Navigating export vulnerability, strategic response

As the initial three-month pause approached its end, the United States started announcing new reciprocal tariff rates, generally in accordance with the initial rates released in April. While the Donald Trump-led administration has offered a small window for countries to strike a better deal before the tariffs come into effect on August 1, the latest development is bound to introduce new uncertainty into global trade and the economy.

For Bangladesh, the readjusted 35 percent tariff rate is certainly a harsh economic blow, especially to the readymade garment industry. With US tariffs on Bangladeshi imports more than doubling from roughly 15 percent, the sharp and dramatic hike has the potential to erode the price competitiveness of Bangladesh's garments in its biggest export market.

In 2024 alone, Bangladesh exported around $8.5 billion to the US. The burden of this tariff hike will fall heavily on garment manufacturers and the millions of workers they employ, a majority of whom are women, raising the risks of slower growth, job losses, and a rise in poverty. These are setbacks with wide-ranging economic and social consequences.

The rationale behind these reciprocal tariffs is weak, and this has added to the concerns. Among the 14 countries targeted in the first round, Bangladesh's 35 percent rate is among the highest. If the tariff rates on its competitors eventually prove to be lower, Bangladesh would face a serious competitive disadvantage, making supply chain decision-making more difficult and eroding the confidence of buyers and investors.

The broader implications are serious. Increased costs may encourage US buyers to shift orders to countries with lower tariff burdens. The Bangladeshi economy, which relies heavily on garments for over 80 percent of its annual export revenues, is especially vulnerable.

It is also disappointing that the Bangladeshi negotiators involved in bilateral tariff discussions with the US have seemingly failed to secure any favourable outcomes. The inability to reach a more balanced bilateral agreement only increases Bangladesh's vulnerability in a rapidly changing global trade environment and geopolitical shifts.

There is no denying that in an increasingly volatile and unpredictable global trading regime, countries like Bangladesh—characterised by highly concentrated export baskets, uncompetitive domestic business and investment climates, and limited diplomatic leverage—are particularly at risk. In this context, Bangladesh must adopt a strategic mix of responses to safeguard its economic future.

First, export diversification and competitiveness must be prioritised. This involves investing in productivity, upgrading technology, and developing industries beyond garments. Dependence on a narrow range of products and markets, primarily North America and Europe, makes Bangladesh highly susceptible to external shocks. Product and market diversification is no longer optional; it is essential.

Second, it is critical to accelerate negotiations on free trade agreements (FTAs) with key trading partners. Bangladesh must actively pursue FTAs with major developing economies in Asia, Africa, and Latin America and leverage South-South cooperation. Preferential access and the removal of trade barriers will help expand export markets and reduce the risk of overdependence.

Third, comprehensive domestic trade reform is urgently needed. This includes simplifying the trade regime by lowering tariffs, reducing non-tariff barriers, and streamlining import-export procedures. These reforms will not only strengthen Bangladesh's negotiating position in trade talks but also lower input costs, attract foreign investment, and support sectoral diversification.

As international trade rules continue to evolve, Bangladesh must respond promptly, strategically, and in a multifaceted manner. Failure to adapt quickly risks deepening economic vulnerabilities and undermining future prospects.

The write is executive director of the South Asian Network on Economic Modeling (Sanem)