Economists call for South Asian unity as US tariffs reshape trade

LAHORE: Economists from across South Asia have urged the region’s countries to avoid celebrating one another’s misfortunes following America’s decision to impose country-specific tariffs that deviate from the principle of most-favoured-nation (MFN) trade.

They warned that a slowing global economy would affect all nations, and that the current environment remains highly fluid, with circumstances liable to change overnight. Policymakers in South Asia, they said, must be guided by medium- to long-term interests and take into account the broader regional and global picture.

The observations were made during an online discussion among regional economists, including Mustafizur Rahman from Bangladesh; Sanjay Kathuria from India; Paras Kharel from Nepal; Vaqar Ahmed from Pakistan; and Subhashini Abeysinghe from Sri Lanka. The experts examined the implications of the new US tariffs and proposed four key policy directions for South Asian governments.

According to the CSEP-Trade Sentinel Tariff Impact Tool, the outlook for South Asian economies is mixed. India’s exports to the US are projected to suffer significantly due to a combined 50 per cent tariff (25 per cent reciprocal plus 25 per cent punitive), while Nepal and Pakistan are expected to record modest gains. Bangladesh and Sri Lanka, however, may experience export losses.

For Bangladesh and Nepal — both set to graduate from least-developed-country (LDC) status in 2026 — the prevailing uncertainty in global trade adds to the challenges of ensuring a smooth and sustainable transition.

First, they called on countries to use the current crisis as a catalyst for domestic reform. India, for instance, has overhauled its goods and services tax, while pakistan has begun implementing a forward-looking new tariff policy. Bangladesh is also undertaking significant tariff-related reforms, including institutional restructuring and liberalisation. However, much more is needed across the region to improve the investment climate, reduce excessive trade protection, cut regulatory barriers and create better employment opportunities.

Second, the economists urged pragmatism in an increasingly geopolitically charged world. They noted that while trade directly improves lives, geopolitics often hinders progress. South Asian nations, they argued, cannot afford to sacrifice the jobs and incomes that trade generates. Citing examples such as China and India or Japan and South Korea, they stressed that regional countries — including India and Pakistan — should decouple trade relations from political tensions. More robust intra-regional trade could also provide stability amid global volatility and help integrate South Asia more deeply into global value chains.

Third, they advised South Asia to pivot towards Asia’s growth centres. While this is widely considered the ‘Asian century’, South and East Asia have followed divergent development trajectories, widening the gap between them. The economists said South Asia should tap into East Asia’s dynamic supply chains and rising demand — with imports from the region reaching an estimated $9 trillion in 2024. Closer integration with Central Asia, they added, could also help diversify supply chains, secure energy flows and open new markets across Eurasia.

Finally, the group called for renewed efforts to strengthen multilateral institutions, particularly the World Trade Organisation (WTO). They emphasised that the WTO has long underpinned the global rules-based trading system, offered special provisions for least-developed countries, and given smaller economies a platform for representation. A collective South Asian effort to reinforce the WTO’s role, they concluded, would yield more meaningful and sustainable outcomes for the region.