Trump's Tariff Hike: How will it affect Bangladesh?

US President Donald Trump.

In an executive order, US President Donald Trump has imposed a 37% tariff on Bangladeshi products and others, sparking concerns among economists and apparel industry stakeholders.

They fear this move will exert significant pressure on Bangladesh’s economy, urging the country to diversify its economic landscape and initiate dialogue with the US administration under the Trade and Investment Cooperation Framework Agreement (TICFA).

Experts believe that a mutual understanding between the two nations could lead to a revision of the imposed tariff.

Failure to act promptly may result in the migration of apparel orders to countries such as India, Turkey, Egypt and Honduras.

Need for Export Diversification

Former Dhaka University professor Dr MM Akash emphasised the necessity of diversifying Bangladesh’s export base to mitigate the impact of the tariff.

“We need to tackle this by expanding our trade to multiple countries with a variety of products,” he said.

Highlighting the country’s lack of preparation in this regard, Dr Akash argued for a strategic trade approach. “Previously, we discussed free trade and protectionist trade. Now, both strategies are becoming ineffective. We must adopt strategic trade policies,” he added.

According to him, Bangladesh must be selective—pursuing protectionist policies in some areas, engaging in free trade in others, and strengthening ties with China and India where necessary.

“At times, we may capture Vietnam’s market, and at times, Vietnam may capture ours. We might even impose tariffs on American products. A multi-pronged strategy is essential,” he said.

But, Bangladesh Institute of International and Strategic Studies (BIISS) Research Director and economist Dr Mahfuz Kabir presented a different view, saying that Bangladesh cannot swiftly redirect its export markets.

“Eighty-five percent of our exports come from the apparel sector, which must remain intact. In the long term, we may consider diversification, but immediate alternatives are limited,” he said.

Winners and Losers in the Trade War

Referring to the tariff hike as a trade war, Dr Akash said, “This is a tariff war, and it is uncertain whether we will be the only losers—Trump himself could lose as well.”

He explained that Trump’s policy aims to protect local industries and employment, but it also poses risks.

“Affordable goods, particularly from China, will become expensive for American consumers, increasing their cost of living. Although their wages might rise, real income could decline,” he noted.

Akash said the new tariff regime will affect not only China but also Bangladesh, Vietnam, and other developing countries. As a result, Bangladeshi export prices in the US will rise, potentially reducing demand and decreasing foreign currency earnings.

How Much Will Bangladesh Suffer?

Dr Akash believes the 37% tariff on Bangladeshi products will have a severe impact. “Seventy-six percent of our export revenue comes from the garment sector. If prices rise by 37%, significant repercussions are inevitable.”

The extent of the damage depends on the distribution of Bangladeshi exports across different regions.

“A substantial portion of our apparel exports go to the US, so this will be a major blow,” he said.

Dr Mahfuz Kabir added that the US currently accounts for 19% of Bangladesh’s total exports. “With one-fifth of our exports going there, a 37% tariff will have a considerable impact,” he said.

India and Pakistan to Benefit

Dr Kabir argued that the primary beneficiaries of this tariff hike will be India and Pakistan. “Many of Bangladesh’s orders will shift to these countries, which is deeply concerning.”

The US has imposed tariffs of 26% on Indian and 29% on Pakistani products. As India’s export range closely resembles Bangladesh’s, it may gain a competitive advantage.

Dr Kabir warned that American buyers might prioritise India and Pakistan over Bangladesh due to rising costs, while also exploring closer alternatives such as Honduras.

“Even though Vietnam faces a 44% tariff—higher than Bangladesh—its trade agreement with the US might offer it some leverage,” he noted. “Sri Lanka faces a similar situation, but neither country is in a position to overtake Bangladesh in competition.”

Nonetheless, new competitors such as Honduras, Egypt and Turkey are emerging, posing fresh challenges for Bangladesh’s apparel exports.

To mitigate the impact of the tariffs, Bangladesh must engage in discussions with the Trump administration, according to Dr Kabir. “We must leverage the TICFA agreement. While the tariff decision was made via executive order, complicating negotiations, a strategic approach is necessary.”

TICFA mandates bilateral discussions in case of trade disputes. But, since this decision was taken at the presidential level, bypassing the US Trade Department, direct negotiations may prove challenging.

“If Bangladesh’s National Board of Revenue (NBR) reviews tariffs on US imports, the Commerce Ministry can inform the US Trade Department.

Meanwhile, the Foreign Ministry should attempt to engage directly with the White House,” he suggested.

Dr Kabir believes that sending a strong message to the US about reviewing tariffs on American products could encourage the Trump administration to reconsider its stance. “If we assess our tariff structure on US imports, Trump might reciprocate.

Since Bangladesh does not import substantial daily necessities from the US, reducing tariffs will require broader trade adjustments.”

Concerns of Industries

Mohammad Hatem, President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), expressed grave concerns over the potential repercussions for the apparel sector.

“We initially thought that if Bangladesh remained exempt from US tariffs, we could capitalise on export opportunities. However, the 37% tariff has nullified that advantage,” he said.

Asked why Bangladesh will be hit with a higher tariff than China, India and Pakistan, Hatem explained that the decision stems from retaliatory tariff policies.

“US exports to Bangladesh face a 74% tariff. Bangladesh, therefore, faced a 50% retaliatory tariff hike, putting us in a precarious position,” he said.

Hatem urged the government to initiate bilateral talks with the US as soon as possible.

“Given Bangladesh’s heavy reliance on US-imported yarn for garment production, both nations have vested interests. If we reach an agreement, the US administration may reconsider the imposed tariff,” he said.

The 37% tariff on Bangladeshi products presents a formidable challenge, particularly for the country’s apparel sector.

While diversification and strategic trade policies could provide long-term solutions, immediate negotiations with the Trump administration appear to be the best course of action.

The coming months will determine whether Bangladesh can successfully navigate this economic hurdle. - UNB