Bangladesh’s victory and defeat in US tariff war

After three rounds of discussion, Bangladesh has managed to reduce the increased tariff imposed on its products in the US market from 35 percent to 20 percent. This is not only positive for the country's economy but also a diplomatic success for the interim government. Because when on April 2, US President Donald Trump first announced the rate of additional tariffs on various countries, he stated that a 37 percent additional tariff would be levied on Bangladeshi products. Later, that tariff was suspended temporarily for three months. Trump informed Dr Yunus in a letter that instead of 37, the tariff amount on Bangladesh would be 35 percent, after reducing it by 2 percent.

That is, if there had been no understanding with the United States, from August 1, an additional 35 percent tariff would have to be paid along with the previous 15 percent, amounting to 50 percent; but finally, after Bangladesh imposed an additional 20 percent tariff on its products in the US market, the total tariff amount now stands at 35 percent (including the previous 15 percent). The question now is, how successful has Bangladesh been in this tariff war with the US compared to other countries?

In response to this question, some economists believe that in the US's strategy of increasing tariffs, geopolitics and global considerations are more important than trade itself. Therefore, how Bangladesh handles matters beyond trade and presents its position is the key. Moreover, during the first and second rounds of discussions with the US, the interim government was accused of making 'secret agreements'. Relevant government advisers, however, stated that many aspects of the discussion were kept confidential for the sake of reaching an understanding. And that is why the question arises, on what basis was the final understanding on tariff reduction reached, and where did Bangladesh make concessions?

Therefore, the interim government must disclose to the public what types of US conditions Bangladesh has fulfilled in the tariff rate discussions. Because among the conditions of the US were not only increased tariff on imports of products, but also many geopolitical strategic, economic, and national security-related conditions. If these conditions were accepted, Bangladesh would become a kind of economic colony of the United States. Thus, the interim government must clarify whether it has caused long-term damage to Bangladesh.

Setting aside the geopolitical and global context, let us find out what the increased US tariff rates are for various countries. From now on, to sell products in the US market, Brazil must pay an additional tariff of 10 percent, Afghanistan 15, Pakistan 19, Indonesia 19, the Philippines 19, Malaysia 19, Vietnam 20, Bangladesh 20, Sri Lanka 20, India 25, and Myanmar 40 percent. In terms of percentage, Bangladesh can be considered to be in the middle.

In that case, although countries like Sri Lanka, Vietnam, Pakistan, and Indonesia are major competitors of Bangladesh in garment exports, the tariff rate for Bangladesh is almost the same as those countries—set at an average of 19 to 20 percent. Therefore, due to the imposition of similar counter-tariffs on major competitor countries, Bangladesh will not face extra competition in the US market. On the other hand, as India's tariff rate is 25 percent, buyers will not be too interested in doing garment business there. Even though Pakistan’s tariff rate is 19 percent, buyers will not go there for a mere 1 percent benefit, because Pakistan does not have that supply capacity.

However, even though the tariff has been reduced, challenges remain for Bangladesh, because some businessmen and economists are expressing concerns about how the 15 percent tariff reduction will be utilised.

Dr Khondaker Golam Moazzem, Research Director of the private research organisation Centre for Policy Dialogue (CPD), said, "It’s a matter of seeing who is bearing how much of the additional tariff. If it falls on entrepreneurs, profits will slightly decrease, because although the reciprocal tariff rates are comparatively low, retail prices are increasing. Besides, Bangladesh's electricity, gas, fuel, banking, logistics, port, and NBR management are easily accessible. We know that in the past few months, hundreds of factories in Dhaka and Chattogram have closed due to gas shortages. Then there’s the transshipment tariff as well. So, we must remember, from the beginning, Donald Trump has said regarding this new tariff policy that the US is imposing counter-tariffs on those who have imposed unequal tariffs on American products. That is, the main objective is to reduce the US's trade deficit with various countries around the world."

But due to two domestic decisions, the export sector will face more difficulties than other competing countries. These two decisions are: One, the decision by the interim government to increase charges at Chattogram Port by an average of 40 percent. Two, the decision to increase charges at private container depots (ICDs) by 30 to 100 percent. If these two decisions are implemented, import costs will rise and exporters will fall behind other countries in competition due to the additional charges. In this situation, the interim government should withdraw the decision to increase charges at Chattogram Port and, through discussions with the owners of private container depots, bring their charges down to a tolerable level.

In addition, as part of reciprocal tariff discussions with the United States, Bangladesh has decided to purchase 25 aircraft from the US company Boeing, which will cost several billion dollars. Experts say that given Biman Bangladesh Airlines' current financial state, route capacity, and management reality, it has no capacity to handle 25 Boeing aircrafts. The interim government is using Biman as a ‘trade politics tool’. Such abrupt decisions will put Bangladesh’s aviation management at long-term risk. In the future, it will also come under state pressure.

On the other hand, Bangladesh must buy several hundred thousand tonnes of wheat from the United States at high prices; in addition, private initiatives have been taken to import soybean and cotton. However, there was also a condition that Bangladesh should reduce its purchase of military equipment from China and buy it instead from the United States. What final stance Bangladesh has taken on such a sensitive condition and what has been included in the agreement have still not been clarified. Now the question remains whether Bangladesh can snatch long-term victory from the US in the tariff war, or whether defeat awaits Bangladesh’s fate.

Girish Goiric: Poet and journalist