The ongoing US-China trade war, with its tit-for-tat tariffs and shifting trade alignments, continues to reshape the global economic landscape. While Bhutan’s direct involvement in this geopolitical contest is minimal, the ripple effects of these tensions underscore the importance of strong, stable partnerships. In such a context, Bhutan’s enduring relationship with India—repeatedly emphasized by Prime Minister Tshering Tobgay—remains not only beneficial but essential.
Limited Direct Impact, But Indirect Vulnerabilities
Bhutan’s direct exposure to the US-China trade war is modest. The United States represents only a fraction—about 0.1%—of Bhutan’s GDP in exports, largely through ferrosilicon. Even recent US tariffs on Bhutanese goods, currently at 10%, are unlikely to significantly impact our small and specialized export base.
However, the real concern lies in the second-order effects. Bhutan’s economy is intricately linked with India, our largest trading partner and foremost development collaborator. Around 60% of Bhutan’s exports go to India, and the country also supplies the bulk of our imports. If India’s industries—particularly those connected to metals and manufacturing—face headwinds from global trade disruptions, Bhutan could experience downstream effects. For example, if Indian steel firms lose ground due to shifting global supply chains, Bhutan’s ferrosilicon exports may decline, affecting a meaningful share of our export revenues.
Global Supply Chain Realignment: A Cautious Outlook
As global manufacturers look to diversify away from China, some Asian economies are positioning themselves as alternative hubs. While this transition presents theoretical opportunities, Bhutan’s small industrial base, high logistics costs, and limited product diversity pose structural constraints. Competing in these emerging trade routes will require more than geography—it will demand deep infrastructure, stable partnerships, and aligned strategic visions.
Simultaneously, the trade war’s contribution to global economic uncertainty could inflate the US dollar, raising Bhutan’s import costs and exacerbating inflation. For a nation already facing rising prices, such trends could deepen economic inequalities and erode purchasing power.
India: Bhutan’s Natural and Trusted Partner
In the face of such uncertainty, Bhutan’s most pragmatic and strategic course is to deepen its long-standing ties with India. This relationship, rooted in shared values and mutual respect, offers stability and support that go beyond transactional economics.
Economic Integration: India accounts for approximately 80% of Bhutan’s overall trade and is the origin of half of its foreign direct investment. The bilateral trade agreement ensures duty-free access and unhindered transit, facilitating smoother economic flows that are rare in today’s protectionist climate.
Development Support: India has been instrumental in Bhutan’s development journey, partnering on hydropower, infrastructure, education, digital connectivity, and trade facilitation. This consistent support complements Bhutan’s national priorities, particularly our Five Year Plans.
Energy Partnership: Hydropower exports to India form the backbone of Bhutan’s economy, contributing roughly 40% of national revenue and a quarter of GDP. Indian investment and guaranteed power purchase agreements ensure both financial stability and energy cooperation.
Strategic Understanding: Bhutan’s unique geographic position necessitates a nuanced approach to sovereignty and security. In this regard, India has proven to be a respectful and reliable partner, supporting Bhutan’s choices without imposing its will. As geopolitical competition intensifies across the Himalayas, such understanding is invaluable.
The Way Forward: Strength Through Proximity
Rather than chasing uncertain gains in far-off markets or navigating opaque systems of engagement, Bhutan’s future lies in deepening and diversifying within its strongest partnership:
- Explore Sectoral Diversification in India: From agriculture to digital services, Bhutan can find new market niches within India’s vast and varied economy.
- Strengthen Energy Collaboration: With growing focus on clean energy, joint initiatives in hydropower, solar, and green hydrogen hold promise for shared prosperity.
- Enhance Regional Connectivity: Frameworks like BBIN and BIMSTEC—initiatives that prioritize mutual benefit—can open sustainable trade corridors and strengthen sub-regional resilience.
While Bhutan may not be on the frontlines of the US-China trade war, we are not immune to the tremors it sends across Asia. In such times, the value of reliable partnerships becomes even more apparent. Bhutan’s relationship with India—anchored in trust, mutual benefit, and geographic proximity—offers not just economic returns but long-term strategic reassurance.
As global currents grow more unpredictable, Bhutan’s wisest course is to strengthen the bonds that have stood the test of time. In India, we do not merely find a neighbor—we find a partner invested in our success, attuned to our aspirations, and aligned with our values.
