Global Fashion Giants Hit Pause on Nepal Expansion Amid Turmoil
November 5, 2025 – Kathmandu, Nepal – In a surprising turn of events, the vibrant streets of Kathmandu, once buzzing with the promise of international investment, have fallen eerily quiet. Major global apparel brands, including household names like GAP, Puma, Nike, and Zara, have abruptly halted their plans to expand operations into Nepal, citing political instability following the recent Gen Z protests that shook the nation. But here's where it gets controversial: Is this pause a temporary setback or a permanent shift in the global fashion industry’s strategy?
The violent protests in early September, which saw luxury hotels like the Hilton Kathmandu, Hyatt Regency, and Hotel Varnavas set ablaze, have left potential investors wary. Pashupati Dev Pandey, president of the Garment Association of Nepal, summed it up bluntly: ‘Potential investors are demotivated and in a dilemma after the Gen Z protest.’ These events have raised serious concerns about the security of investments in Nepal, leaving many to wonder if the country can still compete as a manufacturing hub.
And this is the part most people miss: The timing couldn’t be worse. A U.S. trade delegation is currently in India, negotiating tariff reductions that could dramatically reshape the global apparel market. If successful, these talks could slash U.S. tariffs on Indian exports from a staggering 50 percent to just 15 percent. Pandey warns, ‘If the ongoing trade negotiations between India and the U.S. end positively, international clothing brands operating in India might not come to Nepal to explore business.’ This potential deal could make India an even more attractive manufacturing destination, leaving Nepal in the dust.
But here’s the twist: Nepal has one significant advantage—its 10 percent tariff rate on goods exported to the U.S., compared to India’s current 50 percent. This had initially made Nepal an appealing alternative for apparel manufacturers, especially after the U.S. imposed heavy tariffs on Indian goods last year. These tariffs were part of President Donald Trump’s broader strategy to pressure India to stop purchasing Russian oil amid the Ukraine war. Since returning to the White House, Trump has doubled down on tariffs as a tool of economic warfare, disrupting global trade and forcing companies to rethink their supply chains.
The impact on India has been severe. Reports indicate that India’s goods exports to the U.S., its largest export market, plummeted by 20 percent in September and nearly 40 percent over the past four months. Meanwhile, Nepal’s readymade garment exports fell by 10.22 percent to Rs2.51 billion in the first three months of the current fiscal year, a decline attributed partly to reduced production during festive holidays and the recent political unrest. But Nepali manufacturers remain cautiously optimistic. If the U.S.-India tariff negotiations fail, U.S. buyers may turn to Nepal, as the new tariff regime makes Indian and other markets less competitive.
Here’s where it gets even more intriguing: Nepali producers are already investing to expand their capacity, anticipating a 10-15 percent rise in demand for readymade garments in the U.S. following the tariff hike. However, they face a critical challenge: preventing transshipment practices. The U.S. has warned of strict penalties for rerouting goods through third countries to bypass tariffs, a practice that is illegal and can result in heavy fines and prison terms. Nepal currently lacks a clear legal policy on transshipment, leaving manufacturers in a precarious position.
Adding another layer to this complex scenario, Indian gold jewelry producers are also eyeing the Nepali market after the tariff hike. Arjun Rasaili, president of the Federation of Nepal Gold and Silver Dealers Association, noted that some Indian jewelry makers have made preliminary inquiries, though ‘nothing concrete has come from their side.’ Nepal’s silver jewelry exports surged by 29.35 percent to Rs68.41 million in the first three months of the fiscal year, while gold jewelry exports rose by 16.70 percent to Rs10.64 million. Could this be a silver lining for Nepal’s economy, or is it too little, too late?
The question remains: Can Nepal overcome its political instability and capitalize on its tariff advantages, or will it be left behind in the global fashion race? And what does this mean for the future of the apparel industry in South Asia? Share your thoughts in the comments—we want to hear from you!
