How US-China-India Trade War Could Hurt Nepal’s Economy

As global trade tensions intensify between the United States, China, and India, smaller nations like Nepal are now caught in the crosswinds of an economic rivalry that spans continents and sectors. What began as a tariff spat between Washington and Beijing has morphed into a three-way conflict with India joining the fray, resulting in what many analysts are calling a “new age trade cold war.”

The Trade Domino Effect

The United States, under President Donald Trump, reignited trade hostilities in early 2025 by imposing a steep 145% tariff on select Chinese imports. China retaliated swiftly with a 125% tariff on American goods. Amid these economic skirmishes, China also halted the export of rare earth metals—materials crucial to high-tech manufacturing—raising alarm bells in countries dependent on these resources, including India and Nepal.

India, meanwhile, has taken a more passive-aggressive route by banning 59 Chinese mobile applications and introducing bureaucratic delays in clearing Chinese imports. Though India has not formally called it a trade war, experts suggest that the signs point toward a cold but calculated economic standoff.

China’s Resilience and Strategic Response

Despite the pressure, China has maintained surprising economic momentum. Data from the first quarter of 2025 shows a growth rate of 5.4%, exceeding the 5.1% forecast by global analysts. The resilience, experts say, is a result of strategic stimulus and policy recalibration by Beijing to preempt the impact of external shocks.

For Nepal, China’s endurance may be a double-edged sword: it preserves a key trading partner’s stability but also limits room for Nepal to compete or leverage shifting dynamics in regional supply chains.

Nepal in the Crossfire

Nepal finds itself in a unique and delicate position. Sandwiched between two Asian giants—China and India—while also maintaining growing trade links with Western markets, Nepal must walk a diplomatic and economic tightrope.

Economist Dilli Raj Khanal points out that the trade war’s ripple effects are already visible in Asia. He warns that global supply chain disruptions, rising import costs, and inflationary pressures could strain Nepal’s economy.

But Khanal also sees a silver lining. “Nepal should see this as an opportunity to diversify its economy, boost domestic production, and reduce reliance on foreign finished goods. With smart policy planning, we could fill the gaps left by deteriorating China-India trade relations,” he said.

Nepal could, for example, become a regional assembly hub for electronics or invest in alternatives to Chinese software, hardware, and infrastructure technologies, though doing so will require both foreign investment and a skilled labor force.

The Price Nepal May Pay

If the current trajectory holds, Nepal could soon face shortages or higher prices on key imported items such as:

• Electronic goods and components
• Fertilizers and agrochemicals
• Medical equipment
• Steel and iron products
• Automotive parts

Additionally, as global software licensing and tech imports are indirectly impacted by U.S.-China tensions, costs in Nepal’s IT and education sectors may rise.

Former Finance Minister Prakash Sharan Mahat believes the situation demands urgency. “This is not just a geopolitical issue—it’s an economic one that can impact everyday life in Nepal. From smartphones to medicines, prices could go up. We must be proactive, not reactive,” he advised.

India-China Cold Trade

India’s ban on Chinese apps and customs delays are more than symbolic; they reflect a deepening mistrust that could splinter regional cooperation. For Nepal, which enjoys bilateral trade with both, a breakdown in India-China trade relations could lead to longer lead times for shipments, disrupted transit routes, and more expensive goods rerouted through alternate pathways.

Adding to the challenge, China is Nepal’s second-largest trade partner and one of its primary sources of electronic goods and machinery, while India controls significant transit infrastructure critical to Nepal’s import-export chain.

What Should Nepal Do?

Both Mahat and Khanal agree that Nepal must urgently craft a national trade resilience strategy. Among their recommendations:

• Prioritize domestic manufacturing of essential goods and encourage industrial investment.
• Negotiate favorable bilateral deals to hedge against volatility.
• Invest in digital infrastructure and local alternatives to foreign technologies.
• Leverage geopolitical neutrality to attract investors seeking a stable foothold in South Asia.

A New Era of Strategic Realignment?

The ongoing trade tensions are not just about economics—they are about control, innovation, and future dominance. While America accuses China of intellectual property theft and unfair subsidies, China insists it is playing by the rules of global capitalism. India’s assertiveness signals a desire to assert regional clout while protecting domestic interests.

For Nepal, the path forward may lie in embracing flexibility, fostering self-reliance, and aligning with regional and global players on terms that protect national interests.

As the world watches how the trade war unfolds, Nepal must prepare not just for survival but for strategic growth.

Got thoughts on how Nepal should respond to the global trade crisis? Share your views with us.