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South Asia's Economic Resilience Under Threat from US Protectionism

Strategic Insights

— 2 min read

The World Bank's forecast warns of a slowing down of South Asia's economy, with growth expected to decline from 6.4 percent to 5.8 percent by 2026, largely due to the resurgence of US trade nationalism under President Donald Trump. The US has imposed heavy tariffs on South Asian exports, including 50 percent on Indian goods, 20 percent on Bangladeshi products, and 20 percent on Sri Lankan exports. This move echoes the 1930 Smoot-Hawley Tariff Act, which led to a global trade collapse and deepened the Great Depression. History is repeating itself, with protectionism causing uncertainty and disrupting supply chains.

Key Takeaways:

  • The US's protectionist policies are expected to shave 0.2-0.3 percentage points off India's growth by 2027, from 6.5 percent to 6.3 percent.
  • India contributes more than 75 percent of South Asia's GDP, and its slowdown will inevitably drag down the region's smaller economies.
  • Bangladesh faces its biggest test, with US tariffs threatening its largest market and putting millions of jobs at risk.
  • Sri Lanka's fragile recovery is at risk as it now faces rising import costs and reduced export margins.
  • Protectionism is eroding faith in globalization, leading to higher food prices, fewer jobs, and waning purchasing power for ordinary South Asians.
  • To endure, South Asia must reduce dependence on the US market and strengthen regional trade, deepen ties with the Association of Southeast Asian Nations and the Middle East, and join partnerships like the Regional Comprehensive Economic Partnership.

Statistics:

  • South Asia's growth is expected to decline from 6.4 percent to 5.8 percent by 2026.
  • US tariffs on South Asian exports include 50 percent on Indian goods, 20 percent on Bangladeshi products, and 20 percent on Sri Lankan exports.
  • India's growth is expected to decline from 6.5 percent to 6.3 percent by 2027.
  • South Asia's GDP is dominated by India, contributing more than 75 percent of the region's GDP.
  • 75 percent of Bangladesh's exports go to the US market.
  • Sri Lanka's import costs are expected to rise due to US tariffs.
  • Inflation, inequality, and fragmented labor markets are eroding faith in globalization.

Sources:

  • The World Bank's latest forecast report (no date mentioned)
  • Trump's tariffs on South Asian exports (no specific date mentioned)
  • The Smoot-Hawley Tariff Act of 1930 (no specific date mentioned)
  • Finance Minister Nirmala Sitharaman's claims about India's ability to absorb US tariffs (no specific date mentioned)
  • The World Bank's warning about Bangladesh's potential loss of competitiveness (no specific date mentioned)
  • The IMF's support for Sri Lanka's fragile recovery (no specific date mentioned)

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