Trump’s ‘Economic Freedom Day’ and a terrified Tariff Rules Mean for South Asia

In an era when global trade diplomacy is often crafted behind closed doors with carefully calculated caution, President Donald Trump has once again shattered precedent with a thunderous declaration that upended markets, rattled allies, and threw developing economies into a storm of uncertainty. On April 2, Trump unveiled a sweeping tariff overhaul that imposed duties ranging from 10 to 50 percent on imports from more than 60 nations, including global heavyweights like China and the European Union, as well as vulnerable developing economies like Bangladesh, Pakistan, Vietnam, and Sri Lanka. Describing the moment as a reclamation of sovereignty, Trump named the day “Economic Freedom Day” for the United States and declared, “Today is very good news. The United States has been waiting for this day for a long time. Sometimes friends are worse than enemies when it comes to trade.”

This policy shift, dramatic in scope and unflinching in tone, has been interpreted by many economists and political analysts as a declaration of a new global trade war. It’s a move not just against foreign competition but also a recalibration of decades of liberal trade consensus. From Wall Street to Dhaka, and from Brussels to Hanoi, tremors of panic have spread swiftly. The U.S. stock market responded with alarm—losing over 1,679 points on the Dow Jones in a single day, marking the steepest decline in three years. In Asia, key indices including those in China and Hong Kong mirrored this tumble, with investors bracing for further shocks.

While the ramifications of Trump’s tariff tsunami are global, nowhere is the fallout more acutely felt than in South Asia—a region home to over two billion people and heavily reliant on export-led growth. Each country in this diverse but economically interlinked bloc finds itself recalibrating its trade strategies overnight.

India, the subcontinent’s economic powerhouse, finds itself facing a 26 percent tariff on its exports to the United States. While this is significantly higher than the pre-tariff average of below 2 percent, it’s still far lower than the levies imposed on several of its regional and global competitors. For instance, Vietnam faces a hefty 46 percent tariff, while China, Cambodia, and Bangladesh must now grapple with tariffs exceeding 34 percent. This discrepancy has led many observers to speculate that India may have secured a behind-the-scenes understanding with the Trump administration—possibly in exchange for reducing Indian import duties on American products to 52 percent.

This diplomatic pragmatism appears to have paid off. India’s diversified export base—spanning pharmaceuticals, jewelry, automotive parts, machinery, ready-made garments (RMG), and electronics—makes it more resilient in comparison to its neighbors. Notably, the U.S. is a crucial market for India’s jewelry industry, which exported $10 billion worth of goods in 2024, accounting for over 30 percent of its total output in the sector. While the newly imposed 26 percent tariff poses significant headwinds, particularly for smaller exporters already contending with global inflation and currency depreciation, India may still find room to maneuver.

Indeed, this may be an inflection point for India’s RMG sector. Traditionally trailing Bangladesh and Vietnam in the U.S. apparel market, India could now step into a larger share. In 2024, India exported $4.2 billion worth of RMG goods to the U.S., compared to Bangladesh’s $7.34 billion. But with Vietnam and Bangladesh now penalized with steeper tariffs, Indian manufacturers—particularly mid- to large-scale exporters—could present themselves as a reliable, cost-effective alternative. Early signs are promising: India’s RMG exports surged by 11.5 percent year-over-year in January 2025, building on a 7.6 percent rise the previous January.

If India is cautiously optimistic, Bangladesh is teetering at the edge of crisis. The country’s economic backbone—its ready-made garment industry—finds itself in peril. This sector alone employs over 4.1 million people, most of them women, and contributes the lion’s share of Bangladesh’s foreign earnings. The United States remains its single largest export market, with 2024 exports valued at $8.4 billion, $7.34 billion of which were RMG.

Under Trump’s new rules, Bangladeshi goods are now subject to a 37 percent tariff, effectively more than doubling from the previous average of 15 percent. According to Trump’s own “reciprocal tariff” doctrine—which ties U.S. tariffs to the rates that countries charge on American imports—Bangladesh’s 74 percent duty on U.S. goods warranted a full reciprocal tariff. Yet, in what Trump termed a gesture of “goodwill,” only half of that figure—37 percent—has been levied. Even so, the consequences for Bangladesh could be catastrophic.

This dramatic increase will not only reduce the competitiveness of Bangladeshi garments but also disrupt supply chains and destabilize factory operations. The timing could hardly be worse. Bangladesh is still navigating a volatile political transition following the ouster of Prime Minister Sheikh Hasina in August 2024. The garment sector, long a source of social mobility and empowerment for women, is currently beset by strikes and wage protests. Adding a sharp trade shock to the mix risks exacerbating unrest and undermining fragile political stability.

While some local experts, such as CPD Fellow Professor Mostafizur Rahman, remain cautiously hopeful—pointing out that Bangladesh’s key competitors like China, Vietnam, and Indonesia have also been heavily impacted—there’s no denying that India’s relatively modest 26 percent tariff now puts it at a price advantage. Furthermore, U.S. buyers may begin seeking more stable or strategically favored markets, even if temporarily, until negotiations or exemptions are brokered.

South Asia’s other major textile exporters—Pakistan and Sri Lanka—also face significant challenges. Pakistan, currently engulfed in a whirlwind of inflation, surging fuel prices, a depreciating currency, and dwindling foreign reserves, now faces a 29 percent U.S. tariff on its goods. The textile industry, one of the few resilient sectors in the Pakistani economy, is now under immense pressure. Given that even minor reductions in U.S. orders could lead to factory closures and mass layoffs in urban hubs like Karachi and Faisalabad, the social and economic risks are severe.

Sri Lanka’s predicament is even more stark. Still reeling from its 2022 financial collapse, the island nation now finds itself hit with a punishing 44 percent tariff—the highest in South Asia. The U.S. market accounts for more than 40 percent of Sri Lanka’s apparel exports, which totaled over $5.5 billion in 2023. With American buyers likely to scale back orders or seek more affordable suppliers, many Sri Lankan factories could be forced to shutter, further delaying the country’s fragile recovery and possibly pushing it back toward the brink of default.

Meanwhile, the region’s smaller nations—Nepal, Bhutan, Maldives, and Afghanistan—though not major exporters, are not spared from the tariff storm. A flat 10 percent tariff has been imposed on all their goods. For economies like the Maldives, where seafood constitutes a major share of U.S.-bound exports, the impact will depend on American consumer willingness to absorb higher prices. Nepal and Bhutan, which export modest volumes of leather, crafts, and tea, will also find their path to expanding U.S. market share increasingly difficult.

While these tariffs may seem moderate in comparison to the 26 to 50 percent levies faced by larger nations, for small, trade-dependent economies, even minor shifts can have oversized consequences.

Trump’s tariff overhaul was not introduced in isolation—it’s rooted in his broader “reciprocal tariff” doctrine. Under this framework, countries that impose higher duties on American goods will face mirrored tariffs from the U.S. Though Trump has exercised some restraint by imposing only half the reciprocal rate in many cases, the policy’s punitive character is clear.

Bangladesh, for example, charges 74 percent on U.S. goods. By Trump’s logic, a 74 percent tariff on Bangladeshi imports would be justified. Instead, he levied a 37 percent tariff—still more than double the previous rate. The message is unmistakable: liberal trade must be mutual, or it will be met with retaliation.

This doctrine, though applauded by some domestic constituencies in the U.S., raises complex questions about global trade fairness. Many developing countries impose higher tariffs to protect nascent industries or raise revenue. Applying reciprocal tariffs across the board may not account for these developmental realities.

This disparity has prompted speculation about high-level backroom diplomacy. Rumors suggest the Modi administration quietly negotiated concessions—possibly agreeing to lower Indian tariffs on U.S. goods in exchange for a relatively lower import duty. Though these claims are difficult to substantiate, the outcomes speak volumes.

India is poised to benefit from the fallout. As Bangladesh, Vietnam, and Cambodia lose their pricing advantage in the U.S. market, Indian RMG manufacturers can position themselves more aggressively. With an 11.5 percent year-on-year increase in RMG exports already recorded in January 2025, the timing may prove fortuitous. India’s diverse export basket may also enable it to pivot more swiftly than its neighbors.

While much of the global concern has centered on export markets, it’s worth remembering that American consumers are also staring down the barrel of higher prices. The U.S. retail economy is deeply reliant on foreign supply chains. From electronics to apparel, the average American household consumes goods that travel through complex, multinational production webs.

The 25 percent tariff on foreign cars, for instance, may not lead to cheaper American-made vehicles. U.S. auto manufacturing still relies heavily on global components—many of which will now be subject to tariffs as high as 52 percent. As a result, the cost of producing even domestically assembled cars is likely to rise. Companies like Apple, Amazon, and Walmart have already seen stock values tumble between 6 and 7 percent, reflecting investor anxiety.

Though the U.S. has institutional buffers that may cushion the consumer impact over time, developing nations do not enjoy such luxuries. For them, even temporary shocks can morph into structural crises.

There is no doubt that Trump’s tariff gambit is a high-stakes play. It aims not only to address the $35.8 trillion national debt and a ballooning trade deficit—$656 billion with China, the EU, and Vietnam alone—but also to lure manufacturing back to U.S. soil. Labor unions such as the United Auto Workers have praised the policy, seeing it as a long-overdue corrective to outsourcing and deindustrialization.

However, for the global South—and South Asia in particular—the challenge now is to respond with speed, diplomacy, and strategic clarity. While tariff hikes have upended short-term competitiveness, they have also created unexpected opportunities. With Southeast Asia and China bearing the brunt of punitive tariffs, South Asia has a window to reclaim market share. But this requires coordinated policy action, internal reforms, and agile trade diplomacy.

Governments must actively engage with Washington to negotiate exemptions or reduced rates. They must also explore new markets, strengthen domestic industries, and support sectors like garments and electronics through fiscal and infrastructural measures.