The Loom of Fate: Bangladesh's Urgent Dance With U.S. Tariffs

 

Amid the looming tempest of rising tariffs, Bangladesh faces a grave crossroads. The U.S., its largest buyer of ready-made garments, has imposed severe new duties, threatening to unravel the delicate fabric of its export economy. With the garment sector—the lifeblood of Bangladesh’s exports—now facing daunting tariff hikes, the stakes could not be higher.

Bangladesh must now engage in urgent and strategic dialogue with U.S. policymakers. This moment demands swift action: to secure favorable trade agreements, boost industry efficiency, and diversify both products and markets. The days of preferential treatment are nearing their end with Bangladesh's upcoming graduation from Least Developed Country status. Without a clear and concerted response, these new tariff structures could stifle the country’s growth and harm its competitive edge in the global market.

In the eye of this storm, Bangladesh’s resilience and foresight are critical. The nation must not only weather this challenge but also emerge stronger, securing a future where its position in the international marketplace remains unshaken.
Bangladesh's Imperative Dialogue with U.S. Policymakers: A Call for Tariff Reduction

The United States remains the singular and foremost destination for Bangladeshi ready-made garment (RMG) exports. Historically, Bangladesh has been subjected to a 15% export duty for its RMG products entering the U.S. market. However, the recent imposition of higher tariffs threatens to exacerbate export costs, placing significant strain on the RMG sector and raising substantial concerns for the nation's trade future.

 The U.S. has imposed a steep 37% tariff on Bangladeshi exports.
· The RMG sector, comprising 80% of Bangladesh’s total exports, faces a profound risk.
· Other sectors, including leather and pharmaceuticals, may also experience adverse impacts.
· There is an urgent necessity to increase efficiency, diversify product offerings, and explore new markets.
· A strategic review of Free Trade Agreements (FTAs) and tariff structures is imperative before Bangladesh’s impending graduation from Least Developed Country (LDC) status.

Data from the Export Promotion Bureau (EPB) reveals that Bangladesh exported $190 million worth of leather goods to the U.S. in the previous fiscal year. Despite these figures, exporters have long lamented the significant disparity between the prices at which brands sell products in the U.S. retail market and the prices they pay to suppliers. Given that Bangladesh is a producer of value-priced, basic products, the burden of these new tariffs is expected to fall on U.S. consumers, with higher prices leading to diminished demand, particularly for luxury items. This trend could, however, potentially benefit Bangladesh's lower-priced apparel sector.

Traditionally, tariffs have been applied based on product categories as defined by the Harmonized System (HS) codes. Under previous arrangements, Bangladeshi apparel exports to the U.S. faced an average duty of 15%, aligned with other countries exporting similar goods. However, the recent shift to country-specific tariffs has raised Bangladesh’s duty rate to a striking 52%.

· Vietnam: 61%
· China: 69%
· Cambodia: 64%
· India: 41%
· Pakistan: 44%
· Sri Lanka and Myanmar: 59%

In the face of these daunting tariff increases, Bangladesh must urgently recalibrate its trade approach and engage with U.S. policymakers. The imposition of a 37% tariff represents a monumental challenge to the nation’s garment sector, which constitutes over 80% of Bangladesh’s total export revenue. Historically, Bangladesh’s garments enjoyed preferential access to the U.S. market. However, the rising tariffs threaten to erode its competitive position, particularly within the highly price-sensitive U.S. market. U.S. buyers, in search of more affordable alternatives, may reduce orders or divert to other suppliers, further deepening the economic challenges faced by Bangladesh’s apparel industry.

The ripple effects of tariff hikes extend beyond garments to other sectors such as leather and pharmaceuticals, which, though comprising a smaller portion of Bangladesh's exports, have been exhibiting promising growth. The broad global shift towards protectionism, underscored by rising tariffs, threatens to dampen demand across the board, compounding the struggles faced by Bangladesh’s exporters.

The economic repercussions of these tariff hikes are particularly unsettling for Bangladesh, which has only recently begun to recover from a fragile economic situation left in the wake of previous administrations. The country’s export and remittance sectors have been central to this recovery. A sudden shock to these pillars—particularly in such a vital market as the U.S.—could reverse this progress. In light of these developments, Bangladesh must act expeditiously to safeguard its economic trajectory.

Strategic Recommendations: The immediate response to these tariff hikes must focus on enhancing the competitiveness of Bangladesh’s export sectors, particularly through improved efficiency and increased productivity. Such efforts will help absorb some of the added costs arising from higher tariffs and minimize negative impacts on pricing. However, long-term strategies must include diversifying Bangladesh's export base to reduce reliance on the U.S. market and mitigate vulnerability to external shocks.

In this context, engaging in high-level diplomatic negotiations with U.S. policymakers is essential. Bangladesh’s impending graduation from LDC status in 2026 will result in the loss of non-reciprocal trade benefits, making the negotiation of favorable Free Trade Agreements (FTAs) and a comprehensive review of tariff structures all the more urgent.

The Ministry of Commerce and the National Board of Revenue (NBR) must prioritize a thorough assessment of the potential consequences these tariffs may have on various sectors of the economy. Such analyses will equip policymakers with the necessary data to engage in informed negotiations for tariff relief. A unified approach between the government and the private sector is crucial for navigating this precarious phase.

While the tariff hikes pose a formidable challenge, they also present an opportunity for Bangladesh to seize a larger share of the U.S. market. As competitors like China and Vietnam face substantial tariff increases, Bangladesh could benefit by capturing the demand shift towards more affordable products. However, Bangladesh’s exporters must carefully navigate the pressure to reduce prices further to remain competitive.

To counterbalance the potential loss of market share to competitors like India and Pakistan, who are subject to lower tariffs, Bangladesh must advocate for a more favorable tariff structure. India’s lower 41% tariff rate, in comparison to Bangladesh’s 37%, gives it a competitive edge, especially considering India’s cost-effective production and access to a steady supply of raw materials. As such, Bangladesh must prioritize optimizing its cost structures to maintain its competitive standing.

The imposition of protectionist tariffs underscores the global tensions around trade policies, with the World Trade Organization (WTO) traditionally advocating for the reduction of tariffs to foster global economic growth. However, the increasing reliance on bilateral trade agreements and regional partnerships by powerful nations complicates this ideal. For Bangladesh, navigating this new landscape will require deft diplomacy and a keen focus on securing preferential market access through strategic trade agreements.

One potential avenue to enhance leverage in future trade negotiations with the U.S. could involve increasing imports of essential goods, such as cotton and liquefied natural gas (LNG), which are integral to Bangladesh’s domestic industries. Expanding imports from the U.S. could create opportunities for Bangladesh to negotiate more favorable trade terms.

In conclusion, while the new U.S. tariff measures present a significant challenge, they are not insurmountable. Through proactive engagement with policymakers, strategic diversification of exports, and the pursuit of beneficial trade agreements, Bangladesh can mitigate the risks posed by these tariff increases. The nation must act swiftly and decisively to secure its place in the evolving global trade ecosystem.


Anwar A. Khan is a freedom fighter who writes on politics and contemporary issues.