Bangladesh braces for tariff war fallout

Bangladesh's export-dependent economy is facing new risks from the escalating tariff war between the US and China, said the CPD yesterday.

"Ultimately, US consumers will have to bear the additional cost of imported goods, and a large portion of that burden will fall on suppliers in countries like Bangladesh," said Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue.

Rahman's comment came at a seminar styled 'Trump reciprocal tariffs and Bangladesh: implications and response' organised yesterday by the think-tank.

Trade between the US and China accounts for 27 percent of global trade and most of it could be impacted by the latest tariff exchanges, he said.

The US has imposed tariffs of up to 145 percent on Chinese goods, prompting China to retaliate with tariffs of up to 125 percent on American products.

This would certainly impact the cost of goods in the US, which, in turn, would reduce people's purchasing power. Subsequently, Bangladesh's exports would be impacted.

In bilateral trade discussions, the United States Trade Representative (USTR) may raise concerns about Bangladesh's tariff rates, intellectual property rights, labour standards and non-tariff barriers like corruption and bribery.

Bangladesh imported 2,515 items from the US last year, of which 2,218 items, worth $2.9 billion, were subject to duties averaging 6.2 percent. However, after rebates, the weighted average import duty stood at just 2.2 percent.

On the other hand, Bangladeshi exports to the US faced an average duty of 15.1 percent. The US government collected $1.27 billion in duties on goods from Bangladesh, while Bangladesh earned only $180 million in duty revenue from American imports.

In total, Bangladesh exported 1,208 items to the US, of which 927 were taxed and 281 items were duty-free.

"What is bothersome in this situation is that we thought that we would get some advantage by writing a letter from the chief adviser and being the first two to put it into the post box," said Rehman Sobhan, chairman of CPD.

Until a much clearer idea of the general direction of the policy of the US government and the outcome of the negotiations with some of its bigger trading partners are obtained, it may not be a good idea to rush to predetermine Bangladesh's position.

"It may not be necessarily to our advantage. Now here again what is bothersome is that negotiations which are going on are not going to be conducted exclusively on the issue of import and export volumes."

Many other factors beyond the USTR trade list are involved in the negotiations.

"One element which is actually invisibly applicable in all negotiations with the Trump government and is highly transactional in all its relationship is the political and strategic variable which will be introduced into the negotiation."

Certainly, for the bigger partners this will be a relevant factor in terms of the concluding part of the negotiation and what type of tariff regime will prevail for them.

"So, this again is an unknown element in that negotiation. So, we are not just engaging in a simple bilateral business arithmetic set of transaction but with a set of high level of unknowns."

All should be worried about as Bangladesh is trying to preserve $8 billion worth of exports to the US.

"At the moment, our principal strategy is to initially try to raise the import from the US and then hope that the export volume that we have can be protected," Sobhan added.

Mostafa Abid Khan, former member of the Bangladesh Trade and Tariff Commission, said Bangladesh will not be able to withstand a 37 percent additional duty. Even if the tariff is divided equally among stakeholders, local exporters cannot absorb the burden. For example, US buyers are currently negotiating with local suppliers to split the 10 percent baseline tariff — 3.33 percent to be borne by the exporter, 3.33 percent by the fabric supplier, and 3.33 percent by the buyer.

At the same time, Bangladesh's trade policies are not yet prepared to sign a free trade agreement (FTA), and since the US tariff is not reciprocal, it will be difficult for Bangladesh to respond effectively, according to Khan. He said the best course of action is to continue dialogue with the United States, as reducing the trade gap by increasing imports from the US within the 90-day pause is not feasible.

In high-income countries, the services sector accounts for 76 percent of the economy as the role of manufacturing declines, but the Trump administration is not acknowledging this reality, he said.

Shams Mahmud, president of the Bangladesh Thai Chamber of Commerce and Industry, said some US buyers have already started holding up work orders at the factory level, and macroeconomic stress from the Trump tariffs is likely.

He warned that plans to boost production of man-made fibre garments in the post-LDC period will face headwinds, as the US was a key market for such value-added apparel. Investment in the sector is also expected to decline. Compounding the pressure, the government has raised industrial gas prices by 33 percent at this critical time.

Taslima Akter Lima, a member of the Commission on Labour Rights, said workers will be among the hardest hit by the Trump tariffs, calling them the "worst sufferers."

Md Mahbubur Rahman, chief executive officer of HSBC Bangladesh, said there are 3.5 billion consumers in Asian countries, and their purchasing power is on the rise. Bangladesh, he said, should place greater focus on expanding into Asian and African markets, including China, India and Japan.

Md Fazlul Hoque, managing director of Plummy Fashions Ltd, estimated that during the 90-day pause, the total tariff burden on garment shipments to the US will approach $200 million. Buyers are expected to pressure local suppliers to absorb $100 million of that, with the rest covered by the buyers. In such a scenario, he said, banks must step in to support exporters, as the outlook beyond the 90-day pause remains uncertain.

Babul Akter, president of the Bangladesh Garment and Industrial Workers Federation, said around 900 garment factories in Bangladesh export to the US, alongside other destinations. He stressed that the issue must be addressed collectively and urged the government to give special attention to exporters shipping to the US. "We are ready to negotiate with the US government," he said, warning that workers will face serious hardship if the tariff storm continues.