Trade policies play a crucial role in shaping global economic relations. The imposition of tariffs by US President Donald Trump is a departure from traditional free trade principles promoted by the World Trade Organization (WTO). On February 1, 2025, President Trump announced the imposition of new tariffs on three countries. As per the announcement, from February 4, imports from Canada and Mexico will face a 25 percent tariff while those from China will face a 10 percent tariff in the US. This policy shift has significant implications not only for economic growth and income distribution in these countries, but also for global trade and the US economy. Meanwhile, Canada and Mexico have promised to impose retaliatory tariffs on the import of US products to their respective countries. China, on the other hand, has announced to file a case against the US at the WTO.

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Trump’s America First doctrine and its ripple effects on Bangladesh

As a trade partner of the US, there are apprehensions as to how Bangladesh may experience the impact of such trade measures. The impact of Trump's tariff imposition on certain countries could have ripple effects on others in various ways.

First, the introduction of these tariffs is poised to disrupt established trade flows. Canada and Mexico, being the US's immediate neighbours and key trading partners, are particularly vulnerable. In 2023, Canada's exports to the US made up 78 percent of its total exports, while Mexico's were 80 percent. The 25 percent tariff imposition could lead to a significant reduction in their export volumes. China will also be affected, but it may be less than that on Canada and Mexico since China may be able to mitigate the impact due to its diversified export markets. In 2023, Chinese exports to the US stood at 15 percent of total exports, while 85 percent was to the rest of the world. Besides, the share of trade in Chinese economy has reduced since the early 2000s, which now accounts for about 37 percent of its GDP compared to over 60 percent in the early 2000s. 

Second, the tariffs are expected to have contractionary effects on Canada's and Mexico's economies. Since they rely heavily on the US market, the increased costs of their goods may lead to reduced demand, factory closures, and job losses. Estimates indicate that Canada's economy could contract by 2-2.6 percent annually. As a result, over a million jobs could be at risk, particularly in the automotive and oil sectors.

In Mexico, the automotive and agricultural sectors are likely to be hit the hardest. The tariffs may lead to a reduction of economic growth by two percentage points. The automobile industry of Mexico is a large source of employment where more than one million people are employed. The tariff could lead to factory shutdowns and significant layoffs. The reduction in export revenue may also strain public finances and affect social programmes and income distribution.

Third, the US tariff imposition on these countries could also impact its own economy. While higher tariff is imposed to protect domestic industries, reduce trade deficits, increase tax revenue and protect jobs, consumers and businesses may face higher prices for imported goods. Higher production costs would push businesses either to absorb the increased costs or pass them on to consumers, creating inflationary pressures. Consumers could face increased prices for a range of products, including automobiles, electronics, and agricultural products. 

Industries that rely on imported components, such as automotive and electronics manufacturing, could see increased production costs, potentially leading to higher consumer prices and reduced competitiveness. It has been estimated that these tariffs could shrink US economic output by 0.4 percent and increase taxes by $1.2 trillion between 2025 and 2034. The estimated job losses due to such tariffs on the three countries could be 344,000. Another estimate suggests that the new tariffs will lower the incomes of US citizens from all income groups—ranging from about four percent income reduction for the poorest fifth (poorest 20 percent) to about two percent reduction for the wealthiest fifth (richest 20 percent). Businesses that rely on imported raw materials and components may see increased production costs, which could lead to reduced profit margins, layoffs or relocation of production facilities. The uncertainty surrounding trade policies may also deter investment and disrupt supply chains.

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How Trump's economic policies will impact South Asia

For countries like Bangladesh, these developments present both challenges and opportunities as the US is a significant export destination, particularly for apparel products. The tariffs on China could make Bangladeshi goods more competitive in the US market, potentially leading to increased export orders. During the first tenure of the Trump administration, Bangladesh enjoyed a similar spillover effect of the tariff imposed on China. Therefore, it is critical to review the implications for Bangladesh's trade with the US, though Bangladesh is not directly targeted by the new tariffs. As US importers seek alternatives to higher-cost goods due to the recent tariff hike, Bangladesh may find opportunities to increase its exports to the US, particularly in the textile and apparel sectors.

However, there will be competition from other countries that are also aiming to fill the gap left by Canada, Mexico, and China. On the other hand, any global economic slowdown resulting from the tariffs could reduce the overall demand for Bangladeshi exports. To benefit from any possible trade opportunities and sustain growth, Bangladesh needs to strengthen its trade policies, enhance production efficiency, and diversify its export base in an evolving global trade landscape. Therefore, policymakers must work to mitigate potential risks associated with shifting global trade dynamics and seize the evolved opportunities from changes in the tariff regimes of important global trade players.

Dr Fahmida Khatun is executive director at the Centre for Policy Dialogue (CPD) and non-resident senior fellow at the Atlantic Council. Views expressed in this article are the author's own.

Views expressed in this article are the author's own.

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