there has been a practice of exporting goods produced in one country as if they were produced in another country for the purpose of evading customs duties. Hence, rules of origin have been taken up seriously by the Trump administration in tariff negotiations with countries like India and Vietnam to dampen such a possibility. Comparatively low customs duty has been applied in Nepal. Third countries with high customs duties are likely to use Nepal. It seems that there is a need for Nepal to be cautious about the American pressure that may come on Nepal.

The customs policy implemented by US President Trump is likely to further polarize world politics. Such polarization can be challenging for Nepal. The long-standing competition for political and economic dominance between the world's two major superpowers, the United States and China, is set to intensify with Trump's tariff policy.

For example, after Trump announced the tariffs, China not only adopted a policy to confront the US with reciprocal tariffs (retaliatory tariffs), but also called on the countries affected by the tariffs to unite and jointly counter the US actions. As a result of this intense polarization, be it on trade cooperation or on security and geopolitical issues, even the option of remaining neutral is now challenging for countries like Nepal. The pressure to support one or the other camp or party seems to be increasing. 

Talks about customs duties

Nepal, like other countries, has been discussing about proceeding with talks on customs duties (tariffs) with the United States of America. After Trump's announcement of tariffs, many countries have moved forward for such negotiations with the US.

According to American Treasury Secretary Scott Besant, countries including Japan, South Korea, Australia, India, and Britain are the first priority for negotiations. Even though Nepal is not an immediate US priority, the necessary homework should be done to facilitate the access of Nepali products to the US market in view of the possible negotiations.

The instability emerging in the global trade chain and politics has taught some new lessons for Nepal. For the past three decades, there has been relative stability in world politics, and through the globalization and multilateral trading system it has facilitated, many developing nations have benefited from export-oriented economies.

It seems that even Nepal has benefited to some extent through employment, study, skill development, investment and import of goods at low prices in the world market. However, recent global shocks such as the latest move by the United States and the growing division in world politics have made it clear that things will not be as easy as in the past. While developing countries are restructuring their export-oriented economies, Nepal also needs to restructure its highly dependent economy on remittances and imports.