Better for trade competitiveness, hard to bear tradeoff costs

Better for Bangladesh's trade competitiveness with peers but hard for the exchequer to bear tradeoff costs, say experts, economists and exporters about the conditional US tariff cut.

They consider the pared-down 20-percent reciprocal tariff on Bangladeshi exports as a relatively better outcome than the initially proposed 35 per cent.

They note that the uniform tariff keeps Bangladesh competitive with regional peers like Vietnam and Cambodia.

However, securing this rate required significant concessions, including commitment to purchasing Boeing aircraft, increasing US imports such as wheat and LNG, and implementing reforms on IP rights and labour standards.

Analysts warn these obligations could strain government finances and foreign relations, stressing the need for institutional strengthening and lowering business costs to maintain export competitiveness.

Dr Zaidi Sattar, Chairman of the Policy Research Institute Bangladesh (PRI), says the newly set 20-percent tariff imposed by the United States on all Bangladeshi exports is a 'decent, not superb', outcome. In response to the tariff adjustment, Dr Sattar notes that while the uniform 20-percent tariff across all export categories may not be ideal, it does not leave Bangladesh at a disadvantage compared to its counterparts.

"Our main competitors are in the same boat, or a bit worse off," he told The Financial Express, referring to regional rivals such as Cambodia, Vietnam, and Pakistan.

However, Dr Sattar has stressed that a relatively favourable trade deal with the United States has now become critical to Bangladesh's sustained competitiveness. "The traditional basis of our advantage (low labour cost) is no longer enough. A strong trade relationship with the US is increasingly essential."

Professor Mustafizur Rahman, a Distinguished Fellow at the Centre for Policy Dialogue (CPD), says the initially proposed 35-percent tariff on Bangladeshi exports has been scaled down to 20 per cent to some relief for local exporters. He notes that the reduction averts a deeper blow to the country's export competitiveness, particularly against regional rivals such as Vietnam, Cambodia, Indonesia, Pakistan, and India.

Had the duty remained at 35 percent, Bangladesh's key export sectors-especially garments-would have faced significantly steeper competition on the US market, he adds.

"In that context, achieving a 15-percentage-point reduction is a positive outcome," he comments.

However, the reduced tariff came at a price, Professor Mustafiz said, adding that Bangladesh had to make several concessions, including policy commitments and procurement promises, the details of which remain undisclosed due to a non-disclosure clause in the agreement.

Among the known tradeoffs, Bangladesh reportedly agreed to purchase 25 Boeing aircraft, increasing imports of certain goods-such as wheat and LNG-from the United States. Additionally, commitments have been made in areas such as enforcement of intellectual property laws, strengthening institutional capacity, and ensuring trade-union rights.

"We will have to uphold these commitments over the long term, and they will leave lasting footprints on our economic and policy framework," he says.

The concessions raise broader geopolitical and economic questions, he says, placing example, increasing US imports may reduce purchases from other trading partners such as China or Russia, potentially straining bilateral ties.

Also, boosting imports of expensive items like LNG or wheat could raise government expenditures significantly.

The commitment to purchasing Boeing aircraft alone is expected to cost an estimated Tk 500 billion--a burden that may not have been urgent at this time.

Moreover, questions remain as to whether the tariff concessions granted to the United States would need to be extended to other WTO members under the principle of non-discrimination-an issue that could further erode Bangladesh's customs revenue.

He thinks the exporters' ability to remain competitive under the new tariff regime will depend in part on how much of the additional duty cost can be passed on to the US buyers.

Dr Selim Raihan, Professor of Economics at the University of Dhaka, and executive director, South Asian Network on Economic Modeling (Sanem), says the reduction in the US reciprocal tariff rate for Bangladesh is a welcome development for the country's export sector.

Bangladesh's new tariff rate now aligns more closely with those of its key competitors on the US market, suggesting a reduced risk of trade diversion and a lower likelihood of significant disruption to its exports, particularly in the readymade-garment sector, he told the FE.

However, "A notable element of uncertainty, however, remains in the global trade landscape," he said, adding that the reciprocal tariff rate for China has yet to be finalized.

Given China's central role in global manufacturing and its competitive overlap with Bangladesh in several export categories, the eventual US decision on China's tariff rate will be pivotal in shaping future patterns of global trade, the economics professor notes.

If China is subject to significantly higher tariffs, Bangladesh and other South and Southeast Asian exporters may see a shift in demand in their favour.

"Conversely, a more favourable rate for China could intensify competition. As such, the final terms for China will be critical in determining how trade flows realign in the months ahead."

Dr Mohammad Abdur Razzaque, Chairman of the Research and Policy Integration for Development (RAPID), terms the 20-perecnt US tariff on Bangladeshi exports as a relief in terms of maintaining parity with competitors.

"It is positive that Bangladesh will now pay the same duty as other exporting countries, ensuring a level playing field," he says.

However, he cautions that the overall trade deal must be assessed in the light of the broader commitments made by Bangladesh, many of which remain undisclosed. "Understanding the full scope of our obligations is essential to evaluate whether this outcome truly serves our long-term interests."

Dr Razzaque underscores that the RMG sector was Bangladesh's key concern. "Higher tariffs could have eroded our competitiveness. Thankfully, that risk has now eased." Still, he points out, with the previous 15-percent duty joined by a fresh 20 per cent, the total tariff burden on garments is now substantial.

"If similar tariffs apply to all countries, the US apparel market could shrink due to rising prices and inflation," he notes, adding that if Bangladeshi entrepreneurs absorb even half the additional duty, prices for US consumers could increase by up to 10 per cent.

On the upside, Dr Razzaque believes Bangladesh may benefit from trade diversion from China, especially as US-China tariff disputes remain unsettled. "If the duty on Chinese garments remains higher, Bangladesh could attract more orders-possibly even shifting factories in the long term."

However, he warns that competitors like Cambodia and Vietnam remain strong, and Bangladesh must not be complacent.

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