Trade, aid and geopolitics: The high cost of Trump's deal-making in South Asia

The Trump administration's economic strategy is unfolding with calculated precision, leaving South Asia grappling with its consequences. At its core lies a philosophy distilled from Trump's own 'The Art of the Deal', where he wrote: "My style of deal-making is quite simple and straightforward. I aim very high, and then I just keep pushing and pushing to get what I'm after." This principle now defines his foreign economic policy. Aid becomes leverage, tariffs become negotiation tactics, and diplomacy is repackaged as transactional bargaining.  

Trump's "America First" is marked by protectionism, reshoring of manufacturing, deregulation & tax cuts and trade war rhetoric that will affect global trade and economic relations, especially with emerging markets like South Asia. His stance has particularly focused on bilateral trade deals, shifting away from multilateral agreements like the TPP (Trans-Pacific Partnership). This policy directly impacts trade relationships with South Asian countries, many of which rely on exports to the US  

With Trump doubling down on tariffs and slashing foreign aid under the banner of "America First," South Asia is again finding itself on the economic frontline of this aggressive statecraft. 
 
Economic statecraft in action: Tariffs as a tool of leverage 
In early 2025, Trump proposed a sweeping tariff policy aimed at all US trading partners—South Asian countries included—though the extended tariff was postponed for the next 90 days for all except China. This aggressive move includes steep import duties on textiles, pharmaceuticals, and technology components, industries that form the backbone of exports from countries like India, Bangladesh, and Pakistan. 

The justification? "To bring manufacturing home and punish countries that profit from our generosity but don't reciprocate our values," Trump declared at a rally in Michigan. 

South Asia's export-dependent economies are feeling the tremors. In Bangladesh, the garment industry—responsible for over 80% of its exports—is scrambling to navigate rising costs and shrinking profit margins. India, which exports pharmaceuticals and software services, faces similar risks, particularly as Washington shows no signs of renewing the Generalised System of Preferences (GSP) trade benefits suspended during Trump's first term. 

This isn't mere economic policy; it's statecraft through business. Trump's strategy fits squarely into the tradition of economic coercion: using tariffs not just to balance trade but to force geopolitical alignment. 
 
Foreign aid under fire: Targeting "unaccountable" democracy spending 
Trump's recent announcement to withdraw foreign aid from countries including Bangladesh, India, Nepal, and others in South Asia adds another layer to this transactional worldview. 

"For decades, we've sent billions of dollars to countries in the name of democracy and political development. What have we received in return? Weak alliances, corruption, and ungrateful leaders," Trump said during a press briefing. 

In his criticism, Trump singled out US aid to Bangladesh and India, accusing previous administrations of "throwing away taxpayer money" under vague goals like "democratic strengthening" and "political inclusion". 

Programs that supported civil society groups, media freedom, and election monitoring are now being labelled as "meddling without returns." 

While aid to Bangladesh—especially in sectors like health, education, and governance—has historically helped stabilise the country's fragile institutions, Trump's administration argues that such aid constitutes unnecessary interference. Aid to India, though relatively minor compared to economic partnerships, is also being reevaluated, particularly programmes promoting judicial reform, environmental resilience, and women's rights. 

The broader message? America will no longer "fund values" unless they generate tangible returns.  

Fallout for South Asia: Economic and political implications 

For South Asian countries, the consequences of Trump's economic statecraft are significant. 

Bangladesh faces a potential contraction in exports and a rollback of donor-funded governance programmes. Local NGOs dependent on USAID for community empowerment and democratic engagement are bracing for funding losses. 

South Asian countries receive most of their FDI from the US. Trump's tax reforms, including lowering corporate tax rates and offering incentives for reshoring jobs, could make the US more attractive to multinational corporations, which could shift investment away from emerging markets, including South Asia. 

If US companies prioritise domestic investment due to favourable tax reforms and deregulation in the US, South Asia might experience a slowdown in FDI inflows, and the influx of foreign capital could be impacted.

South Asian economies that are part of global supply chains, especially in manufacturing, might face challenges. For instance, if US firms start reshoring or reducing reliance on Asian supply chains, it could hurt countries like Bangladesh (garment manufacturing), India (automotive and electronics), and Pakistan (textiles).

Trump consistently raised his voice against immigration and strongly opposed it. Trump's policies on immigration and outsourcing could affect the labour markets in South Asia. Countries like India, Bangladesh, and Sri Lanka send workers to the US in the IT, healthcare, and engineering sectors. It will directly hit the South Asian remittance sector, as the US is the largest destination for earning remittances for most of the South Asian countries. 

Due to Trump's strict labour policies, skilled migration will be reduced and as a result, the economy of this region will be greatly affected. Trump's return to hard-nosed transnationalism may also embolden other nations to adopt similar stances. 

As China and the Gulf states expand their own development financing models—often without political conditions—Trump's aid withdrawal could widen the space for authoritarian influence in South Asia. 

How to face these challenges

To mitigate the impact of reduced demand from the US, South Asian countries should focus on diversifying their export markets. The ASEAN region, European Union, and China are potential alternative markets. 

South Asian economies should strengthen regional cooperation through organisations like SAARC and BIMSTEC, promoting intra-regional trade to reduce dependence on the US market. Governments should focus on creating a conducive environment for domestic investment, especially in sectors such as technology, manufacturing, and agriculture. This includes improving infrastructure, reducing bureaucratic hurdles, and enhancing the ease of doing business. 

Investing in innovation and technology-driven industries can help South Asian countries reduce reliance on low-cost labour and compete in higher-value sectors such as technology, AI, and biotechnology.

To protect against currency fluctuations and potential economic instability, South Asian countries should bolster their foreign exchange reserves and adopt prudent fiscal policies.

A high-stakes game for South Asia 
Trump's economic statecraft is not without logic; it reflects a vision of US power rooted in leverage, reciprocity, and short-term wins. But in targeting trade and aid simultaneously, Trump risks undermining decades of soft power influence in South Asia—a region that remains pivotal to global security and economic flows. 

As South Asian economies reevaluate their strategic calculus, the question becomes whether they will bend, bargain, or break under the weight of America's new dealmaker-in-chief. 
For better or worse, South Asia is once again a proving ground for Trump's enduring principle: in global politics, everything is negotiable. 

Md Ikhtiar Uddin Bhuiyan is an Associate Professor at the Jahangirnagar University and a PhD research fellow at the National Institute of Development Administration (NIDA), Bangkok, Thailand.

Saroar Ahmed Saleheen is the Economic Counsellor at the Bangladesh Embassy, Thailand.
 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.