Imagine your livelihood disappearing overnight. That's the fear gripping Nepali garment manufacturers right now as major global apparel brands are hitting the brakes on planned investments, throwing the future of the industry into serious doubt. But why the sudden change of heart? Buckle up, because it's a complex cocktail of political turmoil, international trade wars, and a dash of good old-fashioned uncertainty.
Kathmandu on Edge: Political Unrest Spooks Investors
Following the disruptive and sometimes violent Gen Z protests that rocked Nepal in early September of 2025, international clothing giants, including Indian brands that export heavily to the US, are rethinking their expansion plans in Nepal. These brands, once eager to tap into Nepal's lower tariffs, are now hesitant due to concerns about the country's stability.
Pashupati Dev Pandey, president of the Garment Association of Nepal (GAN), the leading organization for garment manufacturers and exporters, voiced the industry's anxiety: "Potential investors are demotivated and in a dilemma after the Gen Z protest." The burning of luxury hotels in Kathmandu, including well-known establishments like the Hilton Kathmandu, Hyatt Regency, and Hotel Varnavas, has amplified fears about investment security. Imagine witnessing such destruction; it's understandable why businesses are getting cold feet.
The US-India Trade Tango: A Waiting Game
But here's where it gets controversial... Political instability isn't the only factor. A US trade delegation is currently in India, engaged in crucial tariff negotiations. This ongoing process, expected to conclude by November, has further fueled a "wait-and-see" approach among potential investors, according to Pandey. They're holding their breath, hoping for a favorable outcome that could dramatically alter their investment strategies.
Pandey warns, "If the ongoing trade negotiations between India and the US end positively, international clothing brands operating in India as well as Indian brands might not come to Nepal to explore business." In other words, a successful trade deal between the US and India could negate the very reason these brands were considering Nepal in the first place.
Indian media reports indicate that Commerce Minister Piyush Goyal has confirmed that India is in advanced discussions with Washington. Rumors suggest that a potential deal could significantly reduce US tariffs on Indian exports, perhaps from a hefty 50 percent to a much more manageable 15 percent. This would level the playing field and potentially eliminate Nepal's competitive advantage.
The Allure of Nepal: A Tariff Haven... For Now?
Previously, global brands with established manufacturing operations in India – think GAP, Puma, Nike, and Zara – were exploring shifting some of their production to Nepal. This interest stemmed from the US imposing substantial tariffs on Indian goods. Several Nepali businesses confirmed this trend before the Gen Z protests erupted.
Last year, the US slapped 50 percent tariffs on a wide range of Indian products, including textiles, apparel, gems, jewelry, leather goods, footwear, marine products, chemicals, and automobile components. In contrast, goods imported from Nepal face a much lower tariff of only 10 percent. This significant difference made Nepal an appealing alternative for apparel manufacturers seeking to mitigate the impact of the US tariffs.
Trump's Trade War: A Global Ripple Effect
Washington's tariffs were initially imposed as retaliation against India's continued purchases of Russian oil. This was part of former (and current) US President Donald Trump's broader strategy to pressure Moscow to end its war in Ukraine. Since returning to the White House, Trump has increasingly wielded tariffs as a powerful economic weapon, causing disruptions to global trade patterns.
Reports indicate that India's goods exports to the US – its largest export market – plummeted by 20 percent in September and nearly 40 percent over the preceding four months after the tariffs took effect. This economic pain is a clear indicator of the impact of the trade war.
Nepal's Garment Exports: A Troubling Decline
According to the Trade and Export Promotion Centre, Nepal's readymade garment exports have already suffered, falling by 10.22 percent to Rs2.51 billion in the first three months of the current fiscal year (ending mid-October). In the previous fiscal year, the country exported 15.88 million pieces of garments, generating Rs8.75 billion in revenue.
The Garment Association of Nepal attributes this decline partly to reduced production during festive holidays and the recent political unrest. However, the underlying uncertainty surrounding future investments undoubtedly plays a significant role.
A Glimmer of Hope?
And this is the part most people miss... Nepali manufacturers remain cautiously optimistic. They believe that if the US and India fail to reach a tariff agreement, US buyers may turn to Nepal. The new, higher tariffs would make Indian and other markets less competitive, potentially driving business towards Nepal.
Pandey noted that the demand for readymade garments in the US is expected to rise by 10-15 percent following the 50 percent tariff hike. "With the potential increase in demand, domestic producers have been investing to expand their capacity," he explained. This proactive approach suggests that Nepali manufacturers are preparing for a potential surge in orders.
The Dark Side: Transhipment Concerns
Producers have also emphasized the critical need to prevent transhipment practices. The US has issued stern warnings, stating that it will impose severe penalties if such cases are discovered. Transhipment, which involves rerouting goods through a third country without significant processing to evade tariffs, is illegal and can result in hefty fines and even imprisonment. Nepal currently lacks a comprehensive legal framework to address transhipment effectively, making it vulnerable to this illicit activity.
Beyond Garments: Gold and Silver Shine
Interestingly, Indian gold jewelry producers have also expressed interest in exploring the Nepali market following the tariff hike. Arjun Rasaili, president of the Federation of Nepal Gold and Silver Dealers Association, confirmed that some Indian jewelry makers have made preliminary inquiries, although "nothing concrete has come from their side" yet.
Exports of silver jewelry from Nepal increased by 29.35 percent to Rs68.41 million in the first three months of the current fiscal year, while gold jewelry exports rose by 16.70 percent to Rs10.64 million. In the last fiscal year, Nepal exported silver jewelry worth Rs178.71 million and gold jewelry worth Rs47.87 million. Silver jewelry was primarily exported to the US, followed by France, Germany, Italy, and Japan, while gold jewelry was primarily exported to the US. This suggests a growing potential for Nepal to become a significant player in the precious metals market.
The Million-Dollar Question
So, what does the future hold for Nepal's apparel industry? Will the political stability improve, reassuring investors? Will the US and India reach a trade agreement that levels the playing field? Or will Nepal emerge as a key beneficiary of the ongoing trade war, attracting new investments and boosting its exports? What are your thoughts on how Nepal can navigate these challenges and capitalize on potential opportunities? Do you think the risk of transhipment outweighs the potential benefits of increased trade? Share your opinions and insights in the comments below!
