Reciprocal Tariff by USA - its Impact on Bangladesh Economy

The announcement of Reciprocal Tariff (RT) on April 2, 2025 on 108 countries ranging from 11-49% by the president Donald Trump has shaken the world irrespective of size of the economy and the amount of trade deficit USA is running with the concerned countries. The trade deficit of US was USD 918.4 billion in 2024, total US exports with the rest of the world is USD 3.12 trillion and total imports were USD 4.11 trillion as per the available information. US constantly enjoying surplus in services export, which was USD 1.15 trillion, and import was 0.841 trillion in 2024. USA did not mention services export issues anywhere whereas services export throughout the world is growing and will dominate the future trade.

However the main concern is that even it is named as Tariff, it is not confined to tariff only, its scope has been broadened beyond tariff and encompasses conditionalities on different areas such as; trade, economic and national security, tax, medical devises and pharmaceuticals, maximum residual levels, plant and plant products, import licensing, ratification of several conventions and treaties, intellectual property rights (IPR) issues, services and investment, agriculture, labour and environment issues etc. It seems that in order to accomplish and prepare Bangladesh to accommodate these policies and regulation into our trade and investment aspects it would need much more times and preparation and involvement of political framework. Bangladesh is now in a transition in the political arena as well as LDC graduation, the double transition will be really challenging for the country.

The negotiation that has happened so far is not concrete to be disclosed, things remain unclear for the private sector, and they are thus unable to start their bilateral discussion with their buyers while postponement of contracts are coming up as per several newspaper reports. Several technical committees formed direct and indirect negotiations happened, but the outcome is not satisfactory. Some countries have been successful in reducing their tariffs and have disclosed their position to the public, in Bangladesh things remain a bit unclear and private sector position remain isolated.

After the tax imposed on April 2 and a pause of three months, for the second time Mr. Trump introduced new additional tax by sending letters to the head of the states of the respective countries and the rate are a different than the earlier ones, however it is not known, the clear basis of the change. The changes might be based on the commitments expressed by the countries concerned after the introduction of the first phase of escalated tariff. The present situation is much different than earlier scenario, the examples of tariffs now imposed on different countries are; on Algeria 30% (30%), Bangladesh 35% (37%), Bosnia and Herzegovina 30% (35%), Brunei 25% (24%), Cambodia 36% (49%),Indonesia 32% (32%), Iraq 30% (39%), Japan 25% (24%), Kazakhstan 25% (27%), Laos 40% (48%), Libya 30% (31%), Malaysia 25% (24%), Moldova 25% (31%),Myanmar 40% (44%),Philippines 20% (17%), Serbia 35% (37%), South Africa 30% (30%), South Korea 25% (25%), Sri Lanka 30% (44%), Thailand 36% (36%), Tunisia 25% (28%).

Most of countries have received 2-5% rebate than that of what it was in the first time, however in some cases rebate is much higher such as; Sri Lanka received 14% rebate, Laos 8%, Moldova 6%. Probably amount of Trade Deficit and the exemption announced by the concerned countries contributed for these differentials. Or the continued negotiation and the specific attractive offer list have given them more relief.

Just after the announcement of the RT on April 2, Chief Adviser sent a letter to the President of USA on April 7 with a request for deferring three months for making the tariff effective on export from Bangladesh. The letter also offered a number of exemption in favour of accepting export from USA, some of these were; increase import of cotton, wheat, corn and soyabean to contribute to the income of the livelihood of US Farmers. Bangladesh also in order to increase the speed to the market of US cotton, offered a dedicated bonded warehousing facility in Bangladesh.

Bangladesh also offered lower tariff on most of the US exports in South Asian region and committed for zero tariff on the above agricultural commodities as well as scrap metals. It was also mentioned in the letter that Bangladesh is working for 50% reduction of tariff on top US exports such as gas turbines, semiconductor and medical equipment.

A rough calculation from BUILD, it is seen that these exemption of 50% tariff on these four products will cause Bangladesh a loss of USD 0.52 million revenue loss. On the other hand Bangladesh picked cotton to be imported from USA even though cotton from USA is costly which is USD 1324/MT, imported from neighbouring countries is relatively cheaper.

Bangladesh also has opted for addressing an array of non-tariff barriers to US exports, such as testing requirements, rationalizing packaging, labelling and certification requirements and undertaking trade facilitation measures such as simplifying customs procedures and standards.

While Bangladesh was struggling to address these commitment and preparing to create the infrastructure, the newly announced additional tariff along with a number of new conditionalities is posing a serious burden and if needs to be implemented by Aug 1, almost impossible.

The budget 2025-26 announced some policies which has given the testimony that Bangladesh is well aware about the changing situation and willing to continue bilateral business ties with USA and wants to negotiate other conditionalities announced by the USTR as much as its affordability limit to sustain US market. However, if the additional 35% tariff is imposed on the export from Bangladesh from August 1, it will be a serious setback to the exporters.

In a letter of May 7 addressing to Chief Adviser to Bangladesh US President termed it as the number one market in the world, by far, against the ranking of Bangladesh much lower which is only 52nd, not at all comparable. The US President termed the imposition of high tax as a consequences of long standing trade deficit engendered by Bangladesh’s tariff, non tariff, policies and trade policies. Bangladesh is still a Least Developed country comparability with a number one developed country is impossible.

The tariff issues from the very beginning, mentioned about the goods trade sidelined the export services for which the USA is one of the number one country. If it is compared with Bangladesh, services export from Bangladesh is only USD 1.11 billion against the import of 0.77 million and trade deficit is only USD 0.35 million in the services sector as per Bangladesh Bank information.

Bangladesh acted sincerely for negotiation, however private sectors points of views was different. Pakistan involved its private sector in the high-level negotiations. An experienced lobbyist should have been hired, and private sector engagement was essential in the early stages. BGMEA was not incorporated in the negotiation process when it was needed earlier. BGMEA wants a tariff structure that remains close to the competing countries like Pakistan, Vietnam and Cambodia so that a level playing field exists in the country.

The non-disclosure agreement (NDA) might contain geopolitical implications beyond trade issues. The results of this high tariff might be devastating for Bangladesh. The export volume might decline sharply, massive layoffs, intensified pricing pressure, reduced FDI, and disruption in the supply chain are some expected negative impacts for Bangladesh.

Bangladesh’s $8 billion export to the USA will be lost in business and more than 1 million people will be unemployed. For WTO member countries unilateral tariff is inconsistent with WTO rules, it seems US domestic laws supersede all international laws.

From the press reports, it is seen that USA demands 40% value addition, even though Ministry of Commerce, the main negotiating Ministry is not aware about it and they are ambitious that Bangladesh eventually will be able to gain a zero tariff export concession and negotiation is going on in that direction.

The third-round negotiation will start soon as we have come to know, and the private sector will now be engaged directly to sit with their bilateral partners. The August 1 deadline is not too far, however a lot more new issues may come up as things are still evolving. We will expect a perfect public private collaboration for a holistic approach which will bring success for the country and we need to be optimistic.

Ferdaus Ara Begum: Economist and chief executive, Business Initiative Leading Development