Regionomics: South Asia can turn the tide on Trump tariffs

With its terrifying abrupt escalation and then a dramatic temporary pause, the unprecedented tariff tirade unleashed by the United States on the world in April, has hit South Asia too. Markets have tumbled wholescale and are struggling to recover. Governments are nervous. Billions of dollars in investments and tens of millions of jobs are at stake. Everyone is on edge.

South Asia has reasons to be extremely worried. Asia is the world’s largest region by population at 4.7 billion of which South Asia’s share is over 2 billion, making it the second largest even after rest-of-Asia combined. South Asia has a combined economic size of over $5 trillion, the largest after rest-of-Asia’s $45 trillion, Europe’s $26 trillion and North America’s $30 trillion. Before he put a 90-day pause on his own blitzkrieg, some of President Trump’s highest tariffs were imposed on South Asian states – 44 percent on Sri Lanka, 37 percent on Bangladesh, 29 percent each on Pakistan and Nepal and 26 percent on India.

These rates are unbearable for the short-to-midterm for these states. Even if the tariffs have been paused for now, they hang over the South Asian economy like Damocles’ sword. A 10 percent uniform tariff remains in place on each country until Trump determines to restore the higher rates or reduce them.

South Asia must stop being the last major region on the planet to not only ignore but to actively undermine its own large local market and massive trade potential. 

Adnan Rehmat

For some countries, like Pakistan, the US is the largest bilateral trade partner with the most to lose. While each country in South Asia scrambles to mount individual strategies to counter the tariff blow, the region should think long term. A better option would be a collective regional response that may not only cushion the individual blows but also unlock a collaborative parallel ‘regionomics’ that may convert this crisis into a major opportunity.

While this is easier said than done given messy regional conflicts and sometimes polar political priorities, there are strong economic incentives that make this almost imperative. The total exports from South Asia to the US in 2024 were $83.6 billion while their collective imports from the US were $43.8 billion. This is a deficit of about $40 billion – which triggered the punitive tariffs in the first place.

Assuming that, after the pause, Trump keeps the tariffs in place on South Asia, can the region address its imperilled $40 billion export income by improving regional trade instead?

Intra-regional trade among the eight South Asian countries remains notably low, accounting for barely 5 percent of the region’s total trade with the world. This is significantly less than other regional blocs, such as the European Union trade with the rest of the world at 68 percent, North America Free Trade Agreement (NAFTA) over 40 percent and Association of South East Asian Nations (ASEAN) at 27 percent.

According to a World Bank report, intra-regional trade in South Asia is estimated at $23 billion. It suggests that by reducing trade barriers, intra-regional trade in South Asia could triple to about $67 billion. This implies a potential increase of $44 billion from the current levels which can cover the potential $40 billion loss of business risk under the Trump tariffs.

That the region is good at ignoring the massive regional market in its own backyard is illustrated by the Pakistan-India trade case. Underwritten by poor political and diplomatic ties, their bilateral annual trade average has been around $2.5 billion over the past decade. The World Bank says if they became ‘normal neighbors’ their bilateral trade has a potential of reaching $37 billion.

Clearly South Asia must stop being the last major region on the planet to not only ignore but to actively undermine its own large local market and massive trade potential. The Trump tariffs should become an opportunity to address this historic wrong.

But how to do this? A long-running political and diplomatic stalemate between Pakistan and India has crippled the South Asian Association for Regional Cooperation (SAARC) that prohibits bilateral disputes from being raised and has prevented the mandated annual summits for many years.

The tariff crisis is an issue that should find common cause for SAARC states to reinvigorate the Association to its core objective of collective welfare and economic integration. To sidestep reluctance by Pakistan and India to convene a meeting, any other members individually or collectively should convene a SAARC meeting of trade ministers to discuss means of collectively dealing with the tariffs through regional trade and a roadmap for regional integration. 

– Adnan Rehmat is a Pakistan-based journalist, researcher and analyst with interests in politics, media, development and science.

X: @adnanrehmat1