US tariff on Bhutan’s exports likely to have minimal impact: ADB

YK Poudel

Despite the United States (US) imposing a 10 percent export tariff on Bhutanese goods and commodities, its impact is expected to be minimal.

According to an economics officer with the Bhutan Resident Mission, Asian Development Bank, Sonam Lhendup, the impact would be minimal, directly or indirectly.

Going through the four years’ export figures of Bhutan with the US, he said that the export to the US accounts for mere 0.1 percent of Bhutan’s gross domestic product.

However, uncertainty remains regarding the exact tariff rate Bhutanese exports will attract.

While the baseline is 10 percent, Sonam Lhendup said that the US has previously imposed a 25 percent tariff on all imports of aluminum, steel, and cars. Bhutan’s primary export to the US is ferrosilicon, constituting 80 percent of its shipments.

Indirectly, the trade dynamics between the US and India, a major trading partner for Bhutan, could play a role.

“If US-India trade negotiations negatively impact Indian steel companies, it could potentially have a ripple effect on Bhutan, although this impact is estimated to be around 3 percent,” Sonam Lhendup said. About 60 percent of  Bhutan’s exports to India is ferrosilicon.

According to the Bhutan Trade Statistics 2024, Bhutan exported goods and commodities worth Nu 368.15 million, with the US being the sixth largest export market among 23 countries.

Conversely, the US ranked 14th for imports into Bhutan, which amounted to Nu 253.28 million, resulting in a trade surplus of Nu 114.87 million for Bhutan.

Bhutan exported Nu 366.1 million worth of ferrosilicon last year, alongside smaller quantities of cordyceps, mineral water, and household goods.

At the same time, Bhutan’s import from the US includes medical equipment, plastics, tea, vitamins, chocolate, cookies, soap, glues, bags, clothing, shoes, life jackets, glassware, fake jewelries, motor and engine parts, metal detectors, bicycles, airplane parts, medical sterilisers, among others, including alcoholic beverages worth Nu 14.05 million.

The 10 percent tariff, a tax levied on Bhutanese goods entering the US, is a consequence of the new trade policy unfurled by US President Donald Trump on April 2, this year.

Trump hailed the policy as a “declaration of economic independence” aimed at restoring the US economy. The tariffs were calculated based on a country’s trade deficit with the US relative to the value of goods imported.

Bhutan along with about 190 countries are charged varying degrees of trade tariffs.

The economists and entrepreneurs raise concerns that potential price increases in Bhutan due to a stronger USD and the possibility of Bhutan diverting exports to new markets

An economist said, “Once the tariffs are in place, the value of the dollar could rise, which would mean the cost of imports for Bhutan could increase, leading to higher prices for consumer goods in Bhutan. Bhutan might also start diverting exports to other new markets and reduce exports to the US.”

A private businessman said that this tariff rate might affect the living standards in the country.

“There is already an issue of rising inflation, and the pay scale has not helped to solve it. This new tariff policy, in the short term, may exacerbate economic disparity, creating a larger gap within the country’s labor force,” he added.

The US tariff policy has drawn criticism globally, with reports of falling stock markets and condemnation from various world leaders. Major economies like China, the European Union, the United Kingdom, and Canada are reportedly considering countermeasures.

While President Trump announced a 90-day pause on higher tariffs for some countries on April 9, trade tensions with China have escalated, with both nations imposing retaliatory tariffs. Currently, the US has imposed a 125 percent import tariff to China, while China has imposed a 145 percent tariff on import of US goods.

Bhutan, along with Afghanistan, the Maldives, and Nepal, whose export volumes to the US are minimal, will face the 10 percent tariff.

In comparison, larger economies in South East Asia like India and Bangladesh now face significantly higher tariff rates of 26 percent and 37 percent, respectively,  under the new US policy.