By M A Hossain
The World Bank’s latest forecast carries a tone of restrained alarm. South Asia — a region that once symbolized post-pandemic economic resilience — may soon find its momentum checked. The culprit, once again, is protectionism. The Bank now projects South Asia’s growth to slow from 6.4% to 5.8% in 2026, attributing the dip primarily to a surge in US tariffs and the cascading effects of Washington’s revived trade nationalism under President Donald Trump.
The numbers tell a story of friction — but the deeper narrative is about power and vulnerability in an age of geopolitical egoism. The very global economy that South Asia helped fuel with low-cost labor and nimble manufacturing is now turning on it.
The US has imposed sweeping tariffs — 50% on most Indian imports, 20% on Bangladeshi goods, and 20% on Sri Lankan exports. The justification: to punish nations trading with Russia or running persistent surpluses with the United States. Yet, as with so many blunt instruments in economic diplomacy, these measures hit the innocent harder than the intended targets.
For South Asia, the timing could hardly be worse. The region had only recently begun to recover from the pandemic’s disruptions and the global energy shocks of 2022. Now, the very economies that rebuilt themselves through trade — particularly Bangladesh’s textile hub, India’s pharmaceutical and auto industries, and Sri Lanka’s apparel exports — face an external shock that no stimulus package can easily cushion.
Bangladesh’s garment sector, the world’s second-largest after China’s, relies heavily on imported yarns, machinery, and dyes. Tariffs on these materials will inflate production costs, making exports less competitive. For millions of Bangladeshi workers — mostly women — even a modest decline in export demand can mean layoffs, reduced wages, or factory closures. It is a cruel irony: the very nations that preach economic freedom are now undermining the livelihoods of those who supply their consumers with affordable clothing.
This is not the first time the world has flirted with protectionism. The Great Depression of the 1930s deepened after the US passed the Smoot-Hawley Tariff Act, raising duties on over 20,000 imports. The logic then was eerily familiar — protect American jobs, punish unfair traders. The result was catastrophic. Global trade collapsed by nearly 70% within two years, worsening the Depression and fueling political extremism worldwide.
While today’s economy is more complex, history warns that trade barriers rarely achieve their stated goals. Instead, they invite retaliation, distort supply chains, and breed uncertainty. What makes the current scenario more perilous is that it unfolds amid an already fragile geopolitical balance — one marked by war in Ukraine, escalating US-China rivalry, and an erosion of faith in multilateral institutions like the WTO.
Among South Asian economies, India remains the most resilient. The World Bank expects it to retain its title as the world’s fastest-growing major economy — a tribute to its large domestic market, strong consumption, and digital transformation. Yet the shine is fading at the edges.
Washington’s tariffs on Indian imports and its 25% levy on Russian oil purchases — vital to India’s energy security — threaten to undermine New Delhi’s carefully balanced economic strategy. Automobiles, electronics, and pharmaceuticals — key growth engines — rely on global supply chains that tariffs disrupt. Consequently, India’s growth forecast for 2026–27 has been revised down from 6.5% to 6.3%.
Finance Minister Nirmala Sitharaman insists India has the “capacity to absorb shocks,” pointing to reforms, digitalization, and public investment. She is right to sound confident, but resilience has its limits. Even a small dent in India’s expansion can ripple across the subcontinent. As India accounts for over 75% of South Asia’s GDP, its slowdown can choke trade demand and reduce investment flows to its smaller neighbors.
Bangladesh’s economy has been a global success story — growing faster than many of its peers through a mix of remittances, female labor participation, and export dynamism. But that model now faces strain. With US tariffs threatening its biggest export market, Dhaka must accelerate diversification into higher-value manufacturing — electronics, pharmaceuticals, and leather goods.
The World Bank warns that without supply-chain modernization and improved logistics, Bangladesh risks losing competitiveness. Rising import costs could widen the trade deficit and weaken the taka, adding to inflationary pressures.
Sri Lanka’s situation is even more precarious. Having barely emerged from its 2022 financial meltdown, Colombo now faces the double burden of higher import costs and shrinking export margins. The government’s fragile fiscal balance — reliant on IMF support and a recovering tourism sector — could easily be upset by declining trade revenues. For a nation still haunted by shortages and protests, tariffs imposed thousands of miles away feel like the aftershocks of an earthquake it never caused.
The World Bank report also casts a shadow over Bhutan, Nepal, and the Maldives. Each faces distinct vulnerabilities: weakening remittances, climate-induced disruptions to hydropower, and foreign exchange shortages. For these economies, US tariffs are not the primary wound but an added burden on already fragile systems. It is a reminder that in an interconnected world, even indirect shocks can cascade through smaller economies.
Protectionism is only part of the problem. The World Bank identifies other headwinds — global slowdown, political instability, and inflation. Energy and food prices remain volatile, squeezing the poor and widening inequality. Labor disruptions and populist politics compound the risk.
For ordinary South Asians, these macroeconomic tremors translate into higher food prices, fewer job opportunities, and declining purchasing power. The region’s celebrated demographic dividend — its young, ambitious workforce — could become a demographic liability if growth falters.
In a sense, the crisis is moral as well as economic. The world’s wealthiest nation, built on the premise of free enterprise, is choosing self-interest over shared prosperity. The tariffs may secure a few thousand manufacturing jobs in the American Midwest, but they threaten millions in Dhaka, Colombo, and Chennai.
South Asia’s policymakers must draw a sober lesson: dependence on a single export market — even one as lucrative as the United States — is dangerous. Diversification is no longer optional; it is existential. Strengthening intra-regional trade, deepening ties with East Asia, Africa, and the Middle East, and investing in domestic value chains will be vital.
Bangladesh’s potential participation in the Regional Comprehensive Economic Partnership (RCEP), India’s outreach to ASEAN, and Sri Lanka’s attempt to re-engage with the Belt and Road Initiative could collectively buffer the region from the whims of Washington.
At the same time, the United States must reckon with the geopolitical cost of its protectionism. By alienating fast-growing partners, it risks ceding influence to China, which continues to expand its trade and investment footprint across Asia. Beijing has already offered tariff relief and new credit lines to affected economies — a gesture that, while strategic, is also shrewd diplomacy.
The World Bank’s warning is not merely a set of numbers but a cautionary tale about the fragility of globalization. For decades, South Asia’s success has rested on the belief that openness pays — that free trade, efficiency, and innovation would lift all boats. That belief now stands challenged.
If Washington continues to weaponize tariffs, 2026 may mark not just a slowdown in South Asian growth but the symbolic end of an era — the point at which developing nations realize that global markets, like global politics, are governed not by fairness but by force.
History may yet judge this moment as the juncture when America’s inward turn gave others the chance to lead. For South Asia, survival will depend on adaptability — and the courage to chart a course through a world where economic walls are rising faster than bridges can be built.
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(M A Hossain is a political and defense analyst based in Bangladesh. He can be reached at: [email protected])
The views expressed are not necessarily those of The South Asian Times
