US’ new tariffs put BD on uncertain ground

The new "reciprocal" tariff rates imposed by President Donald Trump on almost all of America's trading partners including Bangladesh on April 2 are deeply unreasonable and troubling on multiple fronts. This move signals a complete departure from the global trading system that the United States itself painstakingly helped build in the decades following the Second World War and from which it greatly benefited. Economists around the world have called it one of the most damaging and unnecessary economic missteps in modern history and warned of consequences comparable to those of the 1930s. The impact is already being felt globally, with financial markets, Brent crude, and currency exchanges experiencing sharp declines. If these tariffs remain in place, they will no doubt destabilise global commerce and wreak untold havoc on households, businesses, and economies worldwide.

The US presented its new tariffs as reciprocal, claiming that other countries unfairly support their domestic industries through tariffs, currency manipulation, and trade barriers that disadvantage American companies. The administration argued that these new, supposedly discounted reciprocal tariffs were a proportional response to such unfair practices. Thus, according to the Trump administration's logic, Bangladesh allegedly imposes a 74 per cent tariff on US imports, thereby justifying a 37 per cent tariff on Bangladeshi exports to the US. However, this claim is demonstrably false. Bangladesh's customs duties, which are based on the Harmonized System (HS) code, range from 0 per cent to 25 per cent and are non-country specific. This makes the claim of a 74 per cent tariff clearly inaccurate and undermines the very foundation of the reciprocity argument. What actually happened is that the US calculated the tariff by dividing Bangladesh's $6.2 billion trade deficit with the US by its $8.4 billion exports to the US, then halved the result to arrive at 37 per cent. The same arbitrary formula was applied to other countries as well, revealing that these measures are not truly reciprocal but rather aimed at punishing trade surpluses. It also means there is no clear or actionable path for Bangladesh to take in order to have the tariff removed even if it wanted to. Bangladesh could eliminate all of its import tariffs ranging from 0 per cent to 25 per cent and still run a significant trade surplus with the US. 

Despite Bangladesh's least developed country (LDC) status, the US has historically excluded its readymade garments export from duty-free access, which results in an average 15 per cent tariff. This is why the newly imposed 37 per cent reciprocal tariff will effectively add 22 per cent to this existing burden. Even though Bangladesh's apparel rivals are also subject to higher tariffs, they are not uniform. Competitors like China (34 per cent), Vietnam (46 per cent), Cambodia (49 per cent) and Sri Lanka (44 per cent) face steep rates, but India (26 per cent) faces milder tariffs. Given that most competitors face similar tariffs, the competitive landscape may remain stable for now. However, there's a real risk that manufacturers, deterred by the high tariffs, could move production to countries like India for lower tariff, or explore emerging garment export hubs like Brazil and the Philippines where lower duties and growing garment industries offer alternatives.

There is no escaping the disruption caused by the new tariffs. Countries are already retaliating with their own measures, as China has done, that may escalate into full-blown global trade war. Under such circumstances, the US is expected to pursue bilateral negotiations with individual countries to secure more favourable terms. Bangladesh must be prepared to engage in such talks, but what leverage does it have when negotiating with a much larger trading partner is a key question. In the long term, Bangladesh must focus on diversifying both its export markets and product base to build resilience against future shocks of this nature.