US Policy and Nepal’s Choices

The world economic order is entering one of the most volatile decades in modern history. The United States, still the world’s largest economy and the anchor of the global financial system, is confronting unprecedented fiscal and political pressures, even as China expands its global influence through the Belt and Road Initiative (BRI) and the growing BRICS+ grouping. Trapped in between these tectonic movements are small economies like Nepal, tasked with navigating an increasingly fragmented trading landscape without compromising their own development agendas.

For Nepal, the US–Nepal trade alliance under the 2011 Trade and Investment Framework Agreement (TIFA) offers both stability and strategic potential. But during a period marked by tariff rebalancing, debt concerns and shifting global alliances, Nepal’s ability to turn this partnership into a driver of growth will depend on clear policy objectives and disciplined execution.

The United States in Transition

US debt has surpassed $36 trillion, with a debt-to-GDP ratio exceeding 120%. Rising budget deficits have prompted a return to protectionist policies, including higher import tariffs, tax incentives to reshore industries and stricter measures to curb trade deficits. While aimed at revitalizing domestic production and securing supply chains, these policies also introduce instability to the global system. Smaller economies reliant on US markets often feel the impact first.

New policies, most visibly tariff hikes and incentives, reflect the political arithmetic of "America First" economics. Intended to fortify domestic industries and reduce dependence on imports, these policies are typically tough on foreign trade partners. The new American protectionism, at times wielded as a geopolitical tool, extends to the developing world through spillover effects. For Nepal, whose exports of pashmina, handloom carpets, apparel and jewelry depend heavily on US consumers, sudden policy turnarounds can derail hard-won market access. "The US market remains central to Nepal's exports, but staying competitive requires continuous innovation," say trade analysts. "Nepal must move beyond traditional products and keep up with changing consumer sentiments on sustainability and ethical trade."

A Retreat from Multilateralism

Once the architect of global trade order, the US has now become selective in its diplomacy. Withdrawals from multilateral agreements and disputes within the World Trade Organization (WTO) have created uncertainty for smaller economies dependent on rules-based trade. This vacuum has been filled, in part, by regional players like BRICS and Chinese-led financial structures. For Nepal, continued engagement under TIFA is essential to secure market access, ensure investment transparency and guarantee fair dispute resolution in US trade relations.

Nepal at the Crossroads

The United States remains Nepal's most significant trading partner. According to the Office of the US Trade Representative, bilateral trade reached nearly $350 million in 2022, with Nepal exporting nearly $230 million worth of carpets, apparel, jewelry and handicraft products and importing $120 million in machinery, agricultural products and pharmaceuticals. Despite these encouraging figures, Nepal continues to face a trade deficit. Limited industrial capacity, high transport costs and low export diversification have constrained growth. However, duty-free access to 77 Nepali goods under the US Trade Preferences Act, 2016 has provided exporters with a small but significant window of opportunity.

The Need for Diversification

Nepal’s export basket remains narrow and dominated by traditional goods. To move forward, the country must invest in product innovation and value addition—for instance, in organic coffee and tea, herbal and wellness products, value-added foods, handmade paper and green fashion. A promising frontier lies in e-commerce and IT-enabled services. As the United States increasingly outsources technology services, Nepal’s growing pool of skilled youth and its emerging start-up ecosystem could benefit if the country strengthens its ICT infrastructure and intellectual property regime. "The future of Nepal-US trade should be knowledge, technology and innovation-driven, not handicraft products," says Dr Biswas Gauchan, an economist at the Institute for Integrated Development Studies (IIDS).

Investment and Institutional Reform

The TIFA Council, established to address trade and investment bottlenecks, has remained largely dormant. Nepal must revitalize it into a living policy instrument, not just a formal dialogue platform. The policy agenda should prioritize streamlining procedures for investment and profit repatriation, upgrading trade data systems and electronic clearing mechanisms, equipping testing and certification laboratories to meet US non-tariff standards, and promoting public–private partnerships in logistics, IT and energy. Emerging trends point to increasing US interest in Nepal's SME sector, hydropower and digital economy. Investment in these areas could lay the foundation for deeper bilateral trade and facilitate technology transfer.

Scheduling the Geopolitical Chessboard

Diplomacy with China and India must be carefully managed. While both neighbors are valuable trading partners, alignment with the US brings strategic diversification and value-added market access. Projects like the Millennium Challenge Corporation (MCC) have already demonstrated the potential of US collaboration in infrastructure and energy connectivity. If augmented by stronger trade policy, such initiatives could integrate Nepal more effectively into global value chains without compromising sovereignty. Ultimately, pragmatism, not geopolitical orientation should guide Kathmandu’s choices.

Toward a Balanced Global Future

In today’s rapidly evolving multipolar world, Nepal cannot afford to remain a bystander. As BRICS nations search for alternatives to the US dollar, smaller economies like Nepal must remain financially stable through strong integration with the US and Western economies. Given Nepal's heavy dependence on remittances, accounting for over 20% of GDP, and high import of consumption, access to stable US currency and markets is vital. For the US, expanding engagement with smaller Asian democracies aligns with its strategic and soft power interest.

A Five-Point Partnership Agenda

To move from rhetoric to action, Nepal and the US can pursue an operational five-point agenda:

1. Re-energize the TIFA Mechanism: Hold biennial policy reviews with quantifiable deliverables.

2. Activate Nepal–US Business Forums Active: Engage investors, entrepreneurs and diaspora leaders, while revitalizing platforms like the Nepal-US Chambers.

3. Expand Skills and Education Exchanges: Launch structured student and labor mobility programs.

4. Promote Green and Digital Trade: Connect US investors with Nepal's IT and renewable energy sectors.

5. Develop Regional Integration: Collaborate on SAARC and BIMSTEC trade corridors with US technical assistance. 

Nepal can also leverage the Nepali Diaspora by mobilizing 200,000-strong community in the US as goodwill ambassadors for technology, tourism and culture. These steps would transform bilateral goodwill into tangible outcomes by creating exports, employment and investment flows.

Navigating a New Economic Reality

As the US reconfigures its global strategy through tariffs, selective diplomacy and sectoral subsidies, smaller nations like Nepal must respond with clarity and purpose. The emerging world order, marked by US- China rivalry and new regional blocs, presents both challenges and opportunities. Nepal's challenge is not to take sides but optimize opportunities. Through practical engagement with the US, active participation in TIFA and consistent policy reforms, Nepal can transform its trade relations into a bridge for sustainable development.

In the midst of this period of geopolitical flux, the US- Nepal relationship is a quiet but firm example of how smaller nations can leave their imprint in the global economy through diplomacy, diversity and dialogue. As Washington reshapes its global strategy using tariffs, selective diplomacy and technical reorientation, Nepal needs to rise to the challenge with speed and vision.

The future of this relationship lies not in traditional models of aid but in trade-based cooperation, based on innovation, entrepreneurship and shared prosperity. Nepal must evolve from an aid recipient to a growth partner. By extending the relationship with TIFA, energizing the private sector and matching national policy with international direction, Nepal can turn a small trade relationship into a cornerstone of long-term strength. The future is not about being lined up against somebody, but to stand for a strategy that balances diplomacy and development, trade and technology, and ambition and caution.

This opinion was first published in the November 2025 edition of New Business Age magazine.