As global trade dynamics shift under President Donald Trump’s protectionist policies, Bangladesh faces both challenges and opportunities in the US market. While rising tariffs could threaten its key export sector, the ready-made garment industry, Bangladesh may also capitalize on disruptions to competitors like China. This article explores how Bangladesh can navigate these changes, the potential benefits of diversification, and the need for strategic trade policies to ensure sustained growth in a rapidly changing trade landscape.
When Donald Trump became US President, the global trade landscape braced for a shift. This shift became evident after he announced reciprocal tariffs on US trading partners. His statement, “Whatever countries charge the United States of America, we will charge them,” signaled a renewed push for protectionist policies with significant global repercussions.
While primarily targeted at China, these trade measures could also affect economies like the European Union, India, and Mexico. As the US remains a major export destination for Bangladesh, Trump’s policies may have both positive and negative implications. Thus, Bangladeshi policymakers must take these developments seriously.
A Changing Trade Landscape
The US trade deficit in 2023 stood at over $1 billion with 48 countries, with China leading the list at $279 billion, followed by Mexico and Vietnam. Bangladesh, ranked 25th, had a trade surplus of over $6 billion with the US, making it one of the few Least Developed Countries (LDCs) on the list.
Though Bangladesh doesn’t currently enjoy duty-free privileges in the US, its anticipated graduation from LDC status by 2026 means it may face additional trade barriers. With Trump’s new protectionist stance, there’s an increased risk that Bangladesh’s exports, particularly in the ready-made garment (RMG) sector, could face higher tariffs, affecting its competitiveness in the US market.
On the flip side, Bangladesh could benefit from Trump’s policies if they tighten trade for competitive countries like China.
Trump’s Recent Steps and Implications for Bangladesh
During his tenure, Trump imposed a 25% import tariff on Canadian goods and a 10% duty on Canadian energy products, while applying a 25% tariff across the board on Mexican goods. China, the most affected, will face an additional 10% duty on its exports. As a result, Chinese goods will now be subjected to an effective 35% duty, significantly burdening Chinese exporters.
The US has been Bangladesh’s largest export destination for years, and now, Bangladeshi manufacturers might be able to leverage opportunities arising from the trade war. For Bangladesh, the average duty remains 15.62%, a relative advantage. Bangladesh is the third-largest garment exporter to the US, with nearly $8 billion worth of exports last year. However, to maintain and grow market share, Bangladesh must improve its energy supply and secure more US investment.
Opportunities Amid Challenges
While the risks are real, Bangladesh could again capture market share lost by China, as it did during Trump’s first tenure. However, competition will be intense, with other economies, such as India and Vietnam, competing for the same advantage.
Although Bangladesh’s primary focus is cotton-based RMG products, and China is a major producer of man-made fiber garments, Bangladesh can still maximize opportunities by diversifying into man-made fiber production. Strengthening trade policies and increasing production efficiency are crucial for meeting the increasing demands of international buyers.
Diversifying into emerging industries, such as IT services and high-value manufacturing, could reduce reliance on the RMG sector, providing a buffer against potential trade disruptions.
Policy Recommendations for Bangladesh
Bangladesh should not solely rely on the benefits arising from tariff wars. It needs to rethink its trade policy to ensure sustainable business and economic growth. Additionally, Bangladesh’s transition out of LDC status will trigger a higher tariff threshold for exports, which could affect competitiveness.
Tariff rationalization has been a buzzword for Bangladesh over the last decade. Experts suggest that Bangladesh needs to become more competitive in global trade by easing tariff protectionism. The average duty at 28% has protected domestic manufacturers but also led to non-compliance with stringent international standards, hindering export diversification.
To navigate this uncertain trade environment, Bangladesh should adopt the following strategies:
Risk Assessment & Strategic Planning: A comprehensive analysis of potential tariff impacts is essential. Collaborating with industry associations to explore cost-reduction measures and alternative markets will be key.
Diplomatic Engagement: Engaging with US policymakers, trade representatives, and business stakeholders is critical. The Bangladeshi mission in Washington, DC, should work closely with the US diplomatic presence in Dhaka to prevent unfavorable trade actions. Additionally, leveraging international trade alliances and organizations, such as the WTO, could help negotiate fairer trade terms.
Economic Diversification & Resilience: Bangladesh must reduce its dependency on RMG exports by encouraging investment in high-value manufacturing, improving trade logistics, and expanding digital exports. Strengthening the financial sector and simplifying business regulations will also boost investor confidence.
Trump’s “reciprocal tariffs” policy is a stark reminder that the global trade landscape is shifting towards increasing protectionism. For Bangladesh, this presents both risks and opportunities. While potential tariffs pose a direct threat to exports, especially in the RMG sector, strategic planning, diplomatic efforts, and economic diversification can help mitigate challenges.
The government, private sector, and trade bodies must collaborate to ensure Bangladesh remains a competitive player in the global market. By taking a proactive approach, Bangladesh can not only withstand the impact of US trade policies but also emerge stronger by tapping into new markets and industries. As international trade continues to evolve, Bangladesh must stay agile and prepared to safeguard its economic future.
