International readymade garment brands operating in India, including Indian labels exporting to the United States, have begun exploring Nepal as a potential investment and production hub, according to multiple sources familiar with the matter. Nepali garment manufacturers also confirm that Bangladeshi investors have been visiting Nepal with similar interests.

The sudden wave of interest follows US President Donald Trump’s decision to impose steep tariffs—50 percent on Indian exports and 20 percent on Bangladeshi exports to the US. However, a US appeals court on Friday termed Trump’s blanket tariffs illegal.

In contrast, goods imported from Nepal face only a 10 percent tariff, making the country an attractive alternative for global apparel players.

With this tariff advantage, Indian garment companies are holding discussions with Nepali stakeholders to explore operational models. The 50-percent levies on a wide range of Indian goods entering the US took effect last Wednesday.

Washington imposed the duties in retaliation for India’s heavy purchases of Russian oil, part of Trump’s broader strategy to put pressure on Moscow to end its war in Ukraine.

Since returning to the White House this year, Trump has increasingly used tariffs as a sweeping economic weapon, rattling international trade.

In India, the duties now reach as high as 50 percent on garments, gems and jewellery, footwear, sporting goods, furniture, and chemicals—placing them among the highest anywhere, rivaling only Brazil.

Industry insiders say if international brands in India, along with Indian exporters, shift their production to Nepal, the move could provide a major boost to Nepal’s struggling economy.

Such investment would not only help reduce Nepal’s ballooning trade deficit but also multiply garment exports to the US by as much as 700 times.

According to Reuters, the US remains India’s top export market. In 2024 alone, shipments reached $87.3 billion, including nearly $22 billion worth of garments and jewellery.

India currently commands a 5.8 percent share of the US garment market, trailing China, Vietnam, and Bangladesh.

Analysts warn that up to a quarter of India’s textile exports may take a hit in the next six months, as exporters grapple with widespread order cancellations. For many Indian producers, Nepal has suddenly emerged as a short-term refuge.

“Several Indian garment companies are actively exploring the possibility of establishing factories in Nepal, while others are looking into partnerships with local producers to enhance capacity for exporting to the US,” Pashupati Dev Pandey, president of Garment Association Nepal, told the Post.

International brands that have traditionally manufactured in India—such as GAP, Puma, Nike, and Zara—are among those showing interest in relocating part of their production chain to Nepal, said Pandey.

“If possible, Indian readymade garment companies want to begin investing within six months. Some may collaborate with Nepali firms, while others could operate independently. They are currently reviewing the legal procedures, and we are ready to support them,” Pandey added.

In his first remarks since Washington imposed the new tariffs, Indian trade minister Piyush Goyal told a construction industry gathering in New Delhi on Friday that India “will not bow down” to US pressure and will instead focus on expanding into new markets.

However, officials in Kathmandu say there have been no formal inquiries. “The Department of Industry has not received any inquiries or foreign direct investment proposals from Indian garment companies,” said Prashant Bohara, director of the department’s Foreign Investment and Technology Transfer Section.

Still, industry insiders warn of possible risks.

With Indian exporters already sitting on huge stockpiles of garments meant for the US market before the tariff hike, some reportedly eye Nepal as a potential backdoor. “There are concerns they may try to ship goods via Nepal using counterfeit ‘Made in Nepal’ labels to disguise the country of origin,” one source said.

The garment association has raised this issue with the Ministry of Industry multiple times, warning that Nepal’s open border with India and proximity to China heightens the risk of illegal transhipment.

Such practices—rerouting goods through a third country without substantial processing to avoid tariffs—are unlawful and can attract severe penalties, including fines and prison terms for both importers and exporters. Nepal currently lacks a legal transhipment policy.

In response, the industry minister has pledged to form a joint task force comprising government and private sector representatives to curb the possibility of illegal transhipment.

Nepal’s garment sector, once the crown jewel of the country’s export industry, has long been in decline.

In the early 2000s, readymade garments were Nepal’s top foreign currency earner. At its peak around 2000, the industry exported goods worth Rs12 billion annually. But the collapse began after the Multi-Fibre Agreement—which had guaranteed duty-free access to Nepali garments in the US—expired in January 2005.

The fierce global competition unleashed by the World Trade Organisation’s Agreement on Textiles and Clothing, which ended on December 31, 2004, delivered a further blow to Nepal’s apparel industry. The country’s exports had already been suffering from the Maoist insurgency and the economic downturn following the 9/11 attacks, but the removal of quotas pushed the sector to the brink.

Between 2000 and 2007, Nepal’s garment export earnings fell at an average annual rate of 14.2 percent, and between 2005 and 2007 the decline accelerated to 21.2 percent. In the US market alone, the drops were 18.5 percent and 28.4 percent, respectively, during those years, according to one report.

Before the collapse, the industry had provided jobs to half a million Nepalis. More than 85 percent of garment factories—including most of the country’s major producers—have since shut down. Until 2002, nearly 87 percent of Nepal’s garment exports were destined for the US.

The downward spiral continues. In the last fiscal year, Nepal’s garment exports shrank by 2.39 percent.

The Trade and Export Promotion Centre reports that Nepal exported 1.58 million pieces of readymade garments worth Rs8.75 billion during the year, contributing only 3.2 percent of the country’s total export earnings.