By Nirmal P. Acharya

On April 2, the US announced a new list of tariffs, launching a tariff war against the entire world.

Less than 48 hours later, China announced countermeasures of equal magnitude. Firstly, it imposed a 34% tariff on all goods imported from the US. Then, it targeted the US military industry and the new energy industry by imposing restrictions on rare earths, listing entities on the “blacklist”, and implementing technological blockades. At the same time, it expelled US enterprises from the Chinese market.

Moreover, US President Donald Trump in response to the Chinese tariff hike on US products, stated that if China doesn’t withdraw the 34% increase in tariff by April 8, the US will increase the tariff by 50% effective from April 9. Furthermore, President Trump has warned of terminating the Chinese request for talks. Clearly, China is no longer afraid of breaking up relations with the US, nor is it afraid of confronting the US head-on, nor is it afraid of directly clashing with the US.

China’s counterattack against the US tariff war is reshaping the global economy and geopolitical landscape. This process has a complex double-edged effect on Nepal, and its strategic opportunities and potential risks require in-depth analysis from multiple perspectives:

I. Power Vacuum and Regional Integration in the Reconstruction of Global Landscape

1. Supply Chain Decentralization Wave: The global industrial chain is transforming from the “China factory + Europe and America consumption” dual structure to “regional manufacturing centers + local supply”. The data showing that Southeast Asian countries attracted 15% more foreign investment in 2022 hides the opportunity for South Asian countries to replace labour-intensive industries such as textiles and electronic assembly. Nepal can take advantage of its labor cost advantage (the average wage in manufacturing in 2023 is only 65% of that in India) and undertake industrial transfer in specific fields.

2. Strategic Value of the Digital Silk Road: China’s breakthrough in digital infrastructure (Huawei’s deployment of 5G base stations in “Belt and Road” countries increased by 40% in 2023) offers Nepal an opportunity for a “U-turn” and leapfrog development. If the cross-border optical cable project between China and Nepal can be realized, it will reduce the operating costs of Nepal’s data centers by 30%, making Nepal a digital hub in South Asia.

II. Leveraging Effects in the Geo-economic Chess Game

1. Transit Economy 2.0 Version: After the completion of the China-Nepal Railway, Nepal is expected to transform from a “landlocked country” to a “land-linked country”, with the freight transportation time shortened by 80%. However, it is necessary to be vigilant that India may strengthen its control over Nepal’s transportation channels through the “Eastward Policy 2.0”, such as the recent dispute over the standardization of railway track gauges across borders.

2. Ecological Premium in the Era of Carbon Tariffs: After the implementation of the EU’s CBAM mechanism, Nepal can establish a zero-carbon industrial zone by virtue of its 98% share of hydropower as a clean energy source (data for 2023). If it collaborates with China’s new energy industry (for instance, the partnership between Trina Solar and Nepal), it can generate an annual export increment of 500 million US dollars.

III. Strategic Hedge Space in a Multipolar System

1. Digital Currency Corridor Experiment: The collaboration between the Central Bank of Nepal’s digital currency pilot project and the digital RMB may usher in a new paradigm for cross-border settlement. However, it is necessary to guard against the financial compliance pressure imposed by the US through the SWIFT system. In 2023, Nepalese commercial banks suffered trade losses of up to 240 million US dollars due to delays in US dollar settlement.

2. Climate Geo-Political Benefits: Monitoring Data of Himalayan Glaciers Becomes Strategic Asset for Global Climate Negotiations. If Nepal takes the lead in establishing a regional climate data center, it can receive support from the International Climate Fund amounting to 300-500 million dollars annually. However, it needs to balance the competition for dominance in climate science between China and India.

IV. Key Areas for Risk Prevention and Control

1. Debt Traps 2.0 Version: The traditional infrastructure debt risk is transforming into “digital debt” risks. The Nepalese government needs to establish a full life-cycle assessment system for digital projects to avoid the risk of technological lock-in in 5G network construction.

2. Non-traditional security challenges: The potential cyber security loopholes brought about by the electronicization of border crossings between China and Nepal might lead to a 300% increase in cyber-attack incidents annually. It is necessary to draw on China’s “Digital Border” security system and establish a multi-layer protection mechanism.

In this complex situation, Nepal can adopt a “three-dimensional strategy”: build a cross-Himalayan economic corridor in the physical space, establish a regional cloud service center in the digital space, and innovate multilateral cooperation mechanisms (such as the China-Nepal-India Tripartite Climate Fund) at the institutional level. This three-dimensional strategy can not only expand the geographical adjacency advantages but also avoid traditional geopolitical risks. It may become a new paradigm for small countries to achieve strategic breakthroughs in the game of major powers.