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Trade Insight Vol. 21, No. 1-2, 2025 PDF free Download. Think more deeply and widely.

SUPPLY CHAINS IN SOUTH ASIA RECIPROCAL TARIFF DE-DOLLARIZATION

editors’ note

P.O. Box: 19366

Tukucha Marg

Baluwatar, Kathmandu, Nepal

Tel: +977-1-4524360/4544438

Fax: +977-1-4544570

E-mail: sawtee@sawtee.org

Web: www.sawtee.org

Regd. No. 208/070/071 (Kathmandu)

Trade of attrition

PUBLISHED BY

South Asia Watch on Trade,

Economics and Environment (SAWTEE)

REGIONAL ADVISORY BOARD

Bangladesh

Dr. Debapriya Bhattacharya

India

Dr. Veena Jha

Nepal

Dr. Posh Raj Pandey

Pakistan

Dr. Abid Qaiyum Suleri

Sri Lanka

Dr. Dushni Weerakoon

EDITOR-IN-CHIEF

Dr. Paras Kharel

ASSOCIATE EDITOR

Dikshya Singh

ASSISTANT EDITOR

Kshitiz Dahal

DESIGN

Bipendra Ghimire

COVER & ILLUSTRATION

Abin Shrestha

Judging by the events of the ﬁ rst half of 2025, on the economic

front the year will go down in history as one when America

globalized its trade war. Announced by President Trump on 2 April,

the “reciprocal tariffs”, ranging from 10 percent to 50 percent as

additional duties, spared none. A 90-day pause on the extra tariffs,

except for a baseline rate of 10 percent, was meant to give time to

America’s trade partners to enter into a deal with the world’s largest

economy.

Reciprocal tariffs have entered the international trade lexicon

with a warped meaning—there being nothing reciprocal about these

unilateral duties. In international trade textbooks they will pair up

with the much-dissected America’s Smoot-Hawley tariffs of 1930

as examples of sweeping protectionism with global ramiﬁ cations.

A multilateral rules-setting and -enforcing body did not exist then.

Now it exists in the form of the World Trade Organization (WTO),

established precisely to prevent a repeat of beggar-thy-neighbour

actions and reactions but whose cardinal principle of non-discrim-

ination is being observed in its breach, with might-is-right the new

mantra. It is germane to recall that the trade war, exempliﬁ ed by

WTO-inconsistent tariffs, predates the reciprocal tariffs. The ﬁ rst

volley of shots, mostly aimed at China, was ﬁ red in the maiden

Trump presidency—to be continued by the subsequent Biden

administration. If China was the primary target in the earlier round,

now almost all countries—rich and poor, allies and geopolitical

rivals—are in the crosshairs. The WTO’s dispute settlement mech-

anism has been paralyzed due to the US blocking appointments to

the Appellate Body, which issues the ﬁ nal verdict on disputes.

There have been calls for reforms to the WTO. Alas, “reforms” is

a loaded word, with interpretations varying wildly across individ-

ual and groups of countries. The US-led collective West approaches

the reform agenda with the grievance that China has exploited loop-

holes in the multilateral trade rulebook to get away with massive

subsidies and forced technology transfer, among other alleged un-

fair trade practices. But it has not been able to enlist the support of

the vast majority of developing nations for this line of attack. Rather,

the intolerance shown by the rich world to the Doha Development

Agenda—which, if implemented, would have constituted a signif-

icant “reform” from the developing world’s perspective—perhaps

grates on the memory of the Global South.

Relatively small and economically weak countries are in a bind.

There is evidence of “connector” countries mediating trade between

the US and China through imports and investment from China since

2017. However, this opportunity could be squeezed out by likely

punitive trade measures against imports into the US with a signiﬁ -

cant Chinese content.

In South Asia, a well-functioning regional cooperation body

overseeing a healthy state of regional integration would have been a

natural antidote to the paralyzing global economic uncertainty. Re-

grettably, not only has SAARC been comatose for nearly a decade,

the future of the subregional BBIN and the transregional BIMSTEC

is clouded by alarmingly deteriorating ties among some member

states. Hopes for any semblance of impactful regional cooperation

now rest on taking the shovel to bare basics: repairing bilateral

relations in earnest. 

MEMBER INSTITUTIONS OF SAWTEE

BANGLADESH 1. Bangladesh Environmental Lawyers’ Association (BELA), Dhaka; 2. Unnayan Shamannay, Dhaka; INDIA 1. Citizen consumer and

civic Action Group (CAG), Chennai; 2. Consumer Unity & Trust Society (CUTS), Jaipur; 3. Development Research and Action Group (DRAG), New

Delhi; NEPAL 1. Society for Legal and Environmental Analysis and Development Research (LEADERS), Kathmandu; 2. Forum for Protection of Public

Interest (Pro Public), Kathmandu; PAKISTAN 1. Journalists for Democracy and Human Rights (JDHR), Islamabad; 2. Sustainable Development Policy

Institute (SDPI), Islamabad; SRI LANKA 1. Institute of Policy Studies (IPS), Colombo; 2. Law & Society Trust (LST), Colombo

Views expressed in

Trade Insight

are of the authors and do not necessarily reﬂ ect the ofﬁ cial position of SAWTEE or its member institutions.

Content

Trade Insight Vol. 21, No. 1-2, 2025

Strained global

foreign direct investment

Report, 8

Shifting supply chains

Prospects for Pakistan

Ahad Nazir, 9-11

Greening supply

chains in South Asia

Trade-led approach to

sustainable transformation

Fahmida Khatun and Foqoruddin Al Kabir , 12-15

Trump’s reciprocal tariﬀ

Risk to the global

multilateral trading system

Golam Rasul, 16-19

Addressing gender barriers

at land ports in the BBIN region

Nisha Taneja, Sanjana Joshi,

Vasudha Upreti and Nirlipta Rath, 30-33

Decoding US’s

reciprocal tariﬀ s

A Nepali perspective

Paras Kharel and Kshitiz Dahal, 34-35

De-dollarization

Revisiting US dollar dominance

Prajol Joshi, 36-39

Shifting supply chains

Prospects for Nepal

Aayush Poudel, 40-42

Beyond Silicon Valley

DeepSeek AI innovation

empowers global South

Rupesh Tha, 43-46

knowledge platform,

48-49

network news, 50-51

in the news, 4-7

book review,

Ieva Baršauskaitė

page 20-23

Mussie Delelegn, PhD

page 24-29

Policy options

with implications for

landlocked

developing countries

The great rewiring

Trade and industrial

policies restructuring

the global markets

4Trade Insight Vol. 21, No. 1-2, 2025

in the news

India and Pakistan both claim victory

after ceaseﬁ re of military operations

India restricts land port imports

of select items from Bangladesh

INDIA and Pakistan have both

claimed victory after a ceaseﬁ re was

declared on 10 May, which brought

the two nuclear-nations back from

the brink of war.

After days of escalating clash-

es that culminated in both sides

launching missile and drone strikes

on each other’s major military bases

– the closest they had come to full-

scale war in decades – the ceaseﬁ re

between India and Pakistan was

declared by Donald Trump on 10

May.

Both India and Pakistan claimed

the ceaseﬁ re as a victory, fuelling

a surge of nationalistic fervour on

both sides of the border. India’s de-

fence minister, Rajnath Singh, said

the “roar of Indian forces reached

Rawalpindi, the very headquarters

of the Pakistani army”, referring to

India’s missile strikes on Pakistan’s

Nur Khan airbase.

In Pakistan, parades were held

near the border to shower the

military with petals, and the prime

minister, Shehbaz Sharif, declared

11 May to be a day “in recognition

of the armed forces’ response to

recent Indian aggression”.

There were also celebrations

on the Indian side of the border.

However, residents near the disputed

frontier said that while a ceaseﬁ re

was welcome, it did not solve the un-

derlying problem of the often bloody

dispute between India and Pakistan

over the Himalayan region of Kash-

mir, which goes back to the partition

of India in 1947.

After weeks of mounting ten-

sions, the attacks began on when

Indian missiles struck nine sites in

Pakistan, killing 31 people. India

has said those strikes were aimed at

“terrorist infrastructure and terrorist

training camps” as retribution for an

attack in Indian-administered Kash-

mir in late April , in which militants

killed 25 Hindu tourists and a guide,

which it blamed on Pakistani-backed

extremists.

The situation escalated further

after India accused Pakistan of two

consecutive nights of drone attacks.

The US took sizeable credit for

brokering Saturday’s ceaseﬁ re, with

Marco Rubio, the secretary of state,

and JD Vance, the vice-president,

reported to have spent 48 hours

embroiled in intense diplomatic

negotiations with the two countries,

ﬁ nally convincing them to lay down

arms on Saturday. Other countries,

including Saudi Arabia and the UK,

were also credited.

At a press brieﬁ ng, Indian mili-

tary spokespeople offered more de-

tails on its offensive against Pakistan

and claimed it was Pakistan that had

ﬁ rst requested a ceaseﬁ re.

India said ﬁ ve of its soldiers

were killed by Pakistani ﬁ ring over

the border and claimed Pakistan

lost about 40 soldiers in ﬁ ring along

the line of control. It also claimed to

have killed 100 terrorists living over

the border in Pakistan. The numbers

could not be veriﬁ ed.

It also claimed to have “downed

a few Pakistani planes”, though it

did not elaborate further. Asked

about claims made by Pakistan,

and backed up by expert analysis of

debris, that Pakistani missiles had

downed at least three Indian military

jets during the offensive on Wednes-

day, including multimillion-dollar

French Rafale jets, India said “losses

are a part of conﬂ ict” and that all its

pilots had returned home. (https://

www.theguardian.com/, 11.05.2025) 

THE Directorate General of Foreign

Trade (DGFT), under the Ministry

of Commerce and Industry on 17

May announced new port restric-

tions on the import of select goods

from Bangladesh, effective immedi-

ately.According to the notiﬁ cation,

the import of ready-made garments

from Bangladesh will now be

allowed only through Nhava Sheva

and Kolkata seaports, and not via any

land ports.

Additionally, other categories of

goods including processed food items,

fruit and fruit-ﬂ avoured or carbonated

drinks, cotton and cotton yarn waste,

plastic and PVC ﬁ nished goods (ex-

cluding raw inputs such as pigments,

dyes, plasticizers, and granules), and

wooden furniture have also been

brought under speciﬁ c port restric-

tions.

These items cannot be imported

through Land Customs Stations

(LCSs) or Integrated Check Posts

(ICPs) located in Assam, Megha-

laya, Tripura, Mizoram, as well as

through Changrabandha and Fulbari

LCSs in West Bengal. (https://econom-

ictimes.indiatimes.com/, 17.05.2025) 

Trade Insight Vol. 21, No. 1-2, 2025

US and China

agree to slash tariffs

for 90 days in major

trade breakthrough

THE US and China on 12 May

agreed to temporarily suspend

most tariffs on each other’s

goods in a move that shows

a major thawing of trade ten-

sions between the world’s two

largest economies.

The trade agreement

means that “reciprocal” tariffs

between both countries will be

cut from 125 percent to 10 per-

cent. The US 20 percent duties

on Chinese imports relating to

fentanyl will remain in place,

meaning total tariffs on China

stand at 30 percent.

The breakthrough comes

after US and China trade rep-

resentatives held high-stakes

talks in Switzerland over the

weekend.

The pause began on 14

May. Both China and the US

said they will continue discus-

sions on economic and trade

policy.

Trump had imposed

tariffs of up to 145 percent on

Chinese imports, prompting

Beijing to respond with retalia-

tory curbs of its own, including

restrictions on some rare earth

elements.

Investors were buoyed by

news of the tariff reprieve.

Stateside, Nasdaq futures

pointed to a 3.7 percent gain,

with S&P 500 futures higher

by 2.7 percent and the Dow up

by more than 840 points, or 2

percent.

The ICE US Dollar Index

also rose sharply. The index,

which measures the US dollar

against a basket of global cur-

rencies, was last up 1.1 percent

to 101.46. (https://www.cnbc.

com/, 12.05.2025) 

Trump unveils sweeping

10% tariff and 'reciprocal'

tariffs on dozens of nations

PRESIDENT Trump has unveiled

sweeping "reciprocal tariffs" on goods

from the world over, plus a 10 percent

baseline tariff on U.S. imports from

virtually all countries, as he seeks to

reshape decades of U.S. trade policy

despite warnings of higher costs for

American businesses and consumers.

The president announced a 10 percent

minimum tariff to apply to goods from

all countries. However, certain trading

partners will face higher, "reciprocal

tariffs" aimed at penalizing them for

their trade barriers. Those taxes on

imported goods are calculated on a

country-by-country basis, and the lev-

els Trump announced for some trad-

ing partners are substantial. He said

he plans to impose 34 percent tariffs

on China, 20 percent on the European

Union and 24 percent on Japan, among

an array of other trading partners.

The 10 percent minimum tariffs

will go into effect on 5 April, and the

higher reciprocal rates will go into

effect on 9 April, according to senior

administration ofﬁ cials who briefed

reporters on Wednesday.

The new taxes are an escalation

of Trump's ongoing tariff-centric

economic policy. Thus far this term,

Trump has imposed tariffs on steel

and aluminum, Chinese goods, au-

tomobiles and auto parts, and some

goods from Mexico and Canada.

These new tariffs will exempt

some of those goods, but not all. For

example, the new "reciprocal tariffs"

do not apply to steel, aluminum, au-

tomobiles and auto parts. Rather, the

recent tariffs imposed on those goods

still apply. In addition, the new tariffs

will not apply to Canada and Mexico,

though preexisting the steel, alumi-

num, and auto tariffs do heavily affect

those countries.

However, the new 34 percent

reciprocal tariff rate on Chinese

goods will apply in addition to the

20 percent tariffs Trump has already

imposed on goods from that country.

(https://www.npr.org/, 02.04.2025) 

Trump announces 90-day

pause on ‘reciprocal’ tariffs

US President Donald Trump an-

nounced a complete three-month

pause on all the “reciprocal” tariffs

that went into effect at midnight,

with the exception of China, a stun-

ning reversal from a president who

had insisted historically high tariffs

were here to stay.

But enormous tariffs will remain

on China, the world’s second-largest

economy. In fact, Trump said they

will be increased to 125 percent from

104 percent after China announced

additional retaliatory tariffs against

the US earlier Wednesday. All other

countries that were subjected to

reciprocal tariff rates will see rates go

back down to the universal 10 percent

rate, he said.

Mexico and Canada will not face

the 10 percent tariffs Almost every

good coming from the two nations

will continue to be tariffed at 25

percent, unless they are compliant

with the US-Mexico-Canada Agree-

ment, in which case they won’t face

tariffs. However, that does not apply

to sector-speciﬁ c tariffs Trump has

imposed. Ttomobiles and auto parts,

and some goods from Mexico and

Canada. (https://edition.cnn.com/.

09.04.2025) 

6Trade Insight Vol. 21, No. 1-2, 2025

in the news

Koshi govt in Nepal to

set up NPR26 billion green

hydrogen fertilizer plant

THE Koshi Province government

will establish a chemical fertilizer

factory based on green hydrogen,

investing NPR26 billion. Ofﬁ cials

ﬁ nalized the decision at the conclu-

sion of the "Koshi Province Invest-

ment Summit 2025" on 5 May.

During the summit, stakeholders

signed agreements for 46 different

projects worth a total of NPR52.16

billion.

Among them, the NPR26 billion

project will focus on green hydro-

gen. Provincial Investment Authori-

ty CEO Dr. Saroj Koirala and the de-

veloper, Green Hydrogen Company

Galba Bahadur Dhungana, signed a

memorandum of understanding.

Associate Professor Dr. Biraj

Singh Thapa said that Kathmandu

University had prepared the pro-

ject proposal.

Although stakeholders have

discussed establishing a fertilizer

factory for 40 years, the govern-

ment has now taken its ﬁ rst formal

initiative. Dr Biraj Singh Thapa

expressed conﬁ dence that the pro-

ject would move forward, as both

the government and opposition

parties have shown solidarity.

Nepal requires 800,000 metric

tons of chemical fertilizer annu-

ally, but supplies often fall short,

rarely exceeding 500,000 metric

tons. As a result, farmers frequent-

ly face severe shortages during

critical planting seasons. (https://

myrepublica.nagariknetwork.com/,

05.05.2025) 

pexels

India proposes

retaliatory duties

against US at WTO

INDIA on 12 May proposed to

impose retaliatory duties on 29

American products including

apples, almonds, pears, an-

ti-freezing preparations, boric

acid and certain products made

of iron and steel under the World

Trade Organisation (WTO) to

counter the American tariffs on

steel and aluminium in the name

of safeguard measures.

The safeguard measures

would affect US$7.6 billion im-

ports into the US of the products

originating in India, on which the

duty collection would be US$1.91

billion, WTO was told.

As per the communication,

the proposed suspension of

concessions or other obligations

takes the form of an increase in

tariffs on selected products origi-

nating in the US.

On 8 March, 2018, the US

promulgated safeguard measures

on certain steel and aluminium

articles by imposing 25 percent

and 10% ad valorem tariffs re-

spectively on such products with

effect from March 23, 2018. On

February 10, 2025, it revised the

safeguard measures on imports

of steel and aluminium articles,

effective from 12 March.

India said that the US failed

to notify the WTO Committee on

Safeguards on taking a decision

to apply safeguard measures

and as an affected member with

signiﬁ cant export interest, it has

requested consultations with

Washington.

In its response, the US said

that the tariffs are “necessary

to adjust imports of steel and

aluminum articles that threaten

to impair the national security

of the US”. (https://economictimes.

indiatimes.com/, 13.05.2025) 

Trade Insight Vol. 21, No. 1-2, 2025

India and UK clinch trade deal

INDIA and the UK clinched a 'land-

mark' trade deal that will remove

taxes on the export of labour-intensive

products such as leather, footwear

and clothing, while making imports of

whisky and cars from Britain cheaper,

in a bid to double trade between the

two economies to US$120 billion by

2030.

The pact lowers tariffs on 99 per-

cent of Indian goods to zero in the UK

market while allowing Indian workers

to travel to the UK for work without

changing Britain's point-based immi-

gration system.

Taxes on export of Indian clothing,

frozen prawns, jewellery and gems

will be cut.

And so will be the import of

whisky and gin from the UK after the

treaty halved the tariff to 75 percent

initially and to 40 percent by the 10th

year.

Tariffs on automotive imports will

go from over 100 percent to 10 percent

under quotas on both sides, beneﬁ ting

companies such as Tata-JLR.

Indian goods that will enter the

UK at zero duty include minerals,

chemicals, gems and jewellery,

plastic, rubber, wood, paper, textile,

clothing, glass, ceramic, base metals,

mechanical and electrical machin-

ery, arms/ammunition, transport/

auto, furniture, sports goods, animal

products, and processed food.

The two have also concluded the

negotiations for the Double Contri-

bution Convention Agreement, or

social security pact. It would help

avoid double contribution to social

security funds by Indian profession-

als working for a limited period in

Britain.

However, the talks for the bilat-

eral investment treaty (BIT) are still

going on. Earlier, there were plans to

conclude all three simultaneously.

According to the Commerce

Ministry, India will gain from tariff

elimination on about 99 percent of

the tariff lines (or product categories)

covering almost 100 percent of the

trade value offering huge opportuni-

ties for increase in the bilateral trade

between the two nations.

On the services front, India will

beneﬁ t in sectors such as IT/ITeS,

ﬁ nance, professional, and education-

al services.

Further, India has secured sig-

niﬁ cant commitments on digitally

delivered services such as architecture,

engineering, computer-related and

telecommunication services.

It also said that India has ensured

that non-tariff barriers are suitably

addressed to ensure free ﬂ ow of goods

and services and that they do not cre-

ate unjustiﬁ ed restrictions to domestic

exports.

The deal will now go through the

process of legal text formalization to

be approved by the British Parliament

before it comes into force. It may take

about a year for the implementation.

The talks for the pact started in

January 2022. Both sides held 14

rounds of talks for the conclusion of

the talks.

The bilateral trade between India

and the UK increased to US$ 21.34 bil-

lion in 2023-24 from US$ 20.36 billion

in 2022-23.

During April-January 2024-25,

the trade in goods stood at US$ 21.33

billion as against US$20.26 billion in

2023-24. The trade gap is in the favour

of India. (https://economictimes.india-

times.com/, 07.11.2025) 

US strikes ﬁ rst trade agreement with UK

THE United States has announced

a ‘breakthrough deal’ with the

United Kingdom that would

create an aluminium and steel

trading zone and secure the phar-

maceutical supply chain.

The deal afﬁ rms that “reci-

procity and fairness is a vital prin-

ciple of international trade” and

increases access for US agricultur-

al products, US President Donald

Trump said, though he added that

the ﬁ nal details were still being

written up.

The president said that the

agreement would lead to more beef

and ethanol exports to the UK, which

would also streamline the processing

of US goods through customs.

The White House said that the

deal will bring in US$6 billion in

external revenue from its 10-percent

tariffs, which will stay in place, but

that it would also bring in US$5 bil-

lion in new export opportunities. The

UK agreed to lower its tariffs to 1.8

percent from 5.1 percent and provide

greater access to US goods.

British Prime Minister Keir

Starmer joined the president

in the announcement over the

phone. Starmer said the deal

would boost trade and create jobs.

The US ran a US$11.9bn trade

surplus in goods with the UK

last year, according to the Census

Bureau. The US$68bn in goods

that the US imported from the UK

accounted for just two percent of

all goods imported into the coun-

try. (https://www.aljazeera.com/,

08.05.2025) 

8Trade Insight Vol. 21, No. 1-2, 2025

report

Strained global

foreign direct investment

Global foreign direct invest-

ment (FDI) in 2024 increased

marginally, by 4 percent, to US$1.5

trillion. Volatile ﬁ nancial transac-

tions inﬂ ated this headline ﬁ gure

through several European econo-

mies with high levels of conduit

ﬂ ows. Excluding these, global FDI

ﬂ ows declined by 11 percent on a

like-for-like basis, representing a

second consecutive year of dou-

ble-digit decline.

The outlook for international

investment in 2025 is negative,

according to the World Investment

Report 2025, the ﬂ agship report by

the United Nations Trade and De-

velopment. While modest growth

seemed possible at the start of the

year, trade tensions have led to

downward revisions of most indi-

cators of FDI prospects, including

gross domestic product (GDP)

growth, capital formation, exports

of goods and services, foreign

exchange and ﬁ nancial market

volatility, and investor sentiment.

While tariffs have led to some

investment project announce-

ments aimed at restructuring

supply chains in manufacturing

sectors, their main effect has been

a dramatic increase in investor

uncertainty. Early data for the ﬁ rst

quarter of 2025 show record low

activity in deals and projects.

International project ﬁ nance

(IPF) continued its slump in 2024.

The value of IPF, important for

infrastructure investment, was

26 percent lower, following an

already sharp decline in 2023, with

continued uncertainty over ex-

change and interest rates affecting

ﬁ nancing conditions. International

project ﬁ nance makes up a higher

share of FDI in the least developed

countries (LDCs), which are there-

fore proportionally more affected by

the downturn.

FDI ﬂ ows to developing

countries were stable, at US$867

billion, despite sizeable increases

in Africa and South-East Asia and

modest growth in West and South

Asia, as well as in Central America

and the Caribbean. Flows fell by

12 percent in East Asia (mainly

China) and by 18 percent in South

America. The value of international

project ﬁ nance deals in developing

countries fell by almost one third,

and the value of greenﬁ eld project

announcements by almost one ﬁ fth.

FDI remains concentrated among

a few mostly large, middle-income

developing countries; 10 recipients

account for three quarters of devel-

oping-country inﬂ ows.

FDI ﬂ ows to the structurally

weak and vulnerable economies

increased marginally. FDI inﬂ ows

to the LDCs were up 9 percent at

US$37 billion, or 2.4 percent of

global FDI ﬂ ows. Landlocked de-

veloping countries experienced a 10

percent decrease, but small island

developing States saw 11 percent

growth.

An analysis of longer-term

sectoral trends in developing

regions shows varying investment

attraction opportunities at different

development stages. Comparing

sector growth rates and shares in

total inward FDI over the past ﬁ ve

years with the previous ﬁ ve-year

period reveals shifts in investment

patterns towards services, clean

energy and infrastructure; differ-

ences in the pace of development of

digital economy sectors and in the

opportunities presented by supply

chain restructuring in manufactur-

ing; and continued reliance on ex-

tractive industries in lower-income

countries. Despite subdued trends

in FDI ﬂ ows and slowing trade

over the course of the last decade,

international production continued

to expand, with ﬂ ows adding to

growing stocks of overseas assets,

increasing sales and employment

in foreign afﬁ liates, and rising in-

comes from foreign investments. In

2024, however, although FDI stocks

continued to accumulate, invest-

ment returns sagged and project

numbers dwindled.

The contraction in IPF has

signiﬁ cant implications for global

development ﬁ nancing efforts,

particularly within the framework

of the Fourth International Con-

ference on Financing for Devel-

opment. Between 2021 and 2024,

the value of IPF deals fell by more

than 40 percent. The downturn

was especially pronounced in

sectors such as renewable energy,

sustainable transport and critical

infrastructure, where IPF provides

the majority of external ﬁ nancing.

It disproportionally affected LDCs,

which rely more on international

sources of ﬁ nance for infrastructure

projects. Evidence from more than

two decades of IPF shows that

there is an important role to play

for governments (through pub-

lic-private partnerships), multilat-

eral development banks and risk

insurance agencies, and new types

of ﬁ nancial investors in pushing

capital to where it is needed most.

This is excerpted from “World

Investment Report 2025 delivers”,

published by UNCTAD. 

Trade Insight Vol. 21, No. 1-2, 2025

Ahad Nazir

In an age of polycrisis, Pakistan’s path forward lies in investing in climate-resilient

infrastructure, scaling digitally enabled trade services, and recalibrating regional diplomacy

Shifting supply chains

Prospects for Pakistan

suply chains in south asia

Climate change triggers volatile

weather patterns and harsher

extremes alongside political and

economic risks. Geopolitical strife,

protectionism, technological advances

and climate risk have driven ﬁ rms

to diversify and strengthen supply

chains amid US–China trade tensions,

Russia-Ukraine war and Middle East

conﬂ icts.1 According to an estima-

tion, climate-related extreme weather

events that disrupt ports, damage

infrastructure and trigger an overall

commodity shortage are causing a loss

of almost a billion dollars and occur-

ring every three weeks.2 The article

examines these dynamics and suggests

how emerging economies such as

Pakistan can adapt.

Digital aids

Advances in supply chain technolo-

gy, aided by automation, Internet of

Things (IoT) and artiﬁ cial intelligence

pexels

10 Trade Insight Vol. 21, No. 1-2, 2025

Wikimedia Commons

(AI), enhance visibility and extend or-

ganizations’ forecasting horizons. Yet

these systems struggle to assess major

disruptions in the areas with limited

data. Multiverse simulations and large

language models improve realtime de-

cisionmaking and enable earlier shock

prediction. However, digitalization

also introduces new vulnerabilities,

notably cybersecurity risks and net-

work interoperability failures. These

shifts have replaced the deterministic

“just-in-time” model with a stochastic

“just-in-case” framework, prioritizing

nearshoring, multisourcing and stra-

tegic stockpiles. Firms increasingly are

using logistics simulations to manage

operations under stress. For emerg-

ing economies, such systems are still

constrained by limited infrastructure

and policy frameworks. Public–private

partnerships now share infrastructure

to foster inclusive, resilient supply

chains.3

Bridging South and Central Asia

Pakistan bridges South and Central

Asia through the network of high-

ways, rail links and the new Gwadar

airport, securing faster maritime

access to Europe, Africa and the

Gulf. Upgraded dry ports and special

economic zones (SEZs)—modelled

on Singapore and Rotterdam—aim

for a 10 percent annual cargo uplift

at Gwadar Port.4 Recent China–Paki-

stan accords to modernize logistics

and rail networks further cement

Pakistan’s EastAsia–Europe corridor

status, provided new infrastructure

is climateresilient and powered by

renewables and clean transport.

With the future prospects, Paki-

stan’s supply chains remain exposed

to a 3C crisis—post-COVID recovery

hurdles, climate shocks and conﬂ ict

disruptions. The pandemic laid bare

single source dependencies and

network delays, highlighting the need

for agility and resilience. Yet 39 per-

cent of manufacturers, chieﬂ y in

emerging markets, still lack the capac-

ity to endure such strain.5 Driven by

record monsoon rains, the 2022 ﬂ oods

submerged one-third of Pakistan,

affecting 33 million people, displac-

ing 8 million and claiming 1,739 lives.

They damaged over 2 million homes,

13,115 km of roads and 439 bridges,6

and slashed rice and cotton yields by

15 percent and 40 percent, respec-

tively. The disaster inﬂ icted losses

equal to 4.8 percent of FY 2022 GDP

and generated US$16.3 billion in

reconstruction needs.7 These cascad-

ing impacts disrupted supply chains

and transit, underscoring the need

to move from costfocused “just-in-

time” to resilient “just-in-case” models

embedding redundancy, digitalization

and climate adaptation. Despite high

logistics costs, customs delays and

limited connectivity, Pakistan’s ecom-

merce market reached US$5.2 billion

in 2023.8

Good practices

Pakistan’s supply chain initiatives

warrant evaluation against in-

ternational best practices. In tex-

tiles—60 percent of export revenue—

the 2022 ﬂ oods wiped out 40 percent

of cotton acreage and 45 percent of

plantings,9 forcing many Faisalabad

mills to idle or cut output, spiking

unemployment and trade deﬁ cits.10

Regenerative cotton farming, trialled

in Gujrat, offers scalable gains across

Sindh and Punjab: 30 percent low-

er costs, substantial GHG cuts and

enhanced supplychain resilience. Ag-

riculture, which accounts for 24 per-

cent of GDP and employs 40 percent

of the workforce, faces severe climate

exposure.11 Scaling up of projects,

such as the Indus Basin ClimateSmart

Agriculture project, would increase

seed stocks, strengthen irrigation

systems and enhance farmer out-

reach against droughts and ﬂ oods.12

Integrating soil sensors, GIS mapping

and droneguided precision techniques

can sharpen risk planning and boost

agility. Finally, tighter linkages among

growers, processors and storage hubs

would forge a ﬁ nancially sound,

exportoriented value chain. Pakistan’s

youth-driven tech sector can strength-

en trade resilience by insulating corri-

dors from external shocks. Achieving

this demands a fully operational

Pakistan Single Window and digital

trade diplomacy with Central Asian

partners to align regulations, data

ﬂ ows and payments.13 It also calls for

a workforce skilled in cloud platforms,

IoT, blockchain trials and AI-driven

supplychain planning, execution and

monitoring.

The postﬂ ood Kissan Package,14

a US$8.1 billion relief programme,

offers subsidized loans, input support

and grants to affected farmers. Via

the State Bank of Pakistan, farmers

received up to PKR 300,000 each,

supply chains in south asia

Trade Insight Vol. 21, No. 1-2, 2025

enabling over one million to replant

crops and repair irrigation channels.15

Bilateral and multilateral accords now

guide Pakistan’s strategy, most visibly

the EU’s Carbon Border Adjustment

Mechanism—set to cover textiles and

chemicals by 2026—and expected to

save roughly €1 billion in compliance

costs.16 The government is laying

groundwork for domestic carbon mar-

kets, while looming US proposals on

methane-based import fees could re-

shape energy exports.17 Initial reforms

centre on carbontrading guidelines,

deﬁ ning measurement, reporting and

veriﬁ cation standards and establishing

creditsale mechanisms to fund decar-

bonization.18

To shore up supplychain resil-

ience and meet emerging regulatory

demands, Pakistan must climateproof

its infrastructure through “build back

better” and blend climate ﬁ nance

with green bonds and public–private

partnerships to channel investment

efﬁ ciently. Carbon credits, clean devel-

opment mechanisms and naturebased

solutions can target adaptation needs,

while climatesmart farming, precision

agriculture, industrial decarbonization

and textilewaste circularity main-

stream sustainability. Automated car-

bon accounting via the Pakistan Single

Window and renewed trade diploma-

cy—rejoining sustainability forums,

engaging World Trade Organisation

(WTO) trade environment commit-

tees and forging digital, green trade

agreements—will secure preferential

market access. Regionally, deeper

South Asian integration under South

Asian Free Trade Area (SAFTA), cou-

pled with South Asian Association for

Regional Cooperation (SAARC) digital

corridors and harmonized stand-

ards with Bangladesh, Nepal and Sri

Lanka, can shorten supply chains, cut

nontariff barriers and expand exports

for SMEs and perishable goods.

In an age of polycrisis, Pakistan’s

path forward lies in balancing imme-

diate resilience with forward-looking

trade integration. This means invest-

ing in climate-resilient infrastructure,

scaling digitally enabled trade servic-

es, and recalibrating regional diplo-

macy—particularly within SAARC. By

doing so, Pakistan can move beyond

reactive survival to shape future sup-

ply chains in ways that reﬂ ect equity,

sustainability, and regional stability. 

Mr. Nazir is an Associate Research Fellow

at Sustainable Development Policy Institute

(SDPI).

Notes

1 Allem, Nicole. 2025. “Navigating 2025's

geopolitical supply chain landscape.”

Resilience Insights, Maersk. 28 Febru-

ary 2025.

2 Economist Impact. 2024. "Climate

change’s disruptive impact on global

supply chains and the urgent call for

resilience." Articles. https://impact.

economist.com/projects/trade-in-transi-

tion/climate_change

3 Beattie, Allen. 2024."Can globalisation

survive the US China rift?" Financial

Times, September 6, 2024.

4 Khan, Ezba Walayat. 2024. “Gwadar

Port: A Catalyst For Socio Economic

Growth.” The Friday Times, December

16, 2024.

5 Capgemini Research Institute. 2020.

Fast forward – Rethinking supply chain

resilience for a post COVID 19 world.

Paris: Capgemini Research Insti-

tute.

6 Iqbal, Tehseen. 2022. “Floods Have

Posed Serious Health and Economic

Challenges in Aﬀ ected Areas of Paki-

stan.” Pakistan Journal of Physiology

18 (4): 1–2.

7 Ministry of Planning, Development &

Special Initiatives, Government of Paki-

stan. 2022. Pakistan Floods 2022 Post

disaster needs assessment. Islamabad:

Government of Pakistan.

8 DHL. 2024. “E-commerce in Pakistan:

What’s in it for the supply chain and

logistics market.” Pakistan E-Com-

merce Logistics Solutions, October 27,

2024.

9 Reuters. 2022. “Initial economic losses

from Pakistan ﬂ oods at least $10 bln –

planning minister.” Reuters, August 29,

2022.

10 Mustafa, Waqar. 2022. “Pakistan ﬂ oods

leave cotton workers’ dreams in tat-

ters.” Reuters, October 17, 2022.

11 CIAT & World Bank, 2017. Climate

Smart Agriculture in Pakistan. CSA

Country Proﬁ les for Asia Series.

Palmira: International Center for Tropi-

cal Agriculture (CIAT) & Washington,

D.C.: The World Bank.

12 FAO. 2020. Multi criteria decision anal-

ysis for selection of vulnerable districts:

Transforming Indus Basin with climate

resilient agriculture and water manage-

ment. Islamabad: Food and agricultural

organization of the United Nations.

13 Javed, Asif, and Vaqar Ahmed. 2022.

Digital Trade as Engine of Growth for

Pakistan. Pakistan Journal of Social

Issues [XIII]: 71–83.

14 Khan, Rana Ihsaan Afzal. 2023. “Kis-

san Package: rescuing the farmers”

Horizon. January 2, 2023.

15 Ministry of National Food Security

and Research. 2022. “Kissan Pack-

age 2022–24.” Islamabad: Ministry of

National Food Security and Research.

16 Khan, Maryam. 2024. “Pakistan and

the Global North’s Climate-linked Trade

Policy.” The Diplomat. June 21, 2024.

17 Ahmed, Faraz. 2025. “Strategic realign-

ment: mitigating fallout of tariﬀ s on

exports.” The Express Tribune, 14 April,

2025.

18 Government of Pakistan, Ministry of

Climate Change & Environmental Coor-

dination. 2024. Pakistan Policy Guide-

lines for Trading in Carbon Markets.

Islamabad: Ministry of Climate Change

and Environmental Coordination.

hippopx

12 Trade Insight Vol. 21, No. 1-2, 2025

Fahmida Khatun and Foqoruddin Al Kabir

Greening supply chains in South Asia faces challenges of fragmented policy,

inefﬁ ciency in environmental governance, and vulnerability to operational risks.

Greening supply

chains in South Asia

Trade-led approach to

sustainable transformation

supply chains in south asia

In recent years, green supply chains

as an instrument for reducing

carbon footprint to combat climate

change and promote sustainable de-

velopment has been gaining traction.

As part of the initiatives, responsive

stakeholders are increasingly calling

for transparency, environmental re-

sponsibility, and social accountability

across production and distribution

networks. As a result, greening supply

chains has become a strategic priority

for businesses worldwide, inﬂ uencing

trade patterns, investment decisions,

and competitiveness. Key regulatory

frameworks such as the EU Green

Deal, the Corporate Sustainability Due

Diligence Directive (CSDDD), and

carbon border adjustment mecha-

nisms are also pushing ﬁ rms to adopt

pexels

Trade Insight Vol. 21, No. 1-2, 2025

low-carbon practices, reduce emis-

sions, and ensure ethical sourcing.1

Greening the supply chain is

crucial for South Asia due to the

region’s high involvement in interna-

tional trade exposure, rapid industri-

alization, and severe environmental

degradation. For instance, countries

like Bangladesh, India, Pakistan, and

Sri Lanka in South Asia have become

an integral part of global supply

chains, especially for textiles, appar-

el, and agro-processing industries.

At the same time, the region faces

critical challenges related to air and

water pollution, resource depletion,

and rising greenhouse gas emissions

stemming from industrial activities.

While global markets are increasingly

imposing strict environmental compli-

ance and due diligence requirements,

failure to ensuring the green supply

chains in the region could risk market

access, foreign investment, and long-

term economic growth.

As global call for sustainable and

transparent supply chains intensiﬁ es,

South Asian countries face challeng-

es that can lead to an opportunity to

transform the traditional industrial

and trade practices into a sustainable

one. Against this backdrop, this article

discusses strategy that can support

this transition, including regulatory

reform, capacity building, and region-

al cooperation to foster more sustain-

able, competitive, and resilient supply

chains.

Greening supply chain

matters for South Asia

Exports play a critical role in the

economic structure of South Asian

countries, contributing signiﬁ cantly

to GDP and employment. Over the

years, the contribution of export earn-

ings to GDP increased twofold since

1990 (Figure 1). In 2023, the share of

exports of goods and services to GDP

was 20.01 percent, while it was 13.28

percent in 2000. Similarly, the share

of employment in industry increased

to 24.55 percent from 16.11 percent

in 2000. These numbers indicate that

exports play a signiﬁ cant role in the

region’s growth and employment gen-

eration. In Bangladesh, for instance,

the ready-made garments (RMG)

sector, the country’s key exporting

sector, accounts for over 80 percent of

total exports and contributes nearly

8 percent to GDP,2 while employing

more than 3 million people.3

While exports of goods and ser-

vices are signiﬁ cant for the region’s

Figure 1 Trend of export and employment in industry in South Asia

Figure 2 CO2 emissions from industrial processes (MtCO2e)

Source: World Development Indicators (2024).

1991

Percent

 Exports of goods and services (% of GDP)

 Employment in industry (% of total employmentP)

1995 2000 2005 2010 2015 2020 2023

Source: World Development Indicators (2024).

0 0

100

150

200

250

300

Mt CO2e

Percent

14 Trade Insight Vol. 21, No. 1-2, 2025

growth, the production and logistics

systems of exporting sector in South

Asia have a signiﬁ cant environmental

footprint, driven by rapid industriali-

sation, weak regulatory enforcement,

and traditional technologies.4 Manu-

facturing sector is a major contributor

to air and water pollution due to the

widespread use of fossil fuels, inef-

ﬁ cient resource use, and inadequate

waste management. For example,

the textile and dyeing industries

in Bangladesh, India, and Pakistan

discharge large volumes of untreated

efﬂ uents into water bodies, contribut-

ing to severe water contamination and

ecosystem degradation.5 As a result,

reducing the environmental footprint

in industrial production system and

transition to green supply chain will

be crucial for the region.

Mapping the region’s

supply chain sustainability

The trend of CO2 emission from

industrial processing in South Asia

shows a slow increasing trend over the

years. The current share of South Asia

in global emission from industrial pro-

cessing is 8.81 percent in 2023 (Figure

2). Although South Asian region is

not among the top emitters of indus-

trial processing, a gradual increase of

emission is observed over the time.

In 2000, the share of South Asia in

CO2 emission form global industrial

processing was 5.46 percent which

increased to 6.83 percent in 2020. A

signiﬁ cant increase of 8.81 percent was

observed in 2023.

In terms of industrial energy con-

sumption in South Asian Countries,

India ranks top with a share of 41 per-

cent in total ﬁ nal energy consumption,

followed by 31 percent for Sri Lanka,

and 30 percent for Bangladesh (Figure

3). It indicates that industries in South

Asia consume a signiﬁ cant amount of

energy for industrial processing which

further leaves a CO2 footprint as fossil

fuel continues to dominate the energy

mix in the region.

While there is an increasing trend

in renewable energy consumption in

the World. South Asian region shows

a slightly declining trend over the

years (Figure 4). The South Asian

economy is growing faster than any

other region in the world fueled by

industrial growth.6 This growing in-

dustries in this region require continu-

ous supply of energy. However, fossil

fuel remains the dominant source of

energy in the region.7 As a result, a

declining trend is observed over the

years in terms of renewable energy

consumption.

Challenges to

greening supply chains

The challenges to greening supply

chain in South Asia are in many folds

including fragmented policy frame-

works, weak enforcement of regu-

lations, low awareness and limited

adoption of green practices for Small

and Medium Enterprises (SMEs),

technological deﬁ cit, inadequate green

ﬁ nancing, and poor regional coordina-

tion.8 At the national level, responsible

government agencies on trade, envi-

ronment, industry, and transport for

ensuring sustainability often operate

in institutional silos.9 As a result, weak

enforcement of regulations for ensur-

ing sustainable practices in industrial

production are observed across the

countries in the region. SMEs are an

integral part of regional supply chain

but they lack awareness in adopting

green practices due to their limited

ﬁ nancial and technological capacity.

Technological deﬁ cit combined with

limited access to green ﬁ nancing,

further impedes their ability to adopt

environment friendly solutions. At

the regional level, the absence of

harmonized environmental policies

and standards impedes cross-border

coordination and weakens collective

efforts to green supply chains. Hence,

greening supply chains in South Asia

is facing challenges of fragmented

policy, inefﬁ ciency in environmental

governance, and vulnerability to envi-

ronmental and operational risks.

Pathways to

sustainable supply chain

While the South Asian region faces

multiple interconnected challenges in

greening the supply chain, the tran-

sition towards a green supply chain

requires policy actions across trade,

industry, environment, and ﬁ nancing.

For instance, integration of environ-

mental and climate-smart criteria into

trade and industrial policy will be a

crucial factor for reducing the carbon

footprint in industrial processing. In

this case, export incentives and tax

beneﬁ ts can be a crucial instrument to

prioritise the adoption of resource-ef-

ﬁ cient and low-emission production

processes. The integration of envi-

ronmental and climate smart criteria

into trade and industrial policy would

further be strengthened in countries

across the region by establishing

regional green supply chain standards

and certiﬁ cations. Regional platforms

such as South Asia Co-operative En-

vironment Programme (SACEP) and

Bay of Bengal Initiative for Multi-Sec-

toral Technical and Economic Coop-

eration (BIMSTEC) can facilitate the

development of harmonized guide-

lines and certiﬁ cations on emissions,

energy efﬁ ciency, packaging, and

waste management aligned with glob-

al trade standards. The establishment

of such standards and certiﬁ cation will

also help strengthening institutional

capacity at both national and subna-

tional levels for Environmental, Social,

supply chains in south asia

Source: International Energy Agency (IEA), (2024).

Figure 3 Share of industry in total

ﬁ nal energy consumption

Nepal

Pakistan

Bangladesh

Sri Lanka

India

Percent

Trade Insight Vol. 21, No. 1-2, 2025

and Governance (ESG) compliance,

sustainable audits, and reporting.

Special attention should be given

to SMEs in the supply chain. The

targeted support to SMEs will ensure

an inclusive green transition in the

supply chain in the region. The tar-

geted support may include technical

assistance programmes on cleaner pro-

duction methods, resource efﬁ ciency,

and ESG compliance, as well as access

to affordable green ﬁ nancing through

blended ﬁ nance instruments, credit

guarantees, or dedicated green SME

funds. Supplier development pro-

grammes can also help SMEs integrate

into global value chains by meeting

environmental standards.

Conclusion

South Asia stands at a critical juncture

where the transition to green supply

chains presents a unique window

of opportunity. By embracing

sustainable practices, countries in

the region can enhance their global

competitiveness and build more

resilient and future-ready supply

networks. However, greening sup-

ply chain in South Asia requires a

coordinated regional response that

harmonises policies, standards,

and investment priorities across

borders. With the right mix of

political will, institutional support,

and international cooperation,

South Asia can transform its sup-

ply chains into green and sustain-

able one for sustainable growth,

climate resilience, and shared

prosperity. 

Dr. Khatun is Executive Director and

Mr. Kabir is Senior Research Associate at

Centre for Policy Dialogue (CPD).

Notes

1 Butt , J., and F. Kousar. 2024. Driving

Sustainable Growth: The Corporate

Sustainability Due Diligence Directive

as a Catalyst (CSDDD) for Public

Administration Reform and Corporate

Accountability in the European Green

Deal. Driving Sustainable Growth:

The Corporate Sustainability Due

Diligence Directive as a Catalyst

(CSDDD) for Public Administration

Reform and Corporate Accountability

in the European Green Deal, 14(3),

7-25.

2 Bangladesh Bank. 2024. Quarterly

Review of Readymade Garments

(RMG). Dhaka: Bangladesh Bank .

3 Mapped in Bangladesh. 2025.

Mapped in Bangladesh. 2025. Re-

trieved from Mapped in Bangladesh :

https://mappedinbangladesh.org/

4 Sikder, M., Wang, C., Frederick, K.,

and J Wood. 2022. Driving Factors

of CO2 Emission Reduction in the

Logistics Industry: An Assessment of

the RCEP and SAARC Economies.

Environment, Development and Sus-

tainability, 26, 2557-2587.

Khan , S., Jian , C., Zhang, Y.,

Golpîra, H., Kumar, A., & Sharif, A.

2019. Environmental, Social and

Economic Growth Indicators Spur

Logistics Performance: From the Per-

spective of South Asian Association

for Regional Cooperation countries.

Journal of Cleaner Production, 214,

1011-1023.

5 Islam, M., & Mostafa, M. 2018. Textile

Dyeing Eﬄ uents and Environment

Concerns - A Review. Journal of

Environmental Science and Natural

Resources, 11 (1-2), 131-144.

6 World Bank Group. 2025. South Asia.

Retrieved from: https://www.world-

bank.org/en/region/sar/overview#1

7 Ul-Haq, A., Jalal, M., F. Sindi, H., and

S. Ahmad. 2020. Energy Scenario in

South Asia: Analytical Assessment

and Policy Implications. IEEE Access,

8, 156190-156207.

8 Tseng, M.-L., Islam, M. S., Karia, N.,

Fauzi, F. A., and S. Afrin. 2019. A lit-

erature review on green supply chain

management: Trends and future chal-

lenges. Resources, Conservation and

Recycling, 141 (2019), 145-162.

9 Rasul, G., and N, Neupane. 2021.

Improving Policy Coordination Across

the Water, Energy, and Food, Sectors

in South Asia: A Framework. Frontiers

in Sustainable Food System, 5.

Boström , M., Jönsson , A., Lockie,

S., Mol , A., & P. Oosterveer. 2015.

Sustainable and Responsible Supply

Chain Governance: Challenges and

Opportunities. Journal of Cleaner

Production, 107: 1-7.

World Linear (World) South Asia Linear (South Asia)

1990

1992

1994

1996

1998

2000

2004

2008

2002

2006

2010

2012

2016

2020

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2014

2018

Percent

Bangladesh

Pakistan

Nepal

India

Sri Lanka

0 20 40 60 80 100

Trend of Energy Mix in South Asia (2021)

 Renewables  Oil  Natual gas  Coal  Others

Figure 4 Renewable energy consumption (% of total ﬁ nal energy consumption)

and energy mix in South Asia

Source: International Energy Agency (IEA) 2024.

16 Trade Insight Vol. 21, No. 1-2, 2025

reciprocal tariﬀ

Golam Rasul

Reciprocal tariffs have raised fears of a global trade war, with

far-reaching implications for supply chains, investment ﬂ ows, and economic stability

Trump’s reciprocal tariff

Risk to the global

multilateral trading system

Throughout history, trade has

played an important role in

fostering economic development and

enhancing diplomatic relations among

nations for centuries. By facilitating

the exchange of goods, services, and

resources, trade has allowed countries

to specialize in production based on

their comparative advantages, leading

to increased efﬁ ciency, productivi-

ty, and improving living standards.

The establishment of global trade

networks—such as the Silk Road,

transatlantic trade routes, and modern

multilateral trading systems—has not

only contributed to economic growth

but also encouraged cultural exchang-

es and diplomatic cooperation.

On 2 April 2025, US President

Donald Trump announced a new

'Reciprocal Tariff' policy to reduce

US trade imbalances, revitalize the

American industrial base, and protect

domestic jobs. Trump’s Reciprocal

Tariff policy consists of two major

components: a universal tariff and

country-speciﬁ c reciprocal tariffs.

The universal tariff, set at 10 percent,

applies to all imports entering the

US, effective from April 5, 2025.1 The

second aspect of the policy focuses on

higher tariffs imposed on countries

with signiﬁ cant trade surpluses with

the US. These tariffs, intended to ad-

dress the perceived inequity of trade

balances, were set to take effect on 9

April 2025, but were postponed for 90

days, except those directed at China.2

The underlying principle of the

Reciprocal Tariff policy is to compel

trading partners to open their markets

for the American goods to reduce their

trade surpluses with the US and to

impose higher tariffs on imports from

countries that maintain signiﬁ cant

export advantages. Trump’s reciprocal

tariff has sent shockwaves through

the global economic order, marking

a sharp departure from the estab-

lished, rules-based international trade

framework. It embodies a unilateral

approach to trade negotiations, pri-

oritizing national economic interests

over the multilateral principles upheld

by the World Trade Organization

(WTO). Trump’s tariffs have increased

the trade-weighted average tariff for

the US from approximately 2 percent

to an estimated 24 percent, a level not

seen in over a century.

Trade Insight Vol. 21, No. 1-2, 2025

This is a signiﬁ cant turning point

in the multilateral trading system.

The approach has raised serious

concerns about its future, threaten-

ing the long-standing foundation of

global trade and commerce. It has

caused widespread economic and

trade uncertainty, leading to overall

economic instability. Additionally, it

has raised fears of a global trade war,

with far-reaching implications for

supply chains, investment ﬂ ows, and

economic stability, thereby fueling

widespread uncertainty in the world

economic and trading system.

Establishment of

multilateral trading system

The global trading system was se-

verely disrupted by World War I and

further destabilized by the enactment

of the US Smoot-Hawley Tariff Act of

1930, which signiﬁ cantly raised tariffs

and triggered widespread retaliation.3

Many countries adopted protectionist

measures, imposing both tariff and

non-tariff barriers that deepened trade

restrictions. These policies, combined

with disrupted trade routes and the

absence of an international institution

to coordinate responses or resolve

disputes, led to increased economic

fragmentation. Consequently, global

trade contracted sharply and accel-

erated the economic downturn. The

impact was particularly severe among

industrialized nations, with national

incomes declining markedly over a

short period.

The economic devastation wrought

by World War II highlighted the

urgent need for a stable global trading

system and a structured economic or-

der to promote prosperity and sustain

peace. In response, nations collabo-

rated to establish key international

institutions such as the International

Monetary Fund (IMF) and the World

Bank, with the goals of stabilizing na-

tional economies and fostering global

economic cooperation.4

Recognizing the destructive conse-

quences of trade disruptions and pro-

tectionist policies during the interwar

period, countries initiated negotiations

to create a rules-based framework for

international trade. These efforts led

to the establishment of the Gener-

al Agreement on Tariffs and Trade

(GATT), which laid the foundation for

modern trade governance. Over time,

this framework evolved and was in-

stitutionalized through the creation of

the World Trade Organization (WTO),

providing a formal mechanism for

regulating global trade and resolving

trade disputes.5

The US played a central role in

shaping the modern multilateral trad-

ing system. In the post–World War II

era, it consistently championed trade

liberalization, globalization, and the

free movement of goods, services, and

capital. President Harry S. Truman

was instrumental in the establishment

of the GATT. Later, President John

F. Kennedy led efforts to achieve

substantial tariff reductions through

the Kennedy Round of GATT negoti-

ations.

President Ronald Reagan sup-

ported the Uruguay Round, which

ultimately led to the creation of the

WTO. During the Uruguay Round,

trade rules were signiﬁ cantly expand-

ed, with a particular focus on liberaliz-

ing domestic markets for services and

investment, as well as strengthening

intellectual property rights (IPRs).

Under President Bill Clinton,

North American Free Trade Agree-

ment (NAFTA) was implemented and

the WTO was formally established,

marking signiﬁ cant steps in advanc-

ing globalization. President George

W. Bush expanded the US network of

bilateral trade agreements with coun-

tries such as Chile, Singapore, and

Australia, while actively supporting

the Doha Round of WTO negotiations.

Inspired by US leadership, many of its

allies in Europe, North America, and

Asia embraced trade liberalization and

globalization. These efforts signiﬁ -

cantly contributed to the expansion of

international trade, fostering economic

growth, increased prosperity, and

substantial reduction of poverty.

Beneﬁ ts of an open multilateral

trading environment

Under the framework of the GATT

and its successor the WTO, countries

around the world have progressive-

ly reduced both tariff and non-tariff

barriers (Table 1, next page). These

trade liberalization efforts have played

a pivotal role in boosting global

trade and investment ﬂ ows. Notably,

following the establishment of the

WTO in 1995, the global average tariff

rate declined consistently. The simple

average Most Favored Nation (MFN)

tariff, for instance, dropped from 13.1

percent in 1996 to 8.8 percent in 2022,

reﬂ ecting a broad commitment to

more open and rules-based trade.6

Global trade openness has in-

creased markedly since the inception

of GATT and WTO. Trade openness,

measured as the sum of exports and

imports as a percentage of global GDP,

rose from around 10 percent in 1950 to

over 40 percent by 2010.7 As a result,

the volume of world trade has grown

dramatically—expanding 45-fold

between 1950 and 2024. In particular,

trade accelerated sharply after the

formation of the WTO. Global trade in

goods and services surged from under

US$100 billion in 1950 to nearly US$25

trillion in 2024, making economies

more interconnected and interdepend-

ent than ever before.8

With the reduction of trade bar-

riers under GATT and WTO, many

countries also liberalized their current

and capital accounts. This facilitated

deeper integration into the global

economy and boosted economic

growth. Notably, trade among devel-

oping countries increased signiﬁ cant-

ly—from 8.8 percent of global trade

in 1995 to 24.6 percent in 2022—while

trade between developed countries

declined from 54 percent to 39 percent

over the same period.9

The expansion of global value

chains (GVCs) has been another major

beneﬁ t of an open trading system.

Countries have increasingly partic-

ipated in international production

networks through both backward link-

ages (importing intermediate inputs)

and forward linkages (exporting inter-

mediate or ﬁ nal goods). This open and

interconnected trading environment

has contributed signiﬁ cantly to pov-

erty reduction worldwide. The global

poverty rate fell from 40.1 percent in

1995 to 10.6 percent in 2022.10

18 Trade Insight Vol. 21, No. 1-2, 2025

reciprocal tariﬀ

Several Asian economies—in-

cluding Japan, South Korea, Taiwan,

Singapore, China, India, Malaysia,

Thailand, Indonesia, and Vietnam—

have leveraged this open trading

environment to achieve high levels

of economic growth and substantial

poverty reduction. By integrating

into global markets and value chains,

these countries have emerged as major

players in world trade.

Violation of WTO rules and

weakening of multilateral

trading system

A cornerstone of the WTO is the MFN

principle, which requires member

countries to extend equal trade con-

cessions to all other members, thereby

ensuring non-discrimination, fairness,

and predictability in global trade. This

principle is central to maintaining

a multilateral, rules-based trading

system.

Trump’s Reciprocal Tariff repre-

sented a signiﬁ cant departure from

these foundational principles. By

imposing country-speciﬁ c tariffs based

on perceived trade imbalances, the

policy replaced multilateral cooper-

ation with unilateral, discriminatory

actions. This directly violated the

MFN principle and undermined the

WTO’s commitment to equal treat-

ment among members. The move set

a troubling precedent, encouraging

other nations to adopt similar unilat-

eral measures, thereby weakening the

multilateral framework.

Moreover, the policy disregarded

binding tariff commitments, another

critical tenet of the WTO. Member

countries are obligated to maintain tar-

iffs within negotiated limits to ensure

stability and predictability in global

trade. Arbitrary tariff increases under

the Reciprocal Tariff policy eroded

this stability, introducing uncertainty

and disrupting long-standing trade

relationships.

Equally concerning is by-passing

of the WTO’s Dispute Settlement

Mechanism (DSM)—a key institution

for resolving trade disputes through a

formal, rules-based process. The DSM

allows member states to address griev-

ances via consultations, expert panel

reviews, and appeals, ensuring impar-

tial and transparent outcomes. While

the US has raised legitimate concerns

about trade practices in countries like

China, including subsidies, import

restrictions, and regulatory barriers,

these issues should have been ad-

dressed through the DSM, rather than

through unilateral retaliation.

By bypassing the WTO's DSM and

resorting to unilateral trade actions,

the US has signiﬁ cantly weakened

the credibility and authority of the

global trading system. The DSM has

long been one of the WTO’s most

effective institutions, providing a fair,

rules-based process for resolving trade

disputes and preventing the escalation

of trade tensions into broader econom-

ic conﬂ icts. Even before Trump, the US

had been undermining the system by

repeatedly blocking the appointment

of new members to the WTO’s Appel-

late Body, citing concerns over judicial

Round No. Year(s) Name Accomplishments of negotiations Participating

Countries

1 1947 Geneva Reduced Tariffs- Average 26 percent reduction on 45,000 tariff conces-

sions

2 1949 Annecy Reduced Tariffs-5,000 tariff concessions; modest reductions 13

3 1951 Torquay Reduced Tariffs- Average tariff levels reduced from 40 percent to 25

percent

4 1956 Geneva Reduced Tariffs- Tariff cuts worth US$2.5 billion in trade value 26

5 1960-61 Dillon Reduced Tariffs- US$4.9 billion in trade affected by tariff cuts 26

6 1964-67 Kennedy Reduced tariffs; addressed anti-dumping measures. Average 35 per-

cent cut in tariffs on industrial goods

7 1973-79 Tokyo Reduced tariffs and non-tariff barriers; introduced framework agree-

ments on subsidies, technical barriers to trade, and customs valuation.

102

8 1986-94 Uruguay Comprehensive package covering tariffs, NTBs, services (GATS), intellec-

tual property (TRIPS), agriculture, dispute settlement, and created WTO

123

9 2001 to

date

Doha Aimed at reductions in agricultural subsidies and tariffs, improved mar-

ket access for non-agricultural goods and services; special focus on

development issues, clarification of various WTO rules and agreements

Round remains inconclusive as of 2025

164 (WTO

members)

Not yet com-

pleted

Source: The GATT Years from Havana to Marrakesh, www.wto.org, https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact4_e.htm

Table Tariff Reduction Rounds of GATT/WTO Multilateral Trade Negotiations

Trade Insight Vol. 21, No. 1-2, 2025

overreach and procedural inefﬁ -

ciencies. This obstruction effectively

paralyzed the appellate process, and

by December 2019, the Appellate

Body was left with too few members

to operate. As a result, a growing

number of trade disputes remain

unresolved, threatening the integrity

and enforceability of WTO rules.

Trump’s Reciprocal Tariff also

violated key WTO principles,

particularly non-discrimination

and binding commitments, while

weakening the institution’s role as a

neutral arbitrator of trade disputes.

These actions represent a move from

a rule-based to power based system

that have seriously undermined trust

in the multilateral rule-based trading

system and jeopardized the cooper-

ative spirit that has driven decades

of trade liberalization and global

economic integration.

Future of multilateral

trading system is at risk

Trump’s Reciprocal Tariff marks a

signiﬁ cant departure from the rule-

based multilateral trading system,

which shaped international economic

relations since the end of World War

II. By imposing sweeping tariffs—

both blanket and country-speciﬁ c —

based on perceived trade imbalances,

the policy undermines fundamental

WTO principles, including coopera-

tion, non-discrimination, and adher-

ence to binding commitments.

As a result, the future of the

multilateral trading system is now

fraught with uncertainty. The WTO,

which was designed to foster fair,

transparent, and universal trade

governance, now faces fragmenta-

tion, as nations increasingly pivot

toward regional trade agreements

(RTAs) and bilateral deals. This shift

risks creating a fractured global trade

landscape, governed by inconsistent

rules, reduced accountability, and

diminished regulatory oversight, ulti-

mately weakening the effectiveness

of global trade governance.

Furthermore, it may exacerbate

the move toward economic nation-

alism and protectionist policies. If

such trends continue, they could

dismantle the foundational pillars of

multilateralism, fueling higher trade

barriers, market fragmentation, and

declining global economic cooper-

ation. While immediate concerns

center around trade wars, weak-

ened globalization, and economic

slowdown, the far more troubling

long-term consequence is the gradual

disintegration of the multilateral

trade framework itself.

Trump’s Reciprocal Tariff has

far-reaching implications beyond

trade. A weakened WTO threatens

conﬁ dence in other global institu-

tions, including the United Nations,

potentially destabilizing the broader

international order. The erosion of

credibility, legitimacy, and effective-

ness in global governance mecha-

nisms could hinder collective action

on pressing issues such as climate

change, pandemics, and ﬁ nancial

crises. In this context, the undermin-

ing of multilateral trading system

signiﬁ es more than just a trade crisis;

it represents a systemic risk to the

global political and economic order,

posing profound risks to internation-

al cooperation and global stability.

Conclusion

Trade theories highlight the bene-

ﬁ ts of liberalization and globaliza-

tion, demonstrating how economic

interdependence fosters stability in

international relations. By creating

incentives for mutual cooperation,

trade makes peaceful engagement

more advantageous than hostility.

To sustain these beneﬁ ts, the global

community must revitalize the WTO,

strengthen its dispute resolution

mechanisms, and ensure that trade

remains a driver of inclusive and

sustainable development. Without

such efforts, the world risks reverting

to economic fragmentation, unilater-

alism, and hegemonic trade practices.

To preserve the integrity of global

trade, the multilateral framework

must be upheld, ensuring that trade

rules remain cohesive and resistant

to fragmentation. A commitment

to rule-based negotiations rather

than unilateral actions is essential,

fostering dialogue within WTO

forums instead of resorting to retalia-

tory tariffs. Strengthening multilateral

trade diplomacy will help address

grievances and imbalances through

cooperative mechanisms, reinforcing

trust among nations. A key priority is

revitalizing the WTO’s Appellate Body

and DSM to restore credibility in mul-

tilateral arbitration while enhancing

transparency in global trade govern-

ance. Moreover, special and differen-

tial treatment for developing nations

must be safeguarded, ensuring that

Least Developed Countries (LDCs)

and smaller economies retain prefer-

ential access to global markets. Before

imposing reciprocal tariffs, impact

assessments should be conducted to

mitigate adverse effects on vulnerable

economies, protecting trade stabili-

ty and fostering inclusive economic

growth. 

Dr. Golam Rasul is a Professor in the

Department of Economics at IUBAT—Interna-

tional University of Business Agriculture and

Technology.

Notes

1 US Government Executive Order

"Regulating Imports with a Reciprocal

Tariﬀ to Rectify Trade Practices that

Contribute to Large and Persistent

Annual United States Goods Trade

Deﬁ cits" dated 2 April 2025

2 VanGrasstek, Craig. 2013. The History

and Future of the World Trade Organi-

zation. Geneva: World Trade Organiza-

tion.

3 League of Nations. 1943. The Transi-

tion From War To Peace Economy:

Report of the Delegation on Economic

Depressions, Oﬃ cial Xo.: C.6. M.6.

1943.11.A, Geneva.

4 Hopewell, Kristen. 2020. "Trump

& Trade: The Crisis in the Multilat-

eral Trading System". New Political

Economy, (), 1–12.

5 World Trade Organization. https://www.

wto.org/

6 ibid.

7 ibid.

8 ibid.

9 ibid.

10 Steinbock, Dan. 2025, "Trump’s

Reciprocal Tariﬀ s Of Trade Destruction

– Analysis". Eurasia Review, February

24, 2025.

11 Stewart, Heather. 2025."UN calls on

Trump to exempt poorest countries

from ‘reciprocal’ tariﬀ s". The Guardian,

April 14, 2025.

20 Trade Insight Vol. 21, No. 1-2, 2025

The great rewiring

Trade and industrial

policies restructuring

the global markets

Without a coordinated international approach,

resurgence of industrial policies intended to secure

sustainable development may instead undermine it.

Ieva Baršauskaitė

green policies

In the fractured global economy and

international relations, trade and in-

dustrial policies are suddenly driving

the news of the day – each day and

at a fast pace. From semiconductor

subsidies to clean energy investments,

governments are racing to rewire their

economies for a new era of competi-

tion, security, and sustainability. COV-

ID-19 and its economic challenges and

supply-chain crisis, Russia-Ukraine

war and related trade fragmenta-

tion, friend-shoring that is picking

up the pace and new policies of the

Trump administration are rewiring

industrial and trade policies. The free

markets of yesteryear are breaking

down, replaced by a more strategic, if

confrontational, approach to economic

management.

Trade and industrial policies are

often thought about together, consid-

ered two sides of the same coin. While

the industrial policies are aimed at de-

Trade Insight Vol. 21, No. 1-2, 2025

ﬁ ning winners of domestic manufac-

turing, the trade policy comes to play

when the industrial policy’s impact

starts spilling across the borders. The

effect of industrial policies of others

has been at the front and centre of

policy debates for decades, until softly

governed by the World Trade Organi-

zation (WTO)’s rulebook that deﬁ ned

certain guidelines in 1995 to make sure

that the most harmful measures can be

contained.

As the trust in multilateral insti-

tutions and global value chains has

started fading, the question has shifted

–not whether to intervene, but how to

do so effectively without triggering

major trade wars, stiﬂ ing innovation,

or completely undermining global

cooperation.

The policy cycle: Learning

from a century of economic

intervention

The last century witnessed an evolu-

tion of trade and industrial policies

tracing the broader transformations

in global economic governance,

development strategies, and politi-

cal ideologies. After World War II,

many governments embraced import

substitution to strengthen domestic

industries and reduce dependence on

external suppliers. It triggered a wave

of tariff and non-tariff measures clos-

ing down the markets as the countries

were seeking for internal resources

for growth and development. This

approach dominated much of Latin

America, Africa, and parts of Asia

through the 1950s to 1970s.

In contrast, several East Asian

economies pursued a distinct path.

Japan and South Korea pursued

export-oriented development focusing

on active state involvement in targeted

sectors (steel, shipbuilding, petro-

chemicals, machinery, electronics,

automobiles) through subsidies, guid-

ed credit allocation, and considerable

inﬂ uence over private enterprise de-

velopment. The success of these Asian

economies gave rise to the concept of

the 'developmental state'.

By the 1980s, neoliberalism shifted

the global policy consensus toward

trade liberalization, deregulation, and

privatization driven by the Washing-

ton Consensus. The establishment of

the World Trade Organization (WTO)

in 1995 further constrained some

traditional forms of industrial policy,

embedding a rules-based order that

prioritized open markets over state

intervention.

It was the twenty-ﬁ rst century, the

2008 global ﬁ nancial crisis, China’s

state capitalism and rising climate

urgency that has brought back to life

the industrial policy discourse.

The climate catalyst:

How environmental urgency

is rewriting economic rules

Nothing triggered a policy change as

profound towards industrial policies

as the growing urgency of climate

change. In the race towards the target

of Paris Agreement, the govern-

ments across the world reached for

the instruments traditionally used to

stimulate economic growth, competi-

tiveness, and strategic autonomy. New

industrial policies focus on decarbon-

izing legacy industries and developing

sectors crucial for a low-carbon future,

such as renewable energy, electric

vehicles, battery technologies, and

hydrogen production.

The European Green Deal, the

United States' Inﬂ ation Reduction

Act (IRA), and China’s investments

in solar, wind, and electric mobil-

ity illustrate how climate policy is

now interwoven with ambitions for

technological leadership and job

creation.1 Subsidies, tax credits, public

procurement policies, and strategic

investments were mobilized at an

unprecedented scale to accelerate the

green transition.

As new incentives were being

deployed, countries across the globe

have also faced the challenge of

decarbonizing their heavy industries.

Border carbon adjustments (BCAs)

have emerged as trade instruments

that impose carbon prices on import-

ed goods based on embedded carbon

emissions, aiming to level the playing

ﬁ eld between goods from countries

with stringent climate regulations

and those with weaker policies. The

BCAs have raised concerns of green

protectionism and the treatment of

developing countries as the govern-

ments worldwide struggled to start

a meaningful dialogue about the

balanced approach towards such

instruments.2

High-stakes green game:

Who will control the

carbon-free economy?

With the rise of new sectors of a

low-carbon future, the concerns

about competition and market dom-

inance are intensifying and driving

a new wave of policy decisions.

Governments, corporations, and

investors are racing to secure lead-

ership in key sectors such as renew-

able energy, electric vehicles (EVs),

clean hydrogen, battery storage, and

energy-efﬁ cient technologies. These

industries not only hold the key to

environmental sustainability but are

rapidly emerging as the engines of

economic growth, innovation, and

strategic geopolitical leverage.

The green transition will reshape

global trade patterns and industrial

power dynamics. Countries that can

develop and scale up green tech-

nologies will not only achieve their

climate goals but will also create

high-value industries, generate new

jobs, and attract signiﬁ cant invest-

ments.

The EU’s recently announced

Clean Industrial Deal3 will not only

support the decarbonization of the

EU’s energy-intensive industries but

will also aim to boost demand for

clean products, ensure better access

Unprecedented ﬁ scal

support deployed

by major economies

to strategic sectors

is also shifting the

global playing ﬁ eld in

ways that generate

both opportunities

and tensions.

22 Trade Insight Vol. 21, No. 1-2, 2025

green policies

to critical raw materials and diversify

the supply chains to position Europe

as a global leader in clean tech such

as renewable energy infrastructure,

batteries, and clean hydrogen. Simi-

larly, the US’ Inﬂ ation Reduction Act

(IRA) of 2022 was designed to spur

domestic production in green indus-

tries, offering substantial subsidies

for electric vehicles, clean energy,

and energy storage technologies.4

With the change of the US adminis-

tration, the preferences towards the

instruments used changed, yet the

same objectives—increased domestic

manufacturing and strengthened

critical supply chains—seem to be

driving the Trump administration's

industrial policies that are now rely-

ing on tariffs to do the heavy lifting.5

Yet those EU and US measures

might seem to be the last-minute

spurt to catch up with the major

developments that China has under-

gone in the last two decades making

renewable energy a top strategic

priority as far back as in late 2000s.

Almost US$563 billion ﬁ scal stimulus

package was introduced in 2008 to

promote seven strategic emerging

industries. This allowed China to

position itself as a dominant force

in clean energy production, par-

ticularly in solar and wind power,

while simultaneously increasing its

investment in EVs and battery man-

ufacturing.

Ultimately, the competition

for the green markets of the future

represents both a race for economic

supremacy and a contest for global

geopolitical inﬂ uence. The winners of

this competition will shape not only

the future of trade but also the global

rules governing sustainability and

technology.

Knowns and unknowns

The New Industrial Policies Observa-

tory (NIPO)6 recorded over 2500 in-

dustrial policy measures in 2023 with

the EU, the US and China accounting

for almost half of observed measures.

Most frequently used policy instru-

ment for all categories of countries

in NIPO were subsidies. Advanced

economies were also actively using

export incentives and localization

policies, whereas developing coun-

tries seemed to prefer import barriers,

localization policies and export curbs.

NIPO is also usefully looking into

the stated objectives of introduced

measures: the predominant stated

industrial policy motive in 2023

was strategic competitiveness (37.0

percent), followed by climate (28.1

percent), supply chain resilience (15.2

percent), and geopolitical concerns

and national security (19.7 percent).

Sectoral Spotlight

The high-level analysis of emerging

industrial policy measures is incred-

ibly useful; however, it does not

always lend itself to closer analysis

of cross-border impacts of intro-

duced measures. The Organization

of Economic Cooperation and Devel-

opment (OECD) took a closer look

at the government support provided

to the production of solar panels and

wind turbines in 2005-2023 aiming to

estimate the scope, scale and impact of

such support, as well as to highlight

the trade-offs faced by governments

when making policy choices.

Solar panels: As the growth of

global solar panel production rocketed

from 1.5 GW to 500 GW between 2005

and 20237 it has also signiﬁ cantly shift-

ed geographically – from the previous

manufacturing basis in Germany,

Japan and the US, 90 percent of 2023

solar panel manufacturing was located

in China. Smaller yet still highly

meaningful rates of concentration

have been observed in manufacturing

of different solar model components:

according to International Energy

Agency (IEA), in 2021 97 percent of

wafers were manufactured in China,

just as was 70 percent of world’s sili-

con metal and 80 percent of the silicon.

The OECD points out that the falling

price of solar modules in 2008-2017

has not been followed by the drop in

shipments. To the contrary, they seem

to have accelerated over the last six

years, causing some concerns about

the possible overcapacity of produc-

tion as the utilization rates of solar

modules have fallen. The same OECD

report also highlights that solar cells

and modules were the most subsidised

sector in the OECD MAGIC database

collecting ﬁ rm-level data between

2005 and 2022.

Wind turbines: The International

Renewable Energy Agency (IRENA)

demonstrates that cumulative installed

wind-power capacity grew from 181

GW in 2010 to 1,017 GW in 2023. The

current production of wind turbines

is signiﬁ cantly less concentrated

compared to that of solar modules

and is split between the EU, India, the

US and China. Having said that, over

the years, China has built a dominant

position in the global market for some

wind turbine components, including

offshore blades (80 percent), nacelles

(70 percent), gearboxes (80 percent),

converters (82 percent), generators (73

percent), and castings.

Beyond intentions

While it is difﬁ cult to judge how

impactful the industrial policies have

been compared to the scenario without

them, it is clear that globally the man-

ufacturing of clean energy technolo-

gies has been growing at a very high

rate. For example, the IEA estimates

a compound annual growth rate of

25 percent of global manufacturing of

solar PV between 2010 and 2021. In 6

months of 2023, global installed man-

ufacturing capacity rose the same (380

ipfonline

Trade Insight Vol. 21, No. 1-2, 2025

gigawatt-hours (GWh) as in all of

2022.8 Battery manufacturing capacity

is also rapidly increasing. The ﬁ rst

three quarters of 2023 added 1,160

GWh of battery capacity compared to

340 GWh in 2021. This growth IEA is

attributing to the increase in sales of

EVs, which rose by 55 percent global-

ly between 2021 and 2022.

A report by the Rhodium Group9

found that foreign direct invest-

ment (FDI) in the US clean energy

manufacturing tripled between 2021

and 2023, with over US$60 billion of

new project announcements directly

linked to IRA incentives. Similarly,

the European Investment Bank (2023)

noted that investment in the EU's

renewable energy and battery sectors

rose by 40 percent in 2022 compared

to pre-pandemic levels, partly in

response to more favorable industrial

policies. It is uncertain whether those

trends can remain in the fast chang-

ing political environment.

Ripple Effect: When industrial

policies cross borders

The global resurgence of industrial

policy is already producing signiﬁ -

cant cross-border impacts, reshaping

trade patterns, investment ﬂ ows, and

competitive dynamics.

Increased coverage of global emis-

sions subject to carbon pricing means

the potential risks of carbon leakage

for implementing governments, thus

the rise of BCAs that, in turn, might

meaningfully reshape global trade

ﬂ ows in energy-intensive goods. Con-

cerns about the regressive impact of

CBAM on low-income exporters have

been raised, particularly for African

and Southeast Asian economies with

high carbon intensity and limited

decarbonization ﬁ nancing.10

Unprecedented ﬁ scal support

deployed by major economies to stra-

tegic sectors is also shifting the global

playing ﬁ eld in ways that generate

both opportunities and tensions.

While billions of dollars directed

towards research and development

and innovations could certainly be

expected to produce the initial sparks

for technological breakthroughs,

there is a darker side to this picture.

The potential subsidy race might

ring good news to those expecting

faster development and deployment

of renewable energy technologies.

However, this might become an

exclusively high-income and emerg-

ing economy domain, potentially

encompassing most G20 economies,

yet leaving most other world econ-

omies outside of this small group11.

This would keep many developing

countries far from the technological

frontier making them dependent

on imported goods and technology

transfers rather than integrating them

into the value chains of future tech-

nologies. Gallagher and Kozul-Wright

(2021)12 warn that without signiﬁ cant

investment in skills, infrastructure,

and technological upgrading, many

developing countries risk being rele-

gated to raw material suppliers in the

green economy.

Beyond zero-Sum:

Crafting industrial

policies that work for all

The current resurgence of industrial

policies, while essential for address-

ing climate and competitiveness

challenges, poses signiﬁ cant risks for

global equity and stability if pursued

in isolation. Instruments like large-

scale subsidy programs, tariffs and

border carbon adjustments could

exacerbate inequalities and provoke

new trade disputes if used to drive

protectionist agendas. A coordinated

international approach is therefore

essential — one that promotes trans-

parency, fosters inclusive participa-

tion in clean technology value chains,

and reinforces the role of multilateral

institutions like the WTO. Without

deliberate cooperation, industrial

policy initiatives intended to secure

sustainable development may instead

undermine it. 

Ms Baršauskaitė is lead of Trade and the

Green Transition at the International Institute

for Sustainable Development (IISD).

Notes

1 OECD estimated that in response to

COVID-19, members of the OECD,

the European Union and the G20,

announced US$1.29 trillion of public

spending for the development and

deployment of low-carbon technolo-

gies, translating, on average, to the

equivalent of 2 percent of one year of

their GDP on low-carbon technologies.

2 IISD has written extensively about

the BCAs. See, for example, Cosbey,

Aaron and Ieva Baršauskaitė. 2023.

Border Carbon Adjustments: Pivotal

design choices for policy-makers. In-

ternational Institute for Sustainable De-

velopment or Baršauskaitė, Ieva, and

Alice Tipping. 2023. Border Carbon

Adjustments: Priorities for international

cooperation. International Institute for

Sustainable Development.

3 European Commission. 2025. "Clean

Industrial Deal." EU competitiveness,

February 26, 2025.

4 United States Department of Energy.

2022. “Inﬂ ation Reduction act of 2022”.

News and Insights. Last updated Sep-

tember 22, 2023.

5 On 2 April 2025 the US President

Trump declared national emergency

“posed by the large and persistent

trade deﬁ cit” invoking the President’s

authority under the International Emer-

gency Economic Powers Act of 1977

(IEEPA) and imposing 10% tariﬀ on

all countries as well as individualized

higher tariﬀ s on countries with which

the US has highest trade deﬁ cits (the

latter has been put on pause at the

time of writing as the US was pursuing

bilateral deals with targeted countries).

6 Evenett, Simon, Adam Jakubik,

Fernando Martín and Michele Ruta.

2024. The return of industrial policy in

data. Washington, D.C.: International

Monetary Fund (IMF).

7 IEA. 2024. Advancing Clean Technol-

ogy Manufacturing: An Energy Tech-

nology Perspectives Special Report.

Paris: International Energy Agency

8 IEA. 2023. The State of Clean Tech-

nology Manufacturing. Paris: Interna-

tional Energy agency.

9 Rhodium Group. 2024. Clean Invest-

ment in 2023: Assessing Progress in

Electricity and Transport, Note, Febru-

ary 21, 2024.

10 Cosbey, A., Droege, S., Fischer, C., &

Munnings, C. 2019. "Developing Guid-

ance for Implementing Border Carbon

Adjustments: Lessons, Cautions, and

Research Needs."Review of Environ-

mental Economics and Policy (13) 1.

11 Alessio, Terzi. 2023 “Green industrial

policy: the necessary evil to avoid

a climate catastrophe.” In Sparking

Europe’s New Industrial Revolution,

A policy for net zero, growth and resil-

ience, edited by Simone Tagliapietra

and Reinhilde Veugelers. Brussels:

Bruegel.

12 Gallagher, Kevin P., and Richard

Kozul-Wright. 2021. The Case for a

New Bretton Woods. Polity Press.

24 Trade Insight Vol. 21, No. 1-2, 2025

produc ve capaci es

Trade Insight Vol. 21, No. 1-2, 2025

Mussie Delelegn, PhD

Building productivity capacities is indispensable for fostering sustainable

and resilient supply chains that beneﬁ t landlocked developing countries

Policy options

with implications for

landlocked

developing countries

Against the backdrop of

tattered global development

partnerships and constrained

multilateralism, the Third United

Nations Conference on LLDCs

(UNLLDC-III) will be held from 5

to 8 August 2025 in Awaza, Turk-

menistan. There, the international

community is expected to renew

its longstanding commitments to

seek solutions to relieve the key

binding constraints to landlocked

developing countries (LLDCs) and

enable their beneﬁ cial integration

into the global economy.

This article provides policy

insights and recommendations on

fostering LLDCs’ resilience to un-

foreseen shocks, risks, and economic

uncertainties. This can be done by

reorienting domestic policies and

international partnerships towards the

building of productive capacities1 and

facilitating LLDCs’ integration into

higher value-added supply and re-

gional and global value chains (RVCs

and GVCs)2. The core argument is that

while LLDCs face many challenges

(emanating from being landlocked),

the root causes of their underdevelop-

ment lie in their weak productive ca-

pacities. Experience shows that it is

practically impossible for countries

to pursue industrialization, foster

sustainable structural transforma-

tion, and engage in supply and

value chains without developing

their productive capacities.

An important lesson drawn from

two landlocked developed econo-

mies (Austria and Switzerland) is

that being landlocked is a chal-

lenge, but it is not insurmountable.

The unprecedented high levels of

production sophistication, structural

26 Trade Insight Vol. 21, No. 1-2, 2025

economic transformation, innovation

and global competitiveness observed

in the two countries can provide

hope and inspiration for LLDCs.

These are grounded on a clear identi-

ﬁ cation of comparative advantages

and mapping and sequencing inter-

vention strategies to enhance capital

accumulation and build productive

capacities. The key drivers in these

processes are increased investments

in research and development,

building institutions, and human

capital formation. These are comple-

mented by fostering technological

capabilities and intensifying strategic

integration into high-end RVCs and

GVCs. Today, the two countries are

known to produce high knowledge,

skills and technology-intensive

goods and services for domestic con-

sumption and for exports to regional

and global markets.

Why do productive

capacities matter for LLDCs?

Currently, there are 32 developing

countries3 without direct access to

the sea, of which 16 are in Africa, 14

are in Asia and Central Europe, and

2 are in Latin America. While these

countries hold immense natural

capital (including agricultural land,

water, forest, oil and gas, and miner-

al resources), they suffer from a com-

bination of geographical challenges,

weak productive capacities, and

poor integration into supply chains,

RVCs, and GVCs. Their structural

challenges are further compounded

by poor infrastructure, undeveloped

trade logistics, and problems related

to transport, electricity, and informa-

tion and communication technology

(ICT) connectivity, which result in

high production and trade costs. In

addition, their production efﬁ ciency

and cost-effectiveness of their exports

largely depend on and are inﬂ uenced

by their political relations with tran-

sit neighbours.

Most LLDCs are commodi-

ty dependent. Their productive

structures register low levels of

economic complexity, with exports

containing little to no value-added

and highly concentrated in a few

destination markets. Consequently,

primary commodities account for

more than half of the exports of 27 of

the 32 LLDCs.4 Most of them are also

producers and exporters of precious

stones and metals, as well as critical

minerals vital for the energy tran-

sition. Some have vast agricultural

lands, forests, and freshwater resourc-

es, but are regarded as food-insecure

or net-food-importing. Value-addi-

tion and retention of natural capital,

as well as fostering linkages with the

rest of the economy, remain among

the most pervasive problems facing

LLDCs. This heightens their socio-

economic vulnerability, resulting in

their marginalization in the global

economy. In short, fostering produc-

tive capacities is key to addressing the

main binding constraints to LLDCs’

development and enabling them to

harness their comparative advantages

by kick-starting the process of struc-

tural economic transformation.5 This

is the sine qua non to achieving

long-term and inclusive growth and

development, breaking the low- and

middle-income traps and reducing

aid dependency, while building socio-

economic resilience.

Supply chains

versus value chains

From a trade and development per-

spective, the theoretical distinction

between 'supply chains' and 'value

chains' is immaterial for LLDCs and,

therefore, it is intentionally ignored

in this article. Instead, the focus is on

overcoming challenges and exploring

opportunities to foster productive ca-

pacities, develop sustainable domestic

supply capabilities, and join high-end

value chains in key sectors linked to

their comparative advantages. That

is, without developing productive ca-

pacities and domestic supply chains,

it will be difﬁ cult for LLDCs to

beneﬁ cially integrate into RVCs and

GVCs. Nor will it be easy to break

away from a low-level equilibrium

trap (characterized by low productive

capacities, low income, low employ-

ment, and little or no development

outcomes). Transitioning from the

supply of poor-quality, or low-value,

high-volume raw materials towards

strategically joining RVCs and GVCs

depends on how quickly LLDCs de-

velop productive capacities and foster

export diversiﬁ cation, value addition,

and overall structural economic trans-

formation.

supply chain resilience

Figure 1 Comparison of productive capacities and natural

capital in LLDCs and other developing economies

Source: UNCTAD Productive Capacities Index (2023).

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

Natural capital

LLDCs

Developing economies excluding LLDCs

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

Productive Capacities Index

LLDCs

Developing economies excluding LLDCs

Trade Insight Vol. 21, No. 1-2, 2025

Supply chains without the

requisite productive capacities

will not be sustainable

For LLDCs, effectively addressing

their development challenges means

reducing their economic dependence

on commodities and moving away

from natural resources-driven activi-

ties to more sophisticated knowledge

and technology-intensive economic

activities, including service.6 How-

ever, this cannot be realized without

fostering productive capacities and

kick-starting the process of structural

economic transformation, which are

key to fostering reliable and predict-

able domestic supply chains and tap-

ping opportunities provided by RVCs

and GVCs, particularly in agriculture

and critical minerals. This calls for a

new development paradigm anchored

in re-calibrating, utilizing, and main-

taining existing productive capacities,

as well as developing new capabili-

ties7. For instance, effectively harness-

ing and value-adding to the natural

capital—one of the eight categories

of the Productive Capacities Index

(PCI)8—calls for carefully sequenced

and mutually supportive policies, as

well as educated and skilled human

capital, a dynamic private sector, af-

fordable energy (electricity), technolo-

gy-driven infrastructure connectivity,

and capable institutions to maximize

development outcomes.

LLDCs rich in extractive resources

should orient their micro and macro-

economic policies, sectoral strategies,

and human resources development

programmes towards sustainably

harnessing such resources. The

growing demand for critical minerals

particularly offers new opportunities

to transform their natural resources

at the moment of upstream produc-

tion and facilitate their insertion

into value chains, as opposed to the

current practice of supplying raw

materials to low-end segments of

value chains. Fostering vibrant and

dynamic institutions that provide

regulatory and legal frameworks is

key to capturing rents from natural

resources in socioeconomic devel-

opment, while effectively dealing

with rent-seeking behaviours such

as patronage and corruption, which

often contribute to political instability

and conﬂ icts.9 Likewise, LLDCs rich

in agricultural resources must invest

in enhancing productivity, building

rural infrastructure, and fostering

domestic linkages between agricul-

ture and the industrial and services

sectors.

This will require LLDCs to move

away from short-term, project-based,

and fragmented interventions to-

wards long-term, coordinated, and

holistic development programmes.

Such approaches are key to recalibrat-

ing productive capacities along the

eight categories captured by the PCI.

These are more persuasive today than

ever before, given the fast-changing

global development partnerships and

difﬁ cult international trade and in-

vestment environments, riddled with

heightened risks, unpredictability, and

uncertainty.

It is essential to leverage pro-

ductive capacities to ensure that they

contribute to the development of do-

mestic supply chains and help LLDCs

to harness opportunities that RVCs

and GVCs offer. To that end, LLDCs

must realign their micro and macro-

economic as well as infrastructural

and sectoral policies with developing

domestic supply chains. This is vital

to successfully joining a web of RVCs

and GVCs and ensuring the timely

delivery of raw materials and other

intermediate inputs to manufacturing

enterprises. However, despite im-

mense natural capital, the productive

capacities of LLDCs are much lower

than those of other developing coun-

tries, as can be observed in Figure 1.

Integrating into complex supply

and value chains where resources,

suppliers, producers, consumers,

and markets interact in step-by-step

processes is even more challenging

for LLDCs. In such complex pro-

cesses where policies, geography,

technologies, and institutions are

aligned to drive interactions, effective

participation requires developing

economy-wide productive capacities,

including a dynamic private sector,

skilled labour force, functioning

institutions, and modern rules and

regulations.

LLDCs have long been con-

strained by the theory of compara-

tive advantages, which argues that

resource-rich countries should focus

on and specialize in supplying raw

materials where their comparative

advantages lie. This implies leaving

the value addition to countries that

Figure 2 Low structural transformation and a low level of economic complexity in LLDCs13

Source: UNCTAD Productive Capacities Index (2023).

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

Structural change

Developing economies excluding LLDCs

LLDCs

-0.5

-0.4

-0.3

-0.2

-0.1

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

Economic complexity index (value)

Developing economies excluding LLDCs

LLDCs

28 Trade Insight Vol. 21, No. 1-2, 2025

are technologically well-off and have

already developed their productive

capacities to extract, maximize, and

retain a disproportionately large share

of value. Such theoretical arguments

have further entrenched age-old

exploitative relationships, ignoring the

dynamic potential of comparative ad-

vantages, which can be promoted and

harnessed in upstream production and

supply echelons, as well as in down-

stream production and consumption

chains.

Challenges and opportunities

Global competition has transformed

how products are made, transport-

ed, value-added, and eventually con-

sumed. At the same time, both supply

and value chains are susceptible to

unforeseen shocks, be they ﬁ nancial,

economic, technological, political,

health-related, or environmental.

There are opportunities for natural

resources-rich developing countries to

become manufacturing hubs and

suppliers of technologically sophisti-

cated goods and services, due large-

ly to the low-cost advantages they

possess for raw materials and labour.

This is further accelerated by the

movement of capital through FDI and

high input and production costs in

developed and emerging economies.

These developments have opened new

avenues for production transforma-

tion for ﬁ rms and nations to maximize

their competitive and comparative

advantages. However, LLDCs perform

poorly not only on the PCI, but also in

structural economic transformation.

United Nations Trade and Develop-

ment (UNCTAD)’s earlier study on

economic diversiﬁ cation in LLDCs re-

veals that they are distinguished from

the other developing countries by their

dominant resource-based activities,

where all but three10 LLDCs exported

primarily resource-based products11.

Moreover, the evolution of the share

of resource-based activities over the

past decade suggests that LLDCs as

a group have become increasingly

commodity-dependent, where weak

private sector, fragmented policies

and institutions, and underdeveloped

productive capacities have failed to

transform endowments into compara-

tive advantages.12

In sum, despite high natural

resource endowments, LLDCs suffer

from structural rigidity that constrain

their growth and development pros-

pects and hinder their participation in

high-end supply and value chains. The

expectation that the advent of RVCs

and GVCs opens opportunities for re-

source-based economies to attract FDI

has not fully materialized for LLDCs.

In fact, despite FDI ﬂ ows being histor-

ically concentrated in their extractive

sectors, there is little economic com-

plexity or deeper production transfor-

mation observed in their economies

(Figure 2). Thus, in the decades ahead,

LLDCs need to prioritize capturing

the rents from natural resources in

production transformation by address-

ing gaps in their productive capacities,

especially in fostering human capital,

infrastructure (including electricity

and ICT), developing dynamic and

vibrant private sector, and functioning

institutions.

The geographic dispersion of

production rendered supply and

value chains susceptible to internal or

external shocks. The global ﬁ nancial

and economic fallout of 2008-2009,

the COVID-19 pandemic, the war

in Ukraine, domestic conﬂ icts, and

recurring climate change tend to

disrupt supply and value chains with

devastating socioeconomic conse-

quences. Likewise, the simmering

trade wars between major economic

powers and the abruptly changing

global trading regimes will have dire

consequences for LLDCs. The unilat-

eral imposition of tariffs by the United

States and reciprocal tariff exchanges

among major economic powers will no

doubt disrupt supply and value chains

worldwide, particularly in LLDCs.

Furthermore, pilot studies on the

potential impact of the EU Deforesta-

tion Regulation (EUDR) show that if

implemented in 2026, the EUDR may

have a signiﬁ cant impact on producers

and exporters of agricultural products,

particularly coffee, soybeans, sesame,

forest products (wood), cocoa and

palm oil, among others. Similarly, the

EU Carbon Border Adjustment Mecha-

supply chain resilience

hippopx

Trade Insight Vol. 21, No. 1-2, 2025

nism (CBAM)14 could potentially harm

trade and development prospects

of structurally weak and vulnerable

economies, including LLDCs.

Moreover, supply and value

chains are highly complex, requiring

specialized knowledge, technology,

and skills-driven engagements and

management. For instance, supply

networks must be carefully managed

to improve quality, reduce costs, and

lead time. This calls for monitoring the

inbound, outbound, and procurement

functions within the supply chains, as

well as the nodes and linkages around

the world, with an up-to-date informa-

tion system.15 16

Way forward

Although it is difﬁ cult to foretell the

direction and policy implications

of the currently fractured multilat-

eralism, UNLDC-III needs to take

bold but realistic actions and adopt

implementable measures, supporting

LLDCs. In this regard, it is important

that: (a) LLDCs conduct soul-search-

ing reﬂ ection on the lessons from the

recent global changes, especially the

sudden disruption of preferential

market access and reduction in devel-

opment aid; and (b) their trade and

development partners pursue policies

that are conducive to the development

of these countries. Global partnership

(including in the context of South-

South cooperation) can also assist in

facilitating LLDCs’ integration into

RVCs and GVCs by fostering devel-

opmental regionalism and building

regional infrastructure as a public

good.

While LLDCs are not homoge-

neous, the building of productive

capacities, capital accumulation, and

technological catch-up are key to ena-

bling them to develop critical domestic

supply chains and effectively partici-

pate in RCVs and GCVs. This entails

strengthened partnerships and calls

for gearing domestic macroeconomic,

industrial, trade, rural, infrastructure,

and other sectoral policies toward

employment generation, poverty

reduction, and unleash the potential

of natural resources. For instance,

along with limiting domestic currency

appreciation, governments of LLDCs

can apply countercyclical spending

patterns (i.e., saving during high

commodity prices and spending/

investing during ﬁ scal and liquidity

crunches). LLDCs must also foster

well-functioning institutions while

ensuring coherence between various

policies and positioning domestic

ﬁ rms in supply and value chains. Sup-

porting domestic ﬁ rms should target

dynamic, labour-intensive, export-ori-

ented, and value-adding ﬁ rms, rather

than solely focusing on the attraction

of foreign ﬁ rms that do little to add

value or transfer skills and technology

to the domestic economy.

Looking ahead, UN-LLDC III is a

critical milestone both for LLDCs and

the international community to cata-

lyze concrete action and innovative

approaches to sustainable trade and

development. The opportunity must

not be lost to stand alongside LLDCs

as they seek forward-looking ap-

proaches to boost their own domestic

productive capacities and forge global

partnerships to support more sustain-

able, just and inclusive futures. 

This article is prepared in full consider-

ation of ST/AI/2000/13 section 2, and it is in

the personal capacity of the author. Therefore,

the opinions expressed in this article are the

author’s own and do not reﬂ ect or represent

the ofﬁ cial views of UNCTAD or the United

Nations. The author can be reached at mussie.

delelegn@unctad.org.

Notes

1 The concept of productive capacities

was developed by the UNCTAD in

2006 and is broadly deﬁ ned as the

productive resources, entrepreneurial

capabilities and production linkages

that together determine a country’s

ability to produce goods and services

that will help it grow and develop.

2 There is no single uniﬁ ed conceptual

deﬁ nition to distinguish between supply

and value chains. In this article the

deﬁ nition provided by Dubey, S. et

al (2020), which articulates a sup-

ply chain as “the chain of suppliers

making inputs or raw material to a

ﬁ nal product” and a value chain as

“functional activities through which the

value created by the chain” is adopted

or implied.

3 The current list of LLDCs includes

Afghanistan, Armenia, Azerbaijan, Bo-

tswana, Bolivia, Bhutan, Burkina Faso,

Burundi, Central African Republic,

Chad, Ethiopia, Kazakhstan, Kyrgyz-

stan, Lao PDR, Lesotho, Macedonia,

Malawi, Mali, Moldova, Mongolia,

Nepal, Niger, Paraguay, Rwanda,

South-Sudan, Swaziland, Tajikistan,

Turkmenistan, Uganda, Uzbekistan,

Zambia and Zimbabwe.

4 UNCTAD. 2019. Commodities and

Development Report 2019: The State

of Commodity Dependence 2019. New

York and Geneva: United Nations.

5 UNCTAD. 2020. Productive Capacities

Index: Focus on Landlocked Develop-

ing Countries. Geneva: United Nations

Conference on Trade and Develop-

ment.

6 ibid.

7 UNCTAD. 2020. Building and Utilizing

Productive Capacities in Africa, and the

Least Developed Countries: A Holistic

and Practical guide. Geneva: United

Nations Conference on Trade and

Development.

8 The Productive Capacities Index (PCI)

is composed of 42 indicators among

eight categories: Natural Capital,

Human Capital, Energy (electricity),

Information & Communication Technol-

ogy (ICT), Private Sector, Structural

Change, Transport and Institutions (for

more details on the PCI, including the

statistical methodology, database and

related resources, visit http://pci.unctad.

org or http://unctadstat.pci.unctad.org).

9 Collier, Paul. 2007. The Bottom Billion:

Why the Poorest Countries Are Fail-

ing and What Can Be Done About It.

Oxford: Oxford University Press.

10 These are Lesotho, which registered

some low-technology manufacturing,

Nepal (low-technology manufacturing)

and the former Yugoslav Republic of

Macedonia (mid-level manufacturing).

While this can be seen as a positive

trend, these LLDCs themselves are

locked in low value -added manufactur-

ing exports.

11 ibid. Note 5.

12 Delelegn, Mussie and T. Tesfachew.

2025. “Fostering Productive Capacities

and Structural Transformation in Africa:

The Role of the Private Sector.” Book

Chapter, forthcoming.

13 For indicators and data sources used

to measure structural change and eco-

nomic complexity, see http://pci.unctad.

org or http://unctadstat.pci.unctad.org.

14 EU Regulation 2023/956 introduced

CBAM with the objective to reduce

carbon emissions, put a “fair price” on

the carbon emitted during the produc-

tion of carbon-intensive goods imported

into the EU, and encourage “a cleaner

industrial production”.

15 ibid. Note 5.

16 ibid. Note 7.

30 Trade Insight Vol. 21, No. 1-2, 2025

Addressing gender barriers

at land ports in the BBIN region

Enhancing women's participation in cross-border trade within the BBIN region requires

identifying infrastructure gaps at land ports that hinder a conducive work environment

for women and the implementation of targeted gender mainstreaming measures.

Nisha Taneja, Sanjana Joshi, Vasudha Upreti and Nirlipta Rath

The BBIN initiative—a sub-regional

cooperation framework compris-

ing Bangladesh, Bhutan, India, and

Nepal—seeks to harness regional com-

plementarities to strengthen intra-re-

gional trade, investment, tourism,

connectivity, and energy cooperation.

In 2023, intra-BBIN trade amounted to

approximately US$42.6 billion, with

Bhutan and Nepal notably dependent

on regional trade, accounting for 80

percent and 71 percent of their total

global trade, respectively. Bangladesh

and India have also emerged as each

other’s key trade partners in South

Asia.

Despite this growing economic

interdependence within the BBIN

countries, women’s participation in

cross-border trade remains low. While

ofﬁ cial gender-disaggregated data

is lacking, anecdotal evidence indi-

cates that signiﬁ cantly fewer women

entrepreneurs engage in trade with

neighbouring countries compared to

global markets.1 To foster inclusive

trade-led growth, it is essential to ap-

ply a gender lens to trade facilitation

measures and address the systemic

barriers that hinder women’s engage-

ment in international trade.

A major factor contributing to this

low participation can be attributed

to the impediments faced by women

at the land borders.2 3 Land ports are

critical trade gateways in the BBIN

region. With Nepal and Bhutan being

landlocked and India the only country

sharing borders with all three BBIN

partners, land-based trade is essential.

Nepal and Bhutan also rely on India as

a transit route for third-country trade,

inclusive trade facilita on

Trade Insight Vol. 21, No. 1-2, 2025

including with Bangladesh. Addition-

ally, 40 percent of India-Bangladesh

trade occurs via land. Therefore,

enabling trade facilitation initiatives

through inclusive infrastructure and

policies becomes essential to boost

women's participation in regional

trade.

Overview of gender gaps

The ‘Global Gender Gap Report’ pub-

lished by the World Economic Forum

underscores the signiﬁ cant progress

BBIN countries still need to make

toward achieving gender equality,

particularly in economic participation.

Over the years, BBIN countries have

shown a concerning trend in perfor-

mance on gender-related indicators.

In 2024, among a total of 146 coun-

tries, India ranked the lowest at 129,

followed by Bhutan ranked 124, Nepal

ranked 117, and Bangladesh ranked

99 in terms of the Overall Gender Gap

Index. In terms of economic participa-

tion and opportunity, Bangladesh is

ranked last at 146, while India is close

behind at rank 142, followed by Nepal

at rank 137, and Bhutan at rank 103.

The assessment from the ‘2023

UN Global Survey on Digital and

Sustainable Trade Facilitation’ shows

that while BBIN countries have made

signiﬁ cant strides in implementing

overall trade facilitation measures –

as reﬂ ected in improved scores over

time - there is still considerable room

for improvement in the implementa-

tion of gender-responsive provisions,

particularly those aimed at supporting

women in trade. As per the survey

scores, India emerged as the only

country in the BBIN region with an

improvement in its ‘women in trade

facilitation measures’ score from 2021

to 2023—from 66.7 percent to 77.8 per-

cent—while the other three countries

recorded no change in their respective

scores.4

Key insights from a gender lens

assessment of land ports

Identifying gaps in both hard and soft

infrastructure that contribute to an

unfavourable working environment

for women at land ports is a crucial

initial step toward implementing tar-

geted gender mainstreaming measures

and enhancing women's participation

in cross-border trade. One of the ﬁ rst

evidence-based studies5 to examine

the infrastructure impediments faced

by women in accessing land ports

was conducted by Indian Council for

Research on International Econom-

ic Relations (ICRIER).

The study developed an ‘Ana-

lytical Framework for Gender Lens

Assessment' to conduct a compre-

hensive assessment of infrastructure

at India’s 12 major land ports from a

gender perspective. This evaluation

was done across six key categories: (i)

information and access to the port, (ii)

basic utilities, (iii) public facilities, (iv)

safety setup, (v) cargo handling, and

(vi) digitization (Table 1, next page).

The focus was both on the availability

and quality of gender-responsive in-

frastructure at the land ports in terms

of accessibility, maintenance, perfor-

mance, and efﬁ ciency. The assessment

was supplemented by an impact

analysis with regard to mobility,

transaction costs, safety, and overall

well-being. In addition, the study also

looked at workforce diversity among

the agencies involved in port manage-

ment and operations.

Building on this work, the assess-

ment has been extended to land ports

across the neighbouring countries –

Bangladesh, Bhutan, and Nepal.

In terms of information and access

to the port, most land ports lack

dedicated websites that offer re-

al-time updates on operations — such

as port timings, daily performance

dashboards, process ﬂ ow charts, and

downloadable documents. Among

the ports assessed, only Bangladesh’s

Benapole Land Port stands out with a

dedicated website featuring real-time

data. For other ports, basic informa-

tion is typically scattered across web-

sites of various ministries and govern-

ment agencies. Given that remote and

isolated locations of land ports often

pose barriers for women, accessibility

becomes crucial. Bhutan’s Phuent-

sholing Mini Dry Port (MDP) lacks

access to public transportation, posing

a signiﬁ cant barrier to ease of move-

ment. On a more encouraging note,

developments such as the Benapole

Checkpost Land Port Bus Terminal

and the proposed passenger railway

line to Petrapole Integrated Check Post

(ICP) represent important strides in

improving connectivity. Furthermore,

while approach or link roads to most

land ports in India are single-lane, the

rest of the BBIN countries generally

have well-maintained two-lane roads,

offering better accessibility. Overnight

stay options or guest house facilities

for women remain scarce across the

ports, with the notable exception of

Nepal’s Birgunj ICP and Inland Con-

tainer Depot (ICD).

In terms of basic utilities, ports

across the BBIN countries are gener-

ally equipped with essential services

such as electricity backup, running

water, and mobile and internet con-

nectivity. However, occasional power

outages and weak or inconsistent

internet signals have been reported

at some of the ports, contributing to

delays in cargo clearance.

The availability of gender-respon-

sive public amenities at land ports

remains highly inadequate. Facilities

like separate washrooms for women

with running water are notably lack-

ing at Benapole ICP and Jaigaon Land

Customs Station (LCS) in India. While

such facilities are available at other

surveyed ports, they are generally

poorly maintained, lacking ameni-

ties like sanitary napkin dispensers

and waste disposals. Only the ICP at

Agartala provides sanitary napkin

dispensers and sanitary waste disposal

facilities in women’s toilets. None of

the ports also have baby care/lactation

facilities. Notably, a breastfeeding

corner is present at the immigration

terminal of Benapole Land Port;

however, it is inconvenient for women

working at the cargo terminal area

of the port to access it. While driver

rest areas exist at most locations, they

lack separate, designated spaces for

women.

The safety infrastructure at the

land ports scores relatively well,

with features like boundary walls or

fencing along the outer perimeter, ade-

quate lighting throughout the prem-

ises, and CCTV surveillance systems

32 Trade Insight Vol. 21, No. 1-2, 2025

Source: Derived from the report “Gender Mainstreaming at India’s Land Ports, Indian Council for Research on International Economic Relations. (ICRIER)”

Table 2 Model Review Checklist for gender responsive infrastructure at land ports

Information

and Access

to Port

1. Port Website/

App

2. Enquiry num-

ber for real-

time informa-

tion

3. Availability of

public trans-

port between

nearest town

and port

4. Two-lane road

between near-

est town and

port

5. Overnight stay

facility for staff

6. Guest house

or hotel

7. Display boards

with names of

facilities (Eng-

lish and local

language)

8. Display boards

with guidance

map of pro-

cesses (English

and local lan-

guage)

9. Help desk/

Information

counter

Basic

Utilities

1. Electricity with

backup

2. Internet con-

nectivity for

port opera-

tions

3. Mobile signal

(calling &

data use)

4. Drinking water

facility

Public

Facilities

1. Wi-Fi

2. ATM

3. Separate

toilets for

women

4. Cubicles in

toilets for the

physically

challenged

5. Running wa-

ter supply in

toilets

6. Sanitary nap-

kin dispensers

in toilets

7. Sanitary

waste dis-

posal in toilets

8. Lactation/

baby care

room

9. Health Cen-

tre/First Aid

Booth

10. Pharmacy

11. Cafeteria

12. Convenience

store

13. Porter ser-

vices

14. Driver’s rest-

ing room

15. Vehicle repair

services

Safety

Set-up

1. Boundary wall

around port

complex

2. Adequate

lighting

throughout the

port

3. CCTV surveil-

lance

4. Display boards

with sexual ha-

rassment/brib-

ery/corruption

reporting

mechanisms

5. Disaster re-

sponse sup-

plies & equip-

ment

Cargo

Handling

1. Working

space for

clearing

house agents

(CHAs)

2. Separate

export/import

zone

3. Weighbridge

4. Warehouse

5. Cold storage

6. Quarantine

facility

7. Loose cargo

area

8. Cargo han-

dling equip-

ment (cranes,

forklifts etc.)

9. Full-body

Scanners

10. Presence of

officials from

testing agen-

cies

11. Parking

12. Inspection

area

Digitization

1. EDI

2. Online sub-

mission and

processing of

documents

3. RMS

4. E-single win-

dow

5. E-gate pass

6. Online duty

payment

7. Advance

duty pay-

ment

8. Fast-track

processing for

perishables

9. E-cargo

tracking

10. Automatic

clearance for

AEOs

11. Pre-arrival

processing

12. Land port

management

system

installed across the port complexes.

However, a major gap was the absence

of display boards providing informa-

tion on mechanisms for reporting sex-

ual harassment, bribery, or corruption.

At ICP Attari, India, the establishment

of a ‘Complaints Committee’ in ac-

cordance with the Sexual Harassment

of Women at Workplace (Prevention,

Prohibition and Redressal) Act, 2013

(POSH), stands out as a commendable

best practice.

Infrastructure gaps in cargo han-

dling equipment contribute to longer

dwell times at land ports, increasing

time and cost pressures, especially for

women. While the surveyed ICPs offer

basic amenities like separate customs

agents workspaces, separate import/

export zones, loose cargo areas, and

inspection zones, LCSs lag behind

with minimal facilities. Birgunj ICP

and ICD lack key equipment like

cranes and full-body scanners, while

Benapole ICP faces issues such as

the absence of cold storage, cranes,

forklifts, and non-functional scanners.

Among surveyed ports, Petrapole ICP

has the most mechanised cargo han-

dling setup, while ICP at Attari has

all the recommended infrastructure

facilities under this category.

Digitization—widely recognised

as a key enabler for women's par-

ticipation—remains incomplete and

fragmented across BBIN land ports.

In India, most ports are connected

to India's Customs Electronic Data

Interchange (EDI) system, which facil-

itates electronic customs clearance. In

Nepal, the ASYCUDA World System

supports paperless processing and

EDI integration, while Bhutan's Elec-

tronic Customs Management System

(eCMS), rolled out nationally in 2023

and integrated with the Bhutan Trade-

Fin Net (BTFN), has notably improved

working conditions for women. At

inclusive trade facilita on

Trade Insight Vol. 21, No. 1-2, 2025

Bangladesh's Benapole Land Port,

digitization is signiﬁ cantly advanced,

with around 90 percent of documen-

tation now handled remotely through

the newly implemented remote EDI

system. The port uses the ASYCU-

DA++ Customs Management System.

India’s EDI system also incorporates

IT-based Risk Management Systems

(RMS) and e-Single Window clear-

ance mechanisms. In contrast, other

BBIN countries lack a fully functional

National Single Window and still rely

heavily on manual processes. Au-

thorised Economic Operator (AEO)

programs and RMS remain either un-

derdeveloped or absent in countries

other than India. No BBIN country

currently has a comprehensive Land

Port Management System.

The land ports also have a limited

presence of women staff. Customs

clearance remains male-dominated,

with few women CHAs, most of

whom avoid on-site roles. At Be-

napole ICP, about 30 women work

across the port and immigration

functions, including police roles. In

Bhutan, despite women constituting

60 percent of customs clearing and

forwarding applicants, and regions

like Gelephu having all-women

certiﬁ ed agents, ﬁ eldwork remains

male-dominated. In India, women

traders and logistics operators often

rely on male intermediaries, and

female representation among staff

from Participating Government

Agencies (PGAs) at ICPs remains low.

In Nepal, while women reportedly

constitute about thirty percent of the

NITDB staff, there are no women staff

at either the Birgunj ICP or the ICD.

Way Forward

The gender-focused assessment of

land port infrastructure across the

BBIN countries underscores the im-

portance of designing and managing

these ports through a gender-respon-

sive lens. Gender mainstreaming in

land port infrastructure and opera-

tions should be recognised by BBIN

governments as a step toward gender

equality. To bridge existing gender

gaps, targeted and inclusive interven-

tions are essential.

Embedding gender considera-

tions across trade facilitation meas-

ures serves as a crucial ﬁ rst step

towards the objective. This includes

building gender-sensitive hard infra-

structure at the land ports, promoting

digitization of port operations, and

ensuring women’s representation in

stakeholder consultations and impact

assessments. Additionally, in the

realm of logistics, gender-sensitive

infrastructure should be at the core of

regional connectivity initiatives such

as the BBIN Motor Vehicles Agree-

ment.

Addressing infrastructure gaps

requires the provision of gender-sen-

sitive facilities like designated pick-

up and drop-off services, ﬂ exible

working hours, crèche facilities, ons-

ite accommodation, and robust mech-

anisms for reporting harassment.

Equally important is the improve-

ment of access infrastructure, which

calls for coordinated efforts among

stakeholders. Investment in soft

infrastructure is equally necessary,

particularly through digitization, to

enhance accessibility and efﬁ ciency.

Enhancing the collection and use of

gender-disaggregated data is equally

crucial for monitoring the progress of

policies. Additional measures, such

as reserving key roles for women, en-

abling collateral-free loans, support-

ing women-led enterprise partner-

ships, and prioritising consignments

from women’s self-help groups, can

signiﬁ cantly boost women’s partici-

pation in cross-border trade.

Gender-sensitization seminars,

capacity-building programs, and

cross-country regional dialogues with

stakeholders have proven to be high-

ly effective in embedding gender con-

siderations across the BBIN region as

participants showcase strong open-

ness to strategies aimed at reducing

barriers to women’s involvement in

cross-border trade.

Similarly, raising awareness and

building capacity among women in

cross-border trade is vital for creating

an enabling ecosystem. These train-

ing programs should equip women

in export-oriented sectors with skills

in trade operations, digital compli-

ance, and security roles. Conferences

and seminars can also foster collab-

oration and networking. To boost

women’s participation in logistics,

awareness campaigns in universities,

logistics courses in curricula, govern-

ment-supported training centres with

free access for women, and reserva-

tions in customs broker exams should

be introduced.

Fostering a ‘Coordinated Regional

Strategy’ through the establishment of

mirror infrastructure at border points

between India and its neighbouring

countries is vital to reducing trade-re-

lated time and costs. Simultaneously,

integrating gender perspectives into

cross-country collaborations via bi-

lateral and multilateral dialogues can

support the creation of a standardised

regional framework for gender-re-

sponsive land ports. 

Dr. Taneja is Professor, Ms. Joshi is Senior

Fellow, and Ms. Upreti and Ms. Rath are

Research Assistants at the Indian Council for

Research on International Economic Relations

(ICRIER). This article is based on a study

done by ICRIER under the aegis of The Asia

Foundation.

Notes

1 Taneja, Nisha, Sanjana Joshi, Shravani

Prakash, Pawani Dasgupta, and Sanya

Dua. 2023. India: Towards an Equitable

and Integrated South Asia: Building

Enabling Environments for Women

in Trade (India Country Report). San

Francisco: The Asia Foundation and

New Delhi: Indian Council for Research

on International Economic Relations

(ICRIER).

https://asiafoundation.org/wp-content/

uploads/2024/01/India_Towards-an-

Equitable-and-Integrated-South-Asia-

Building-Enabling-Environments-for-

Women-in-Trade.pdf

2 United Nations Development Pro-

gramme (UNDP). 2016. Trade Winds of

Change: Women Entrepreneurs on the

Rise in South Asia.

3 Taneja, Nisha, Sanjana Joshi, Shravani

Prakash, Pawani Dasgupta, Sanya

Dua, and Naila Fatima. 2023. Gender

Mainstreaming at India’s Land Ports.

New Delhi: Indian Council for Research

on International Economic Relations.

(ICRIER)

4 UN Global Survey on Digital and Sus-

tainable Trade Facilitation. https://www.

untfsurvey.org

5 ibid.

34 Trade Insight Vol. 21, No. 1-2, 2025

Following the sweeping tariffs

announced by the United States

(US) on 2 April 2025, Nepal, along

with virtually all other countries in the

world, is subject to an additional ad

valorem duty of 10 percent on almost

all goods exported to the US—the

second-largest export destination for

Nepal. The announcement further hit

several countries that ran a sizeable

trade surplus with the US with addi-

tional tariffs, resulting in country-wise

additional ad valorem duties ranging

from 10 percent to 50 percent. Nepal

faces the lowest tariff hike among

major South Asian economies. Sri

Lanka faces the sharpest tariff hike in

South Asia, at 44 percentage points.

It is followed by Bangladesh (37),

India (27) and Pakistan (30). The rest

of the region faces a tariff rise of 10

percentage points. It is for this reason

that media discussions in the days

following the announcement centered

on how Nepal could take advantage

of the relative tariff beneﬁ t in the US

market. However, the events that

have unfolded—for instance, addi-

tional reciprocal tariffs (more than

the baseline 10 percent) were put on

hold— indicates that the road ahead

is full of uncertainties. An important

question, thus, is whether Nepal

can enhance its exports to the US in

the face of emerging challenges—an

increase in tariffs in the US market, the

unlikely extension of the Nepal Trade

Preference Program (set to expire in

2025), the unlikely reinstatement of

the Generalized System of Preferences

(GSP) that expired in 2020, a potential

reduction in tariff preferences if other

countries are able to strike deals with

the US, and general uncertainty.

Against this background, SAWTEE

prepared a brief note1 that provides an

overview of the new reciprocal tariff

regime and its potential implications

for Nepal’s exports to quickly alert

policymakers, the private sector and

other relevant stakeholders to the new

dimensions in Nepal-US trade so that

appropriate measures can be taken.

This article presents the key points of

the brief.

Tariff impact of the new

reciprocal tariff regime

Nepal has been placed in the lowest

bracket for tariff hikes as it is subject

to an additional reciprocal tariff of 10

percent. It is to be noted that the 10

percent additional tariff is over and

above existing applied tariffs. Goods

attracting zero MFN tariffs make up

about two thirds of the value of Ne-

pal’s exports to the US (in 2022), which

would now be subject to a duty of 10

percent. Goods exported duty-free

under the Nepal Trade Preference

Programme (NTPP)—which covers

77 products and expires at the end of

2025—will also face a 10 percent tariff.

These goods constitute about 8 percent

of Nepal’s exports to the US (in 2022).

After its expiry in December 2025, the

tariff on them will be the 10 percent re-

ciprocal tariff plus the MFN tariff.2 The

For Nepal, realizing the relative

tariff advantage offered by the re-

ciprocal tariff scheme may prove

challenging due to the associated

uncertainties.

Paras Kharel and Kshitiz Dahal

reciprocal tariﬀ

Decoding US’s

reciprocal tariffs

A Nepali perspective

Trade Insight Vol. 21, No. 1-2, 2025

median MFN tariff for these products

was 7.5 percent in 2021. Then there

are products whose exports account

for about 11 percent of Nepal’s total

exports to the US and are currently

subject to positive MFN tariffs (and do

not feature in GSP or NTPP). Tariffs

on these products will also increase by

10 percentage points.

Given that tariff increases differ-

ently for different countries, relative

tariffs may matter more than the

absolute levels. In this context, the

tariff increase could place Nepal at

a relative advantage vis-à-vis many

economies if the reciprocal tariffs are

to be implemented after the 90-day

pause. For instance, if we look at the

tariff rates faced by other major ex-

porters of Nepal’s primary exports to

the US, Nepal will have a relative tariff

advantage over most of the suppliers

of these products. However, uncer-

tainty around the longevity of these

tariff changes serves as a barrier to the

realization of Nepal’s relative tariff

advantage, including the potential for

durable relocation of production to

Nepal from competitors.

A rough stab at quantifying

the effect on exports

Nepal’s merchandise exports amount-

ed to 2.7 percent of gross domestic

product (GDP) in ﬁ scal year (FY)

2023/24.3 Goods exports to the US

would then be equivalent to about 0.31

percent of GDP. Given the high import

content of most products exported to

the US, thanks to their dependence

on imported raw materials—although

there are exceptions such as chhur-

pi—even if we assume a domestic

value addition of 40 percent, the

value-added exports to the US would

come to about 0.12 percent of GDP. A

reduction in gross exports to the US

due to the tariff hike would have to be

multiplied by a factor of 0.12 percent

(or, 0.0012) when mapping the gross

export loss—as a back-of-the-envelope

calculation—into a direct dent to GDP.

World Bank (2025)4, using ﬁ rm-level

data, estimates that a 1 percentage

point increase in tariffs applied by

partner countries to Nepal reduces

Nepali exports by 0.8 percent on aver-

age. In the absence of destination-spe-

ciﬁ c estimates, we make do with this

estimate. This yields an estimated

8 percent decline in Nepal’s goods

exports to the US due to a tariff hike

of 10 percentage points. An estimated

direct hit to GDP would thus be 0.0096

percent.

The reciprocal tariff scheme, if im-

plemented as announced on 2 April, in

addition to increasing tariffs on Nepali

products, also increases tariffs on the

products supplied by other countries.

As Nepal’s preference margin in the

US is set to widen signiﬁ cantly vis-à-

vis many competitor countries in the

case of the implementation of recip-

rocal tariffs after the 90-day pause, a

positive impact on exports that partly

attenuates the direct negative impact

on exports due to the tariff hike on

Nepal cannot be ruled out, ceteris

paribus.

Conclusion

Nepal has seen a tariff hike of 10

percent on its exports to the US, as

has been witnessed by virtually all

countries in the world. However, if

reciprocal tariffs go into effect as pro-

posed, several countries will face ad-

ditional levies beyond the 10 baseline.

Despite this relative tariff advantage

conferring some potential beneﬁ ts,

uncertainties surrounding the scheme

suggest that realizing these gains may

not be straightforward. 

Notes

1 Kharel, Paras, and Kshitiz Dahal.

2025. Decoding US' reciprocal tariﬀ s: A

Nepali perspective. Issue Note 025/01

(18 April 2025). Kathmandu: South

Asia Watch on Trade, Economics and

Environment (SAWTEE).

2 Kharel, Paras. 2023. The 66/77 prod-

ucts inside out: The long and short of

the United States’ Nepal Trade Prefer-

ence Programme. SAWTEE Work-

ing Paper Series 23/01. Kathmandu:

SAWTEE.

3 NRB. 2024. Current Macroeconomic

and Financial Situation (annual). Kath-

mandu: Nepal Rastra Bank.

4 World Bank. 2025. Unlocking Nepal’s

growth potential: Nepal country eco-

nomic memorandum 2025. Washing-

ton, D.C.: The World Bank.

Figure 1 Change in applied tariffs for Nepal’s top exports

Note: Products are listed in the order of export size. The lowest tariffs applicable are taken as the applied

tariffs, but since GSP is currently on pause in the US market, we do not consider GSP tariff in our compu-

tations. In particular, ‘flags/made-up textile articles’ (HTS 63079098) and ‘Wooden tools’ (HTS 44170080)

also qualify for duty-free treatment under the GSP scheme but since the GSP is currently suspended in the

US market, we do not include GSP tariffs in our computations of old and new tariff rates.

Source: Authors, using tariff data compiled from the USITC

Tariff (%)

Blue= Previously applied

Red= Currently applied

Carpets/floor covering (1)

Product description

Christmas articles

Furnishing articles

Blankets/traveling rugs

Animal products

Felt

Rugs

Cotton shirts

Sweaters/pullovers

Antiques

Wooden tools

0102030

Essential oils

Carpets/floor covering (4)

Shawls/scarves

Carpets/floor covering (3)

Flags/made-up textile articles

Carpets/floor covering (2)

Carpets/floor covering (6)

Carpets/floor covering (5)

Dog/cat food

36 Trade Insight Vol. 21, No. 1-2, 2025

De-dollarization

Revisiting US dollar dominance

While the US dollar’s dominance has long been a pillar of the international

monetary system, its increasing use as a geopolitical tool has prompted some

countries to seek alternatives to a US dollar-centric order.

Prajol Joshi

The US Dollar, since the establish-

ment of the Bretton Woods Agree-

ment in 1944, has undisputedly been

the world’s reserve currency. The US

dollar - most commonly held curren-

cy - has been the dominant currency

in international trade and ﬁ nance.

While the globalization of the ﬁ nancial

system has been largely driven by

the US dollar’s dominance, it has also

come with costs. As John Connally, US

President Richard Nixon’s Treasury

Secretary, famously remarked, “The

US dollar is our currency, but it’s your

problem.” Although the US dollar is

technically a national currency, with

the US maintaining full sovereignty

over its monetary and ﬁ scal policies,

its inﬂ uence extends globally. The idea

of de-dollarization brieﬂ y surfaced

during the early rise of the euro but

remained largely dormant for years.

However, in recent years, it has gained

renewed attention due to escalating

US-China trade tensions, the shrink-

ing relative size of the US economy,

heightened geopolitical risks following

the Russia-Ukraine war and subse-

quent sanctions on Russia, and the

emergence of BRICS.

Key trends of

US dollar dominance

US dollar dominance refers to the out-

sized role of the US dollar in the global

economy. The international ﬁ nancial

de-dollariza on

36 Trade Insight Vol. 21, No. 1-2, 2025

Trade Insight Vol. 21, No. 1-2, 2025

system is built around the US dollar,

granting the US signiﬁ cant advantages

that extend beyond ﬁ nance. As the

world’s leading economic power-

house, the US wields more inﬂ uence

than its competitors would prefer,

largely due to its hegemonic position.

The US economy has been a critical

pillar of global economic activity,

accounting for approximately 11.5

percent of world trade and contrib-

uting 24.7 percent to global gross

domestic product (GDP). Beyond its

economic weight, the US dollar itself

plays a central role in international

ﬁ nance (see Figure 1). In 2022, as per

the World Bank, there were 192 ofﬁ cial

currencies in the World with 18,336

possible currency pairs, yet the US

dollar was involved in 88.5 percent of

global foreign exchange transactions.

Ongoing trends

toward de-dollarization

De-dollarization refers to the pro-

cess by which countries reduce their

dependence on the US dollar in trade,

ﬁ nancial transactions, and reserves,

shifting towards alternative currencies

or ﬁ nancial arrangements. While the

US dollar’s dominance has long been

a pillar of the international monetary

system, its increasing use as a geopo-

litical tool, particularly in restricting

trade and investment, has prompted

some countries to seek alternatives

to a US dollar-centric order. Rising

US-China tensions have accelerat-

ed this shift, with Beijing actively

promoting the renminbi (RMB) in

bilateral trade, developing an alterna-

tive settlement and messaging system

for international transactions, and

advancing the central bank digital

currency (CBDC) to reduce reliance on

the US dollar in global ﬁ nance.

Nearly all countries hold a signiﬁ -

cant portion of their foreign exchange

(FX) reserves in US dollars, although

data suggest that this trend has been

gradually declining over the past two

decades as emerging currencies gain

prominence. In 2000, approximately

71.14 percent of ofﬁ cial FX reserves

were held in US dollars, but this share

has since fallen to 58.42 percent—a

decline of nearly 13 percentage points

over 23 years (Figure 2). Initially, the

euro, the ofﬁ cial currency of 20 of the

27 member states of the European Un-

ion, emerged as a strong alternative,

gaining market share. However, it

struggled to maintain its position and

today remains at roughly the same

level as 23 years ago. A notable shift

has been towards currencies such as

Pound sterling, Australian and Cana-

dian dollars, and Chinese renminbi.

Despite these shifts in reserve

holdings, the US dollar remains

dominant in global foreign exchange

transactions, with its position in

world FX market turnover largely

unchanged. Since the introduction of

the euro, it has established itself as the

second-most used currency in foreign

exchange transactions, replacing por-

tions of other currencies previously in

use worldwide.

Increasing use of non-US dollar

currencies in international trade

Since the end of World War II, US dol-

lar has dominanted the global trade,

with most commodities priced and

traded in the currency. Today, nearly

50 percent of international trade is

invoiced in US dollars, and approxi-

mately 88.5 percent of global foreign

exchange transactions involve the cur-

rency. This system has led exporters to

earn and accumulate US dollars while

importers require them for payments,

reinforcing the US dollar's dominance

in global commerce. However, grow-

ing geopolitical rivalries and economic

Figure 1 Key roles of US economy and

US dollar in the world as of Q2 2022

Source: Li, Yuefen. “Trends, Reasons and Prospects of

de-Dollarization.” South Centre, August 14, 2023.

International

debt securities

Cross-border loans

SWIFT payments

Trade invoicing

Official FX reserves

FX transaction volume

Global GDP

World Trade

 USD share of global markets

 US economy's share

0 20406080100

Figure 2 Composition of major currencies in ofﬁ cial FX reserves (in % of total)

Source: IMF COFER Database

US Dollars Euro Japanese Yen

Pounds Sterling Other Currencies

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

38 Trade Insight Vol. 21, No. 1-2, 2025

shifts have prompted several countries

to seek alternatives, especially those

competing with or facing sanctions

from the US. A notable example is

India’s increasing shift toward settling

oil payments to Russian suppliers

in alternative currencies, such as the

rouble and UAE dirham, instead of

the US dollar. This trend reﬂ ects a

broader effort by various nations to

reduce dependence on the US dollar

and enhance monetary sovereignty in

international trade.

Rise of BRICS and

regional de-dollarization efforts

BRICS+, an informal bloc of ﬁ ve core

members (Brazil, Russia, India, China,

and South Africa) and four newly

added countries (Egypt, Ethiopia, Iran,

United Arab Emirates), now account

for 37 percent of the global GDP (by

PPP) and 44 percent of the world

population. At the BRICS summit in

Kazan, Russia, in October 2024, dis-

cussions focused heavily on enhancing

trade integration among member

nations. One key proposal was the

creation of a single BRICS currency,

aimed at reducing long-term reliance

on the US dollar for cross-border

transactions. BRICS+ is actively reduc-

ing the US dollar’s role in its ﬁ nancial

ﬂ ows. However, the bloc's relatively

small global presence in these areas

limits its immediate impact on the US

dollar’s dominant role in the global

ﬁ nancial system. Yet, if these regional

de-dollarization efforts continue to

expand, they could gradually reshape

the international monetary landscape.

Increasing gold reserves as an

alternative to currency reserves

Central banks are increasingly turning

to gold as a strategic alternative to

the US dollar, making the commodity

market another key arena for de-dol-

larization. Since 2000, central banks

worldwide have been steadily accu-

mulating gold as part of their efforts to

diversify away from a US dollar-cen-

tric ﬁ nancial system. Over the past 14

years, the value of global gold reserves

has grown nearly tenfold, reﬂ ecting a

strategic shift in reserve management

by the central banks worldwide. The

share of gold in total foreign exchange

reserves has also increased signiﬁ cant-

ly, rising from 12.63 percent in 2000

to 18.19 percent in 2024, after hitting a

low of 9.06 percent in 2015 (Figure 3).

Currency swap arrangement

In recent years, China’s central bank

— People’s Bank of China (PBOC)

— has actively pursued bilateral

currency swap agreements as part of

its broader strategy to promote inter-

national use of the renminbi. These

agreements, which allow central

banks to exchange their currencies

directly, reduce reliance on the US

dollar in cross-border transactions.

As of now, the PBOC has signed

currency swap arrangements with

29 countries, covering a total eco-

nomic value of approximately RMB

4 trillion (US$553.49 billion). While

the concept of currency swaps is not

new, China's approach differs from

traditional practices. Historically,

such agreements were used primarily

as emergency ﬁ nancial tools, whereas

China's currency swaps are designed

as long-term policies to promote

renminbi internationalization by al-

lowing partner economies to acquire

settle trade transactions directly,

bypassing the need for US dollars.

Research indicates that these agree-

ments have boosted bilateral trade

and expanded China’s trade share in

partner economies, with the strongest

effects observed in smaller countries,

those with existing trade deﬁ cits, and

lower foreign exchange reserves.4

Rise of central bank

digital currencies

The recent growth in interest towards

digital assets such as Bitcoin led to

the rapid adoption of stablecoins and

increasing global interest towards

Central bank digital currencies

(CBDCs). Currently, 111 countries

worldwide representing nearly 95

percent of global GDP are actively

exploring the CBDCs, with countries

like Bahamas, Nigeria and few more

have already launched them. Chi-

na's CBDC, digital yuan or e-CNY,

intends to replicate and potential-

ly replace the role of cash, is fast

evolving. Alongside, there has been

continuous development of mBridge,

a blockchain-based platform to

directly connect jurisdictional digital

currencies, initially backed by the

Swiss-based Bank for International

Settlements and the central banks of

several countries such as Hongkong,

Thailand, China and the UAE.2

Figure 3 Trend of gold holdings in the World

Source: World Gold Council (https://www.gold.org/goldhub/data/gold-reserves-by-country)

Q42000

Q42001

Q42002

Q42003

Q42004

Q42005

Q42006

Q42007

Q42008

Q42009

Q42010

Q42011

Q42012

Q42013

Q42014

Q42015

Q42016

Q42017

Q42018

Q42019

Q42020

Q42021

Q42022

Q42023

Q32024

00%

10%

12%

14%

16%

18%

20%

500,000

Year

World's Total Gold (In US$ millions) Gold % of Total Reserves

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

World's Total Gold (Value in US$ millions)

World's Total Gold (percent of Total Reserves)

de-dollariza on

Trade Insight Vol. 21, No. 1-2, 2025

Contenders to US Dollars

Euro: The euro, the common currency

adopted by 20 out of 27 European

Union member countries, holds the

second position in global reserve

currency rankings. It currently

represents around 20 percent of the

world’s ofﬁ cial foreign exchange re-

serves, making it the leading contend-

er to replace the US dollar. Between

2000 and 2010, the proportion of

euro-denominated reserves gradu-

ally increased, but in the years that

followed, its share contracted back to

initial level. One signiﬁ cant limitation

for the euro to replace US dollar is its

structure. The eurozone is a currency

union, meaning its member states

retain independent central banks with

distinct monetary policies and man-

dates. This decentralization compli-

cates broader policy integration, and

the risk of economic crises in individ-

ual country—such as the Greek debt

crisis—spilling over the entire region,

impacting global ﬁ nancial stability.

Chinese Renminbi (RMB): The shift-

ing geopolitical dynamics and the

growing inﬂ uence of the US dollar

have prompted countries seeking

global inﬂ uence to explore new

ﬁ nancial channels and increasingly

promote the use of their own cur-

rencies. The RMB has been at the fore-

front of this change. However, data

suggests that while there has been

a gradual increase in the use of the

RMB for cross-border payments, its

adoption remains limited in compari-

son to the US dollar (Figure 5). When

it comes to the potential for the RMB

to replace the US dollar as the world’s

dominant reserve currency, two main

arguments emerge. Supporters argue

that China’s growing global impor-

tance, backed by its vast economy,

will eventually lead to the RMB

gradually replacing the US dollar

over time. On the other hand, skeptics

contend that China’s closed capital

account, the lack of deep and liquid

RMB-denominated capital markets,

and global distrust towards China’s

political system mean the RMB is

unlikely to replace the US dollar in

the foreseeable future.

US dollar and SAARC

Worldwide, the US dollar remains the

dominant ofﬁ cial reserve currency

for central banks, and South Asia is

no exception. It plays a crucial role

in cross-border trade and ﬁ nancial

transactions across the region. The

US dollar's stability and widespread

acceptance make it the preferred

medium of exchange in international

trade, as opposed to local currencies.

Consequently, exports to and imports

from South Asia are predominantly

priced in US dollars. Moreover, exter-

nal debt issued by South Asian gov-

ernments is largely denominated and

settled in US dollars. As of September

2024, India holds the highest share

of US dollar-denominated external

debt in the region, accounting for 53.4

percent of its total external debt.3

India, the de facto leader in South

Asia, acknowledged the inherent

ﬂ aws in the US dollar's global domi-

nance through a report published by

its central bank in 2023. The report

highlighted weakening US econo-

my and pushed for a greater role

for the Indian rupee in cross-border

trade and ﬁ nance, emphasizing the

potential of bilateral central bank

currency swap arrangements. Since

July 2022, the Indian government has

permitted the use of Indian rupees

for international trade settlements.

Further strengthening this initiative,

the Reserve Bank of India introduced

regulatory changes in January 2025 to

enhance the rupee's role in cross-bor-

der transactions.11 By August 2023,

the Reserve Bank of India had ap-

proved commercial banks from over

twenty countries to open such special

rupee accounts, facilitating greater in-

ternational use of the Indian rupee. 

Mr. Joshi is Economist at SAWTEE.

Notes

1 Hao, Kaixuan, Liyan Han, and Wei

(Tony) Li. 2022. “The Impact of China’s

Currency Swap Lines on Bilateral

Trade.” International Review of Eco-

nomics & Finance 81 (September

2022): 173–83.

2 Huang, Roger. "A 2025 overview of the

E-CNY, China's digital yuan". 2025.

Forbes, July 15, 2025.

3 Department of Economic Aﬀ airs,

Ministry of Finance, Government of

India. "India's external debt as at end

of September 2024", September 2024.

https://dea.gov.in/sites/default/ﬁ les/

India percent27s percent20Quarterly

percent20External percent20Debt

percent20Report percent20for percent-

20Quarter percent20ending percent-

20September percent202024.pdf

4 Reserve Bank of India. "Circular on In-

ternational trade settlements in Indian

Rupees (INR)," Circular No. 10, July

11, 2022. https://rbi.org.in/Scripts/Noti-

ﬁ cationUser.aspx?Id=12358&Mode=0

Figure 4 Share of SWIFT transaction messages in value (In percent of total); Year-end data

Source: SWIFT; (https://www.swift.com/products/rmb-tracker)

USD EUR CNY

Year

2014

0% 0%

0.5%

1.5%

2.5%

3.5%

4.5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2015 2016 2017 2018 2019 2020 2021 2022 2023

Share of SWIFT transaction messages

for USD and EUR (percent of total)

Share of SWIFT transaction messages

for CNY (percent of total)

40 Trade Insight Vol. 21, No. 1-2, 2025

Although Nepal’s position in global supply chains is constrained by its

landlocked geography, it can leverage its location between India and

China by deepening trade engagement with its neighbours.

Aayush Poudel

Shifting supply chains

Prospects for Nepal

supply chains in south asia

Global value chains (GVCs) ac-

count for around 70 percent of

global trade.1 Through global value

chains, companies have long prior-

itized efﬁ ciency by producing goods

in low-cost locations and leveraging

trade liberalization to reduce costs,

access foreign inputs, and scale up

production. However, geopolitical,

economic, and technological shifts

are reshaping these net works. The

COVID-19 pandemic was a major

disruptor. A 2020 Fortune report re-

vealed that 94 percent of Fortune 1000

companies experienced supply chain

disruptions due to the pandemic.2 The

European Central Bank estimated that,

between November 2020 and Septem-

ber 2021, global trade could have been

2.7 percent higher and manufacturing

output 1.4 percent greater if these

disruptions had not occurred.3

Following a period of relative

stability in global trade, even as global

supply chains had yet to fully return

to pre-pandemic levels, the resur-

gence of uncertainty — triggered by

the Trump 2.0 tariff measures — has

prompted countries to reevaluate

their supply chain dependencies. The

second Trump administration has

intensiﬁ ed the trade tensions with

China and its trade allies, contributing

to growing uncertainties in global

supply chains amid shifting geopo-

litical and economic dynamics. The

StockCake

Trade Insight Vol. 21, No. 1-2, 2025

US-China trade dispute, which began

during Trump’s ﬁ rst presidency in

2018, has exacerbated in his second

term. Although the “Phase One”

trade agreement was signed in 2020

during his ﬁ rst term to de-escalate

tensions between these two economic

powerhouses, the trade tensions have

however, escalated further.

Moreover, the Trump adminis-

tration’s unpredictable tariff policies,

marked by sudden announcements,

partial pauses, and selective esca-

lations, have created substantial

uncertainty in global trade. These

inconsistent policy actions have dis-

rupted global trade, leading countries

to reevaluate their reliance on China

for manufacturing and trade, as well

as to reassess their trade relationship

with the US.

This evolving landscape could

present both challenges and strategic

openings for Nepal. As business-

es seek to reduce overreliance on

Chinese manufacturing, alternative

destinations in South and South-

east Asia are becoming increasingly

attractive. For years, China dominated

global production with its superior

infrastructure and competitive costs.

Today, however, that dominance is

giving way to diversiﬁ cation efforts,

with countries such as Vietnam and

India emerging as strong contenders.

Further, to reduce overdependence on

China amid rising geopolitical risks,

many companies are turning to the

“China Plus One” model. The compa-

nies involved China as well as alterna-

tive options like Vietnam and India in

the production process. Contributing

factors include China’s escalating

labour wages, internal supply chain

constraints, heightened scrutiny of

foreign businesses, and the worsening

trade dispute with the US.4

The World Economic Forum5

report shows that the reorganization

of global value chains has intensiﬁ ed

competition among countries seeking

a greater role in global manufacturing,

with India emerging as a strong can-

didate. India’s key advantages include

a large and growing domestic market,

proactive government initiatives to

boost the manufacturing sector, and a

favourable demographic proﬁ le. India

has maintained a modest yet steady

position in global merchandise trade,

accounting for around 1.9 percent

of global exports and 2.9 percent of

global imports of intermediate goods

in 2021 (Figure 1). Over the decade, its

average share has been about 1.8 per-

cent and 2.7 percent in intermediate

exports and imports respectively (Fig-

ure 1). Further, India also stands to be-

come a complementary manufacturing

hub to China. A prominent example is

Apple—amid Donald Trump’s trade

and tariff war with China, the compa-

ny is reportedly shifting all its iPhone

production for the US market to India,

stepping away from its long-standing

reliance on Chinese manufacturing,

where over 90 percent of its devices

were previously assembled.6

With around two-thirds of its trade

with India, Nepal could capitalize on

India’s emerging role as an alternative

manufacturing hub. Nepal’s third

country trade takes place through In-

dia and is routed through the ports of

Kolkata/Haldia and Vishakhapatnam.

Further, Nepal’s trade with Bang-

ladesh also transits through India.

There is also growing signiﬁ cance of

the Nepali market for India as well.

In 2023, Nepal ranked as India’s 18th

largest export destination, a signiﬁ cant

rise from the 28th position in 2014,

with total trade of India with Nepal

reaching US$8.86 billion in 2022/23,

with India’s exports accounting almost

90 percent share in this ﬁ gure. Nepal

and India also have rich historical and

cultural bonds, with a strong peo-

ple-to-people connection and an open

border stretching over 1700 km. Nepal

should seek to leverage these beneﬁ ts

and ﬁ nd new avenues for manufac-

turing collaboration and enhanced

economic integration with India, espe-

cially when the global manufacturing

hub is shifting towards India.

Not only Nepal but also other

South Asian countries stand to gain

from the ongoing shift of global sup-

ply chains towards India. Bangladesh,

a leading hub for garment manufac-

turing and exports, could particularly

leverage this transition in the textiles

and clothing sectors. The recent

tripartite power agreement between

India, Bangladesh, and Nepal reﬂ ects

a growing spirit of regional collabora-

tion, even amid political complexities.

Additionally, the BBIN (Bangladesh,

Source: Report on World Trade Statistical Review 2023, WTO

Figure 7 India’s share in world merchandise exports and imports of intermediate goods

3.5

2.5

1.5

0.5

01.55

2012

Share in merchandise exports of intermediate goods

Share in merchandise imports of intermediate goods

2013 2014 2015 2016 2017 2018 2019 2020 2021

1.60

1.65

1.70

1.75

1.80

1.85

1.90

1.95

42 Trade Insight Vol. 21, No. 1-2, 2025

Bhutan, India, and Nepal) initiative

plays a crucial role in facilitating trade

and people-to-people connectivity,

paving the way for greater economic

integration as India emerges as a key

alternative manufacturing hub.

Although recent tariff measures

have intensiﬁ ed the US-China trade

war, the process of economic decou-

pling between the two countries had

already begun prior to the current

tensions. Kearney’s Reshoring Index

indicates that in 2022, Chinese goods

made up only 50.7 percent of US

imports of manufactured products

from Asian nations, down signiﬁ cant-

ly from nearly 70 percent in 2013.7

Meanwhile, countries like those in

the Association of Southeast Asian

Nations (ASEAN), as well as Brazil

and India, are continuing to expand

their trade relationships across diverse

geopolitical partners. Furthermore, a

recent McKinsey report highlights a

shift in trade patterns toward coun-

tries that are more geopolitically

aligned and closely connected.8 Given

its strategic location between India

and China, Nepal should seek to lever-

age these developments—particularly

by deepening trade engagement with

India, with whom it shares strong and

well-integrated ties.

Nepal’s position in global supply

chains is constrained by its landlocked

geography, weak infrastructure, and

logistical obstacles, which pose chal-

lenges to its integration into regional

and global value chains. An Asian

Development Bank (ADB) report high-

lighted that Nepal faces signiﬁ cant

behind-the-border (e.g., poor infra-

structure, weak institutions, energy

shortage) and beyond-the-border (e.g.,

trade barriers in the form of non-tariff

barriers, weak regional integration)

constraints in participating in GVCs.

Further, Nepal’s persistent rank below

100 on the Logistics Performance In-

dex (LPI) underscores its poor logistics

performance compared with the peer

countries (Table 1).

While Nepal may ﬁ nd some

opportunities to beneﬁ t from shifting

global supply chains towards India,

it also faces certain risks — particu-

larly related to transhipment and the

potential dumping of Chinese goods.

Amid the ongoing US-China trade

tensions and tariff disputes, there is

an increased likelihood that Chinese

products may be rerouted through

countries like Nepal to circumvent

high US tariffs. The US has expressed

concerns about Chinese goods being

misrepresented as 'Made in Vietnam'

in order to bypass tariffs. In response,

the Vietnamese government is im-

plementing strict measures to pre-

vent illegal transhipment of Chinese

products to the US via Vietnam. These

strategies often involve misrepresenta-

tion of the origin of goods or “origin

washing” and allow exporters to take

advantage of lower tariff rates through

third countries. Such practices raise

concerns about illegal transhipment

and could expose Nepal to scrutiny

from trading partners.

As global supply chains continue

to evolve and geopolitical tensions

reshape trade priorities, countries

are cautiously balancing relations

with both the US and China. For least

developed countries like Nepal, any

escalation in tariffs as well as trade un-

certainties could have disproportion-

ate impacts. Nepal’s location between

the major economies of India and

China positions it well to capitalize

on emerging strategic opportunities

as global trade slows down. Howev-

er, this geographic leverage must be

balanced with a proactive strategy

to diversify trade networks beyond

its traditional ones. India’s evolving

regional outreach, through its Act East

Policy and Indo-Paciﬁ c vision, offers a

platform for Nepal to deepen engage-

ment with Southeast Asia. Further, the

strengthening of regional groupings

such as BBIN and Bay of Bengal Initi-

ative for Multi-Sectoral Technical and

Economic Cooperation (BIMSTEC)—

especially through the implementation

of connectivity plans—can enable

Nepal to better align with the shifting

supply chain dynamics and enhance

its integration into the broader global

economy. 

Mr. Poudel is Research Ofﬁ cer at SAW-

TEE.

Notes

1 UNCTAD. 2024. Trade Preferences

Outlook 2024. United Nations Con-

ference on Trade and Development

(UNCTAD). New York: United Nations

Publications.

2 Sherman, Erik. 2020. “94% of the

Fortune 1000 Are Seeing Supply Chain

Disruptions.” Fortune, February 21,

2020.

3 European Central Bank. 2021. Eco-

nomic Bulletin, Issue 8/2021.

4 Wignaraja, Ganeshan, and Aliasger

Bootwalla. 2024. “Rethinking Supply

Chains and Trade Architecture in South

Asia.” ODI Global. March 19, 2024.

5 World Economic Forum. 2021. Shift-

ing Global Value Chains: The India

Opportunity. White paper. June 2021.

Geneva: World Economic Forum.

6 Milmo, Dan. 2025. “Apple aims to

source all US iPhones from India’, re-

ducing reliance on China.” The Guard-

ian, 25 April 2025.

7 The Kearney Reshoring Index (KRI) is

an annual analytical tool developed by

the global consulting ﬁ rm Kearney to

assess the extent to which manufactur-

ing is returning to the United States

from overseas, particularly from 14

Asian low-cost countries and regions

(LCCRs), including China, Vietnam,

India, and others.

8 Seong, Jeongmin, Olivia White, Mi-

chael Birshan, Lola Woetzel, Camillo

Lamanna, Jeﬀ rey Condon, and Tiago

Devesa. 2024. Geopolitics and the

Geometry of Global Trade. McKinsey

Global Institute, January 2024.

Countries 2014 2016 2018

India 54 35 44

Lao PDR 131 152 82

Maldives 82 104 86

Sri Lanka 89 NA 94

Cambodia 83 73 98

Bangladesh 108 87 100

Nepal 105 124 114

Pakistan 72 68 122

Bhutan 143 135 149

Afghanistan 158 150 160

Note: The latest data released by the World Bank for

the year 2023 does not include the data for Nepal.

Hence, 2023 data is not included.

Source: World Bank

Table 1 Logistics Performance Index (LPI) of

Nepal and comparator countries

supply chains in south asia

Trade Insight Vol. 21, No. 1-2, 2025

Amidst the growing digital divide, the emergence of DeepSeek

AI model is a disruptive potential for developing nations not only

as a technology but as a driver of inclusive digital transformation.

Rupesh Tha

Beyond Silicon Valley

DeepSeek AI innovation

empowers global South

In the fast-evolving world of artiﬁ cial

intelligence (AI), the spotlight has

long been dominated by tech giants

rooted in Silicon Valley. But a quiet

revolution is underway, led not by

billion-dollar budgets, but by open

source innovation. At the heart of this

movement is DeepSeek AI, a light-

weight and accessible AI model for all.

AI refers to the theory and develop-

ment of computer system capable of

performing tasks traditionally requir-

ing human intelligence, such as speech

recognition, decision-making, and

pattern recognition. The emergence of

AI compu ting has rapidly reshaped

the global economy and technological

landscape. Earlier AI computing and

its applications were limited to being

adopted by large corporation but

in past couple of years access to AI

applications have reached laypeople

in the form of generative AI assistants

and tools, such as ChatGPT, Copilot,

Gemini etc. This transformation has

been driven by breakthroughs from

companies like OpenAI, Google and

StockCake

ar ﬁ cial intelligence

44 Trade Insight Vol. 21, No. 1-2, 2025

Meta, among others. While these tech

giants continue to push AI bound-

aries, emerging players are redeﬁ n-

ing the landscape with innovative

approaches.

One such rising player is Chi-

na's DeepSeek AI, which is gaining

attention for its efﬁ cient, open-source

models that deliver high performance

at lower costs. Quickly emerging as a

serious contender in the competitive

AI arena, DeepSeek has captured

global attention by offering cutting

edge yet cost-effective solutions.

The DeepSeek AI model stands out

for its advanced natural language

processing (NLP), real-time machine

learning adaptation, and multilingual

capabilities. Unlike other models

that require extensive computational

resources, DeepSeek is designed to be

lightweight, scalable and adaptable to

lower-resource environments. These

features make it an especially valu-

able tool for developing economies,

where high end AI infrastructure

remains out of reach.1

The emergence of DeepSeek AI

model introduces disruptive potential

for developing nations not only as a

technology but as a driver of inclu-

sive digital transformation. DeepSeek

has unlocked advancements in eco-

nomic growth and development, and

further explores the model’s role in

shaping equitable AI adoption across

the Global South.2 This piece explores

how DeepSeek AI is reshaping the

narrative of AI development, putting

openness, affordability and accessi-

bility at the core of a more equitable

global AI future.

DeepSeek’s AI model has not

shaken big US tech companies but this

Chinese open source AI could be a

game-changer for developing na-

tions, offering them affordable access

to cutting-edge technology while

challenging the AI monopoly of big

Western companies. While people talk

about stock drops, legal issues, and a

big shift in AI power, one important

point is often missed — developing

countries now have a better chance to

use AI for their own needs. They do

not have to rely only on a few big AI

companies, developing countries can

create and innovate themselves. But

to make the most of this opportunity,

countries in the Global South need to

invest in AI skills and technology.3

A recent UN report warns that the

growing digital divide, exacerbated by

advancements in AI, poses a signif-

icant risk to developing countries.

If this gap continues to widen, only

a few powerful countries and com-

panies will reap the beneﬁ ts of AI,

leaving others behind. To address this,

the UN General Assembly adopted a

resolution urging nations, business-

es, and organizations to collaborate

in helping developing nations build

AI skills. The resolution emphasizes

knowledge sharing, training, research

cooperation, and technical support to

ensure AI’s beneﬁ ts reach everyone. In

response to this challenge, DeepSeek,

an AI innovation from China, is bridg-

ing the digital divide by providing

accessible, open-source AI solutions to

developing countries. By prioritizing

affordable and accessible AI technolo-

gy, DeepSeek AI enables Global South

to build skills, fostering local innova-

tion and participation in the global AI

economy. DeepSeek AI ensures that

AI beneﬁ ts are more equally distribut-

ed, supporting the UN’s vision of an

inclusive and equitable AI future.

Unique from other AIs

Rise of the DeepSeek AI models, R1

and V3, due to their ability to outper-

form top US models on various tests

have surprised Silicon Valley (see Fig-

ure 1). What's even more impressive is

that DeepSeek developed the model at

a much lower cost. This caused a stir

in the US tech world, sparking a reali-

zation that improving AI models does

not always require huge amounts of

money and resources. Researchers are

now seeing that it is possible to make

AI development more efﬁ cient, in

terms of both cost and energy, without

sacriﬁ cing performance.4

Size

DeepSeek’s AI model is both large and

efﬁ cient, despite being developed by

a smaller team with fewer resources.

Unlike other models, DeepSeek uses a

"mixture-of-experts" system, activat-

ing only the relevant submodels for

each task. For instance, even though

V3 has 671 billion parameters, it uses

just 37 billion at a time. The company

also employs a dynamic load-bearing

strategy to prevent submodel overload

and adjusts computational effort based

on task complexity. These innovations

allow DeepSeek to maximize efﬁ cien-

cy while using fewer resources than

other AI models.5

ar ﬁ cial intelligence

Figure 1 Comparison between different generative AI models

Source: NBC News, 2024

Coding

 Deepseek  OpenAI  Anthropic  Meta  Alibaba

100

Quantitative

reasoning

reasoning and

knowledge

Scientific

reasoning and

knowledge

Trade Insight Vol. 21, No. 1-2, 2025

Training Cost

Similarly, DeepSeek’s AI models are

faster and cheaper to train than com-

petitors. While U.S. tech giants spend

billions on AI, DeepSeek developed

V3 for under US$6 million in just two

months. Despite export restrictions on

advanced Nvidia chips, the company

used H800s to build its models. A key

innovation is DeepSeek’s "mixed pre-

cision" framework, which combines

efﬁ cient 8-bit calculations (FP8) with

precise 32-bit calculations (FP32) for

critical tasks. This approach reduces

memory use, speeds up processing,

and proves AI can be developed more

efﬁ ciently with fewer resources.6

Performance

In the performance, DeepSeek’s

models rival leading global counter-

parts despite resource constraints.

The R1 model matches OpenAI’s o1 in

the Artiﬁ cial Analysis Quality Index

and outperforms rivals like Google’s

Gemini 2.0 Flash, Anthropic’s Claude

3.5 Sonnet, and Meta’s Llama 3.3-

70B. Its chain-of-thought reasoning

breaks tasks into step-by-step pro-

cesses, allowing users to trace its logic

and enabling iterative reﬁ nement a

feature critical for coding and complex

problem-solving. The earlier V3 model

also demonstrated parity with Claude

3.5 Sonnet, surpassing GPT-4o and

China’s previous leader, Alibaba’s

Qwen2.5-72B. In image generation,

DeepSeek’s Janus-Pro-7B reportedly

exceeds OpenAI’s DALL-E and Sta-

bility AI’s Stable Diffusion 3 Medium

in benchmarks for photorealism and

text-to-image accuracy.7

DeepSeek’s emergence marks

a signiﬁ cant shift in the global AI

landscape, challenging the dominance

of US-based ﬁ rms like OpenAI and

Google. Its rise calls into question the

effectiveness of US tech restrictions,

such as chip bans, as China continues

to advance rapidly in AI innovation.

For developing nations, DeepSeek’s

success signals the potential for a more

multipolar AI ecosystem, reducing

reliance on a few Western companies

and fostering greater accessibility

to cutting-edge technologies. Fur-

thermore, DeepSeek’s open-source

approach has intensiﬁ ed debates over

the merits of open versus closed AI

models, pressuring competitors like

OpenAI to reevaluate their strategies.

If this trend persists, it could open up

AI tools, enabling broader innovation

and reducing technological dependen-

cy for countries in the Global South8.

Unlocking potential

DeepSeek's open-source AI models

offer transformative beneﬁ ts for de-

veloping countries, Least Developed

Countries (LDCs), and the Global

South, particularly in regions with lim-

ited access to advanced technologies.

In contrast to commercial AI models

that necessitate costly license fees and

advanced equipment, DeepSeek offers

accessible AI solutions that may be

tailored to local requirements. Such

facilities enable researchers, compa-

nies, and governments in developing

countries to create AI-driven solutions

in ﬁ elds such as education, healthcare

and agriculture. Furthermore, open-

source AI facilitates economic ad-

vancement and promotes homegrown

innovation by reducing reliance on

costly foreign technology. DeepSeek's

approach can address critical challeng-

es in the following areas:

Lowering technological barriers:

Many developing countries face chal-

lenges in deploying AI due to the high

costs of computing resources. Deep-

Seek's open-source approach allows

these regions to access cutting-edge AI

at minimal expense.

Enhancing education: AI-powered

tools can bridge educational gaps

caused by teacher shortages. Intelli-

gent tutoring systems and personal-

ized learning platforms can adapt to

individual student needs, providing

tailored educational experiences. For

instance, in India, students using an

AI-powered personalized learning tool

scored higher in Hindi and math.9

Improving healthcare: In regions

with limited medical professionals, AI

can assist in diagnostics and treatment

recommendations, effectively ex-

tending healthcare services to under-

served areas. For example, AI tools

can be used to support diagnosis and

treatment recommendations, freeing

up doctors to spend more time with

patients and improve care.

Strengthening public services and

ﬁ nancial inclusion: AI can streamline

public services such as tax collec-

tion and social transfers, enhancing

governance efﬁ ciency. Additionally,

AI-driven ﬁ nancial tools can extend

banking services to remote areas,

promoting ﬁ nancial inclusion. For

instance, in Togo, AI improved the

targeting of a cash transfer program,

helping to ensure funds were allocated

to those most in need.10

Boosting productivity: AI can

boost productivity growth by auto-

mating tasks, optimizing processes,

pexels

46 Trade Insight Vol. 21, No. 1-2, 2025

and aiding decision-making. For

example, consultants using generative

AI completed 12 percent more tasks

on average and completed tasks 25

percent more quickly. In 2023, Erik

Brynjolfsson and his team found that

generative AI has increased call center

agent productivity by 14 percent,

especially beneﬁ ting entry-level,

lower-skilled workers. By embracing

DeepSeek's open-source AI models,

developing countries can leverage

these technologies to address critical

challenges and promote sustainable

development across various sectors.11

AI in Global South

As AI reshapes global technological

landscapes, countries in the Global

South, including India and least-de-

veloped countries (LDCs), face both

opportunities and challenges in har-

nessing its potential. While AI devel-

opment has been largely concentrated

in the US and China, the emergence

of cost-efﬁ cient models like DeepSeek

AI signals a shift that could empower

emerging economies. India, with its

robust IT sector and skilled workforce,

holds signiﬁ cant potential to become a

key player in AI. The country is home

to over 5 million programmers and a

rapidly expanding digital ecosystem,

making it well-positioned to innovate

with open-source models, AI startups,

and localized solutions. India’s AI

market is forecasted to grow at a com-

pound annual growth rate (CAGR)

of 25-35 percent, reaching US$17-22

billion by 2027.12

However, challenges remain.

India currently ranks tenth globally

with US$1.4 billion in private AI

investment, trailing behind the U.S.

and China, which attract signiﬁ cantly

higher investments. While there is

substantial AI talent in India, many

top researchers still migrate abroad,

which weakens the country’s capacity

for homegrown innovation.13 To

realize its full potential, India needs

to address these gaps by fostering

strong public-private partnerships,

investing in research and develop-

ment, and implementing policies that

support AI's ethical use and local

innovation.

The emergence of DeepSeek AI

marks a turning point in the develop-

ment of artiﬁ cial intelligence world-

wide, providing a more open and

approachable route to innovation in

AI. DeepSeek breaks Silicon Valley's

dominance and creates new pros-

pects for the Global South by offering

high-performance, affordable, and

open-source AI solutions. DeepSeek

enables developing nations to take

an active role in the AI revolution

through improving healthcare and

education, fortifying public services,

and encouraging local innovation.

DeepSeek's concept emphasizes the

value of cooperation, affordability,

ar ﬁ cial intelligence

and transparency in creating a more

equal digital. 

Mr. Tha is Research Ofﬁ cer at SAWTEE.

Notes

1 BBC News. 2025. “DeepSeek: China's

Open-Source AI Challenges Western

Dominance.” BBC News, February 8,

2025.

2 Kerner, Sean Michael. 2025. “Deep-

Seek Explained: Everything You Need

to Know.” TechTarget, February 6,

2025.

3 Diphda, Bintang Corvi. 2025. “Deep-

Seek and International Implications: A

Reﬂ ection Towards Global AI Technol-

ogy Competition.” Modern Diplomacy,

February 3, 2025.

4 NBC News. 2025. “DeepSeek AI Com-

parison: OpenAI, ChatGPT, Google

Gemini, Meta LLaMA.” NBC News,

February 5, 2025.

5 ibid.

6 ibid.

7 ibid.

8 Chowdhury, Sumsuzzaman. 2025. “Is

DeepSeek Really a Game Changer in

2025? Unpacking the AI Revolution.”

DEV Community, February 9, 2025.

9 Fan, Qimiao, and Christine Zhenwei

Qiang. 2024. “Tipping the Scales: AI's

Dual Impact on Developing Nations.”

World Bank Blogs, June 3, 2024.

10 ibid.

11 ibid.

12 Krishnamurthy, Shankar, and Sugandha

Srikanteswaran. 2024. “India’s AI Ambi-

tions: Can Public-Private Partnerships

Lead the Way?” S&P Global, March 7,

2024.

13 ibid 1.

pexels

Trade Insight Vol. 21, No. 1-2, 2025

Dikshya Singh

Title: Our Dollar, Your Problem: An Insider's View of Seven Turbulent Decades of Global Finance, and the Road Ahead

Author: Kenneth Rogoﬀ

Publisher: Yale University Press

ISBN: 978-0-300-27531-5

Dollar dominance: Is the end near?

book review

Kenneth Rogoff, the Harvard

professor and former IMF chief

economist, examines the US cureency

that enjoys an exorbitant privilege

as the ‘lingua franca’ of global trade

and ﬁ nance and how maintaining

the hegemoney burdens the US with

complex geopolitical responsibili-

ties. The book with its long title Our

Dollar, Your Problem: An Insider’s View

of Seven Turbulent Decades of Global

Finance, and the Road Ahead offers an

authoritative and engaging narrative

on the dominance and precarious

future of the US dollar as the world’s

foremost reserve currency.

Since US dollar is the major cur-

rency used by countries worldwide

to undertake their international trade

and cross-border ﬁ nancial transac-

tions, hence maintain a sizeable hold-

ing of the US dollar in their reserves

for these purposes, dollar has become

the primary reserve currency. This

has resulted in the US enjoying the

exorbitant privilege by issuing the

dominant reserve currency, such as

cheaper borrowing costs and outsized

inﬂ uence on global markets. This,

Rogoff suggests, has fueled both

American economic strength and

notable political risks.

This is a timely publication par-

ticularly during the Trump adminis-

tration, when dollar dominance was

viewed with skepticism and frustra-

tion, as the US felt that other coun-

tries were free-riding off the privilege

of using the dollar in international ﬁ -

nance. Rogoff traces the dollar’s post-

World War II ascent amid geopolitical

shifts, economic fundamentals, and a

certain degree of good fortune. This

historical account reveals how the

dollar outpaced rivals like the Japa-

nese yen, Soviet rouble, and euro due

to a unique combination of factors.

Postwar US economic strength fea-

tured deep ﬁ nancial markets, credible

institutions and reliable policies that

earned global trust. Geopolitical

leadership, reinforced by military

power and political alliances forming

a ‘dollar bloc’, anchored the dollar’s

centrality in international trade and

ﬁ nance. Dollar dominance has also

helped the US to maintain its geopo-

litical ascendance, as it allows the US

to impose economic sanctions, over-

seeing global ﬁ nancial transactions.

Dollar dominance is complementary

to military supremacy in the present

world. However, he cites US military

power as one of factors that help pro-

tect American interests and ﬁ nancial

dominance. This military-ﬁ nancial

nexus is costly but fundamental as

demonstrated by Japan being bullied

into depreciating the US dollar and

appreciating the Japanese yen in 1985

Plaza Accord owing to the former’s

large trade surplus.

The book, at time reads like a

memoirs replete with the anecdotes

from Rogoff's days as a chess player

to his sting at IMF, cautions that

America’s greatest threat to dollar

dominance is not external rivals but

internal vulnerabilities. Notably, a

rapidly rising federal debt exceeding

120 percent of GDP, political interfer-

ence compromising Federal Reserve

independence, and ﬁ scal irrespon-

sibility marked by partisan dys-

function. These factors risk eroding

conﬁ dence in the dollar’s reliability

as a global safe haven. Although the

book was ﬁ nished before the 2024

US elections, recent market turmoil

caused by as tariff-induced Treasury

sell-offs in April and dollar weaken-

ing, illustrates mounting investor con-

cerns over inﬂ ation risks and policy

unpredictability that was signalled in

the book.

Rogoff warns that the so-called

Pax Dollar era—where the dollar

underpins global ﬁ nance—is not

guaranteed to last indeﬁ nitely. The

future of the dollar, in Rogoff’s view,

is a gradual erosion rather than a sud-

den collapse. He foresees a multipolar

currency world where the dollar re-

mains ‘ﬁ rst among equals’ alongside

the euro and the Chinese renminbi.

The dollar’s decline will likely be

slow and uneven, inﬂ uenced by

global shifts such as the rise of digital

currencies and geopolitical rivals, but

also constrained by powerful network

effects and entrenched institutional

roles.

Despite these risks, Rogoff offers

a prescriptive roadmap emphasizing

ﬁ scal discipline, institutional credibil-

ity and international cooperation to

restore conﬁ dence and stability. He

also explores the potential, though

limited, threats from cryptocurrencies

and digital currencies, noting these

are unlikely to displace the dollar

imminently but could chip away at its

predominance over time. 

48 Trade Insight Vol. 21, No. 1-2, 2025

knowledge pla orm

AI, NLP and LLMs

Technological evolution, societal

impact and the need for regulation

As AI continues to evolve, it will play an increasingly central role in shaping societies,

and economies but it is important to balance innovation with ethics and sustainability.

Rupesh Tha

Artiﬁ cial Intelligence (AI) is a

comprehensive ﬁ eld of com-

puter science focused on building

systems capable of performing tasks

that typically require human intelli-

gence, such as reasoning, learning,

perception, language understanding,

and decision-making. These systems

process large volumes of data using

algorithms to recognize patterns, draw

inferences, and make decisions. It has

reshaped the modern economy by

increasing productivity, automating

jobs, creating new industries and driv-

ing innovation across sectors. At the

same time, the automation is threaten-

ing a large scale job displacement.

Branches of Artiﬁ cial

Intelligence (AI)

AI is a board and multidisciplinary

ﬁ eld, made up of several specialized

branches, each dedicated to replicating

speciﬁ c aspects of human intelligence.

Below are some of the key branches of

AI and their core contributions:

Machine Learning (ML)

and Deep Learning

ML allows systems to automatically

learn from data and improve perfor-

mance without explicit programming.

It supports applications like image

recognition, predictive analytics,

and recommendation engines, using

methods such as decision trees,

neural networks, and support vector

machines. Similarly, Deep Learning

is a specialized subset of ML, which

uses multi-layered neural networks

to process complex data like images,

audio, and text. It has powered major

breakthroughs in language translation,

speech recognition, and game playing,

using tools like TensorFlow, PyTorch,

and Keras.

Natural Language Processing (NLP)

NLP bridges the gap between human

language and computer understand-

ing. It allows machines to interpret,

analyze, and generate human lan-

guage, powering tools like chatbots,

translation apps, and sentiment anal-

ysis. Key techniques include tokeni-

zation, named entity recognition, and

machine translation though challenges

such as context and managing ambi-

guity remain.

Computer vision and Robotics

These branches focus on enabling

machines to perceive and interact

with the physical world. Computer

vision allows systems to interpret and

analyze visual inputs using techniques

like object detection and Convolution-

al Neural Network (CNNs)—applica-

tions range from facial recognition to

medical imaging. Robotics integrates

AI with mechanical engineering to

build intelligent machines that per-

form physical tasks across sectors like

manufacturing, healthcare, and space.

Robotics often relies on vision systems

and motion planning guided by AI.4

Expert systems and

cognitive computing

Both aim to replicate aspects of hu-

man expertise and reasoning. Expert

systems simulate expert-level deci-

sion-making using a knowledge base

and inference engine, commonly used

in healthcare and ﬁ nance. Cognitive

computing takes this further by mim-

icking human thought processes—un-

derstanding context, learning from

experience, and offering intelligent

insights, as seen in systems like IBM

Watson.

Fuzzy logic and

evolutionary computation

These branches help AI handle

complexity and uncertainty. Fuzzy

logic enables decision-making with

imprecise inputs, making it ideal for

control systems like washing machines

Trade Insight Vol. 21, No. 1-2, 2025

and climate control. Evolutionary

computation solves optimization

problems by mimicking natural selec-

tion processes such as mutation and

crossover, often applied in AI design

and robotics.

Swarm intelligence

This branch focuses on decentralized,

collective behavior inspired by nature.

Algorithms like particle swarm opti-

mization and ant colony optimization

are used in robotics, logistics, and

network systems for their efﬁ ciency,

scalability, and adaptability.

What is Generative AI?

Generative AI is a subﬁ eld of AI

that creats new content such as text,

images, audio, and video by learning

patterns from large datasets. Unlike

traditional AI, which typically focuses

on classiﬁ cation or prediction, gener-

ative AI generates original data that

closely resembles its training exam-

ples. This capability is fueled by deep

learning techniques, especially trans-

former models, and advanced neural

networks. In recent years, generative

AI has gained widespread popular-

ity, driving innovations in tools like

ChatGPT, DALL-E, and Gemini. These

technologies can produce human-like

text, create imaginative visuals, and

even generate videos, transforming

sectors such as software development,

entertainment, and healthcare.

AI Assistants and rapid growth

Generative AI has its origins in

early chatbots from the 1960s, like

ELIZA, which used basic rule-based

approaches. With the rise of ma-

chine learning and deep learning

techniques, generative AI took a big

leap. A key milestone came in 2014

with the introduction of Generative

Adversarial Networks (GANs), which

allowed AI to produce highly realistic

images, sounds, and videos. After

development of LLMs and advances

in NLP, the popularity of generative

AI reached new heights. These LLMs,

trained on vast amounts of internet

text, are capable of understanding

context, creating ﬂ uent text, and even

mimicking human reasoning. Modern

AI assistants such as ChatGPT, Gem-

ini, and Copilot use these powerful

models to manage complex dialogues,

offer personalized suggestions, and

automate various tasks.

Resource Implications

Generative AI systems, based on

LLMs, operate through a sequence

of critical steps. Initially, massive

datasets comprising human language,

images, and other content are collected

to serve as training material. These

datasets enable the models to learn

underlying patterns and relationships

within the data. During the mod-

el training phase, neural networks

especially transformer architectures

are employed to recognize and encode

these complex patterns. Following

training, NLP techniques such as

speech recognition, intent detection,

and entity extraction are used to

interpret and understand user inputs.

Finally, the AI generates responses or

new content by leveraging the learned

patterns to mimic human communi-

cation or creativity effectively. This

process involves transforming input

prompts into intermediate representa-

tions and decoding them into coherent

outputs, such as text or images.

The high expense and energy con-

sumption associated with generative

AI stem from several factors. The scale

of data required for training LLMs is

enormous, demanding extensive stor-

age and computational resources. The

complexi ty of these models, which

often contain billions of parameters,

necessitates powerful GPUs and

specialized hardware for both training

and inference. Additionally, running

these models in real-time applications

involves substantial ongoing energy

usage and infrastructure costs. These

factors collectively contribute to the

signiﬁ cant ﬁ nancial and environmen-

tal footprint of generative AI systems.

Future impact and risk

AI is rapidly transforming the global

landscape, impacting various aspect

of human life including economy and

political process worldwide. These

advancements present unique oppor-

tunities for growth and development,

particularly for developing nations

that can leverage AI to leapfrog infra-

structure and service delivery gaps.

As AI becomes an essential driver of

economic and technological progress,

its role in overcoming developmental

challenges is increasingly signiﬁ cant.

On the positive side, these technolo-

gies promise to improve efﬁ ciency,

enable personalized experiences,

accelerate research and development,

and democratize access to infor-

mation and creative tools. Howev-

er, alongside these beneﬁ ts come

signiﬁ cant risks and challenges. Job

displacement is a major concern, as

automation may disrupt traditional

employment patterns and require

workforce reskilling. Moreover, AI

can be exploited to create misinfor-

mation, deepfakes, and manipulated

content, posing threats to public trust

and information integrity. Intellectual

property issues arise from training

models on copyrighted data without

clear consent, raising legal and ethical

questions. Moreover, biases embed-

ded in training data can lead to unfair

or discriminatory outcomes, exacer-

bating societal inequalities.

Regulation and governance

Effective regulation and governance

frameworks are necessary to ensure

the ethical and responsible use of

AI. These frameworks should focus

on key areas such as transparency, ac-

countability, data privacy, and intel-

lectual property rights. Governments

and organizations worldwide are

working to create regulatory frame-

works that foster innovation while

safeguarding societal values such as

equity, privacy, and transparency.

Conclusion

As AI continues to evolve, it will

play an increasingly central role in

shaping societies, economies, and the

way we interact. To realize AI's full

potential, it is important to balance

innovation with ethics, inclusiveness,

and sustainability. Therefore, we

need open discussions among differ-

ent sectors, and ﬂ exible rules to make

sure AI beneﬁ ts everyone. 

Mr. Tha is Research Ofﬁ cer at SAWTEE.

50 Trade Insight Vol. 21, No. 1-2, 2025

network news

Roundtable discussion: Navigating

Nepal–US trade in uncertain times

50 Trade Insight Vol. 21, No. 1-2, 2025

SOUTH Asia Watch on Trade, Eco-

nomics and Environment (SAWTEE)

organized roundtable discussion

titled “Navigating Nepal–US Trade

amid Uncertainty”, in partnership

with Kathmandu University School

of Management (KUSOM)'s WTO

Chairs Programme, on 21 April. Dur-

ing the event, SAWTEE also shared

the ﬁ ndings of its issue note titled

“Decoding US’ reciprocal tariffs: A

Nepali perspective”.

The participants at the roundtable

shared that although additional US

reciprocal tariff is likely to affect Ne-

pal’s export of certain commodities

to the US, the impact on the national

economy is likely to be limited con-

sidering Nepal’s small export basket.

The event brought together key

stakeholders including representa-

tives from exporters' associations,

trade experts, media, academia, and

civil society. The discussion fostered

dialogue on potential policy respons-

es and collaborative strategies to

manage emerging trade dynamics.

Addressing the discussion, Dr.

Achyut Wagle, Vice Chancellor,

Kathmandu University, stated that

Nepal has not been able to create

backward linkages in prominent

export sectors, for example, we

emphasize on readymade garment

sectors but the raw materials, such

as textiles, yarns, etc., are all im-

port-dependent.

As the world appears to be

gravitating towards fragmented

trading blocs, Nepal should pre-

pare for acceding to sub-regional

and regional trading arrangements,

pointed out Dr. Posh Raj Pandey,

Chair Emeritus, SAWTEE.

Considering the possibility

of Nepal taking advantage of

relatively lower tariff to the US

compared to other countries,

private sector representatives cau-

tioned that this could make Nepal

a transhipment hub, which would

not beneﬁ t Nepal in terms of job

creation or economic activities,

but rather invite further restric-

tions to Nepali products. 

THE Sustainable Development

Policy Institute (SDPI) organized

a seminar titled “Winners and

Losers: Making Sense of Pakistan’s

New Tariff Policy” on 2 June to dis-

cuss the implications of Pakistan’s

upcoming National Tariff Policy

2025–30.

Mr. Muhammad Ashfaq, the

Joint Secretary at the Pakistan's

Ministry of Commerce, said that

the new tariff policy, delayed

earlier due to the pandemic and

ﬂ oods, aims to gradually reduce

import duties, enhance exports,

and stimulate domestic manufac-

turing. A structural shift has also

been introduced, transferring the

responsibility of customs tariffs

from the Federal Board of Revenue

(FBR) to the Ministry of Commerce

to promote policy coherence.

“Pakistan has also opened

negotiations with the US Admin-

istration to review tariffs on its

exports. Though the US is not

pressing hard on trade barriers,

its concern over trade surpluses

makes tariff rationalization a mu-

tual interest. No changes to Paki-

stan’s tariff policy are anticipated

after the conclusion of bilateral

talks,” he added.

Experts call for sector-speciﬁ c interventions

to make Pakistan's tariff policy a success

Trade Insight Vol. 21, No. 1-2, 2025 51

Trade Insight Vol. 20, No. 3-4, 2024

Workshop on

Nepal's export

prospects

IPS publication evaluates

effectiveness of government's

welfare scheme

Trade Insight Vol. 21, No. 1-2, 2025

SOUTH Asia Watch on Trade

Economics and Environment

(SAWTEE) organized a valida-

tion workshop titled “Tapping

Nepal’s Export Potential” on 28

January, as part of its ongoing

efforts to examine and enhance

Nepal’s export potential. The

workshop focused on validat-

ing the preliminary ﬁ ndings of

SAWTEE’s study on the export

sector, which explores the con-

straints to exporting, enabling

factors, and growth opportuni-

ties for goods and services ex-

ports, particularly in the IT and

tourism sectors. The analysis of

the goods sector is based on a

ﬁ rm-level survey.

The workshop brought

together policymakers, indus-

try representatives, and trade

experts to provide feedback and

insights on the study. The inputs

gained during this event will

play a crucial role in reﬁ ning

the study’s recommendations,

which aim to inform the Asian

Development Bank’s Country

Partnership Strategy (2025–2029)

and support Nepal in building

a competitive, export-driven

growth model. 

The Institute of Policy Studies of

Sri Lanka (IPS) launched a new

publication evaluating the effec-

tiveness of the Aswesuma Welfare

Programme in the wake of Sri Lan-

ka’s 2022 economic crisis, which

saw poverty levels surge from

11.3 percent in 2019 to 25 percent.

The publication titled “Estimating

Aswesuma Effectiveness,” was

authored by IPS Research Fellow

Dr. Pulasthi Amarasinghe and pre-

sented at a roundtable discussion

on 22 May.

Dr. Amarasinghe’s research

simulates how well the Aswesuma

scheme identiﬁ es poor house-

holds and assesses the predicted

impact of cash transfers on food

insecurity, debt, and labour force

participation. The study found that

Aswesuma-eligible households

were more deprived than non-el-

igible Samurdhi recipients across

22 poverty indicators. However,

it also revealed that 40 percent of

food-insecure households were ex-

cluded from the scheme, exposing

limitations in targeting transient

poverty.

Using data from the 2019

Household Income and Expendi-

ture Survey, the simulated trans-

fers predicted a 2.6 percentage

point reduction in food insecurity,

though accompanied by a decline

in labour force participation. Dr.

Amarasinghe recommended im-

proving local data veriﬁ cation, re-

ﬁ ning eligibility criteria to capture

disaster vulnerability and transient

poverty, and strengthening mon-

itoring systems to track outcomes

such as poverty graduation.

The roundtable included stake-

holders from Sarvodaya and the

Welfare Beneﬁ ts Board. Speakers

emphasized the need to include all

citizens in the social registry, im-

prove selection criteria, and unify

welfare schemes like Aswesuma

and Samurdhi under one system to

enhance targeting and delivery of

social protection. 

Speakers emphasized the im-

portance of aligning tariff structures

with economic realities and called

attention to external pressures,

including commitments under IMF

programmes. Concerns were also

raised about revenue generation,

regulatory complexity, and inﬂ ation-

ary pressures.

The seminar underscored that

while tariff reforms are necessary,

they must be complemented by

broader structural adjustments

such as improving export com-

petitiveness, fostering sectoral

integration, and ensuring effec-

tive policy execution. The event

brought together experts from

government, think tanks, and

media to debate the future of Pa-

kistan’s trade policy and its impli-

cations for sustainable growth. 

52 Trade Insight Vol. 21, No. 1-2, 2025

South Asia Watch on Trade,

Economics and Environment

(SAWTEE) is a regional network

that operates through its secre-

tariat in Kathmandu and member

institutions from ﬁ ve South Asian

countries, namely Bangladesh,

India, Nepal, Pakistan and Sri

Lanka. The overall objective of

SAWTEE is to build the capacity

of concerned stakeholders in

South Asia in the context of liber-

alization and globalization.

www.sawtee.org

Issue Note: Decoding US'

reciprocal tariﬀ s

A Nepali perspective

Author: Paras Kharel

Kshitiz Dahal

Publisher: SAWTEE

Issue Note: A Study on

Nepal-Australia economic ties

Author: Paras Kharel

Aayush Poudel

Publisher: SAWTEE

ÿÿ

ÿÿÿ

ÿÿ

ÿÿ

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