If new products not added to export list, Bangladesh will lose tariff war

The United States has imposed additional tariffs at varying rates on export products from different countries. This move has caused grave concern worldwide. The first such announcement of higher tariffs came last April. Implementation was then postponed for three months. During this time, several countries tried through negotiations to reduce the imposed tariff rates. Most were successful. For instance, an additional 37 percent tariff was initially imposed on Bangladeshi exports. Vietnamese exports faced 46 percent, Indian exports 26 percent, and Chinese exports a staggering 125 percent. Later, however, tariffs on Chinese exports were reduced to 30 percent.

In the second phase, Vietnam, through negotiations with the US, managed to cut its tariffs from 46 percent down to 20 percent. Bangladesh also held talks, but initially only secured a two percent reduction. Later, another Bangladeshi delegation successfully negotiated tariffs down to 20 percent. In India’s case, the original 26 percent was slightly lowered to 25 percent; but citing India’s purchase of oil from Russia, the US imposed an additional 25 percent tariff. This means Indian exports to the US now face a 50 percent tariff.

The question arises: why has the US imposed such steep tariffs? No official explanation has been given. It is thought that the step was taken to protect local entrepreneurs in the domestic market. Others argue that the growing presence of Chinese products in the US market prompted the move, to curb their entry. The US, in bilateral trade, runs deficits with most countries affected by the tariff hikes.

Just as the post-Covid world economy was on the path to recovery, the Russia–Ukraine war broke out. This severely damaged the US economy. Inflation at one point surged to 9.1 percent, a 40-year record. The Federal Reserve responded with repeated hikes in policy rates and other measures, eventually bringing inflation under control—but at a heavy cost. Private investment declined and job opportunities shrank. In these circumstances, the Trump administration found it necessary to impose additional tariffs on imports.

At the top of Bangladesh’s export list is ready-made garments. In the global market, and particularly in the US, Bangladesh’s main competitor is China, followed by Vietnam and India. In 2024, China exported garments worth 165 billion US dollars, holding a market share of 29.64 percent. Bangladesh exported 38 billion dollars’ worth, with a share of 6.90 percent. Vietnam exported 34 billion dollars (6.09 percent), and India 16 billion dollars (2.94 percent). As the US has imposed higher tariffs on Chinese and Indian goods than on Bangladeshi goods, Bangladesh is unlikely to face major setbacks for now.

Vietnam remains Bangladesh’s strongest rival in the US and global markets. As both countries’ exports are now subject to the same level of tariffs, Vietnam gains no special advantage. Initially, Indian exporters rejoiced that their tariffs were lower than Bangladesh’s, dreaming of capturing the US garment market. But with tariffs on Indian exports now at 50 percent, those hopes have collapsed. Bangladesh, in fact, may now aspire to capture India’s market share. The US is India’s single largest trading partner, importing an average of 86 billion dollars’ worth of goods annually. This trade will undoubtedly suffer.

Bangladeshi garment exports to the US had already begun to rise. A recent report noted that Bangladesh has now taken the top spot in T-shirt exports to the US. Exports of woven and knitwear are also increasing. Initially, frightened by the tariff announcement, many US buyers suspended their orders from Bangladesh. Now, however, those orders are returning, and new ones are being placed. It appears that the new US tariff policy may prove a blessing for Bangladeshi exports.

Because of the tariff hikes, investment in the garment sectors of China and India may shift elsewhere. Foreign investors may turn to countries like Bangladesh and Vietnam. But this is no reason for celebration. The point is not just the possibility of attracting foreign investment, but the ability to actually secure it. For some time now, private investment in Bangladesh has been sluggish, stuck between 22 and 23 percent of GDP. The Seventh Five-Year Plan had targeted 28 percent, but that was never achieved. Without adequate domestic investment, foreign investment also remains limited.

Despite offering various legal facilities for both local and foreign investment, Bangladesh has not been able to attract capital at the desired level. Local investors cannot easily move capital abroad due to legal restrictions. Foreign investors, however, face no such barriers and can relocate investments at will. The country’s real investment climate is still not favourable. In the World Bank’s last Ease of Doing Business index, Bangladesh ranked 176th out of 190 countries. Although that index has been discontinued, last year the World Bank published a new index placing Bangladesh in the fourth tier among 50 countries.

For years, Bangladesh has tried to attract foreign investment, but with little success. We must remember that foreign capital will not come on promises alone. A genuinely favourable investment environment must be created. The banking sector is now in disarray. Entrepreneurs cannot obtain required funds, and most banks are suffering from liquidity crises. In advanced economies, long-term finance usually comes from capital markets, not banks. But Bangladesh’s capital market is in no position to play such a role. Large private companies are reluctant to list, and even state-owned enterprises expected to be brought to the market have not been listed. During my tenure as economic adviser, I personally managed to bring several state-owned enterprises into the market through direct discussions.

Bangladesh is a highly promising country in terms of export potential. Yet limitations prevent this potential from being realised. One major barrier is our overdependence on a narrow range of products and markets. The European Union and the US are our largest sources of export earnings, and garments alone account for around 84 percent. We must diversify—adding new products to the export basket and exploring new destinations.

Dr AB Mirza Azizul Islam: Economist and former Finance Adviser to the last caretaker government.
Transcribed by: MA Khalek