Buying local goods in time of trade war

Like much of the world, Bangladesh built its economy around international trade with other countries. This reliance on exports and imports has been one of the cornerstones of the country's economic growth since its independence. It wasn't meant to be a bad thing because for nearly a century, the global economy has been driven by countries buying and selling goods. Economists have labelled it as globalisation and have been pushing for it since they believe when countries trade freely, it generates more prosperity for everyone involved with the commerce.

However, that long-held principle is now being tested. With US President Donald Trump's imposition of sweeping trade tariffs, a plan he paused for most countries for three months, the world appears to be turning toward protectionism. While it is still unclear how far-reaching the changes will be, it is evident that countries like Bangladesh that are deeply reliant on exports will likely bear significant impacts.

On April 2, when announcing "reciprocal" tariffs on nearly all imported goods, President Trump said, "If you want your tariff rate to be zero, then you build your product right here in America because there is no tariff if you build your plant, your product in America." This is a protectionist policy intended to discourage US imports. Apparently, Trump administration believes any country's exports to the US has to be balanced with its imports from the US, otherwise it will be penalised with tariffs.

As the world's largest importer of goods, adoption of such a stance by the US has significant global implications. When it treats its trade deficit with another country as a loss and seeks to impose tariffs proportional to that deficit, it risks setting off a chain reaction. As a consequence, affected countries may retaliate or impose their own trade restrictions to protect their balance of payments.

In the last fiscal year, Bangladesh had a $6.2 billion trade surplus with the US largely due to strong demand in the US market for Bangladesh's high-quality, reasonably priced apparel. However, under the new trade logic, it makes Bangladesh a target. While President Trump may think trade deficit as bad, this view is flawed. As argued by Nobel laureate Paul Krugman, no one considers it a problem to have a trade deficit with their local grocery store. The store sells goods to a customer who doesn't necessarily sell anything back, but no one sees this as unfair. If that's not considered negative for an individual, why should it be negative for a country? Nevertheless, as long as the US continues to interpret trade imbalances negatively, Bangladesh must reassess its import-export strategies accordingly.

While enjoying a trade surplus with the US, Bangladesh faces considerable trade deficits with other major partners including approximately $20 billion with China, $10 billion with India and $600 million with Pakistan annually. Should exports to the US face headwinds, the country must adjust by re-evaluating its imports. Bangladesh could consider imposing tariffs on foreign products that have viable local alternatives, especially from countries with whom it runs large trade deficits. Ironically, there are instances where the opposite seems to be occurring. For example, India, which enjoys a significant trade surplus with Bangladesh, imposed non-tariff and para-tariff barriers such as anti-dumping duties on certain Bangladeshi export items. In a new world order of economic nationalism, such disparities must be addressed.

Given that reserves of foreign currency are finite, a reduction in export earnings should be matched by a corresponding decrease in import expenditure. However, this reduction in imports cannot be achieved overnight. Instead, a strategic, long-term plan is needed to reduce reliance on foreign goods. To that end, Bangladesh could adopt a 15-year roadmap to restructure its economy so that it can gradually build capacities to replace imported items with local alternatives.

Among Bangladesh's top imports are cotton and cotton yarn, primarily sourced from China and India, and vital for the dominant readymade garments industry. Currently local cotton production meets only 2.0-3.0 percent of national demand even though the country has suitable climate conditions to produce much more. The good news is Bangladesh has developed high-yielding cotton varieties with desirable fibre quality, which if effectively utilised by local farmers could present significant opportunity for import substitution. To capitalise on this, the government can take proactive steps such as offering incentives to farmers and tax benefits to mills that use locally produced cotton. The transition thus gets encouraged.

Looking ahead, Bangladesh must also diversify its export destinations to reduce risks associated with over-reliance on a single market, as exemplified by the current situation with the US. Nearly one-fifth of Bangladesh's exports go to the US, and this level of dependence can turn into vulnerability. The quality of Bangladeshi products is evident from their acceptance in competitive markets like the US and parts of Europe. To build on this strength, the government should actively pursue diplomatic outreach and trade agreements to identify and cultivate new export markets for these high-quality goods.

Equally important is strengthening domestic self-reliance. Economic nationalism appears to be on the rise in various countries where advocates are calling for spending the taxpayers' money at home as long as the costs remain reasonable. In India, the government under Prime Minister Narendra Modi has promoted the "Make in India" initiative to actively encourage local manufacturing. To avoid appearing overtly protectionist, his administration has strategically combined this push with efforts to attract foreign investment. Similarly, in Bangladesh campaigns urging consumers to boycott some items of foreign origin frequently circulate on social media. Although the impact of these calls on sales may be limited, such campaigns can still damage brand reputations and strengthen public sentiment in favour of local goods.

With a substantial consumer base exceeding 160 million, Bangladesh stands to gain significantly from prioritising local products. Encouraging consumers to choose domestically manufactured goods would not only conserve valuable foreign currency but also create jobs and support the growth of local industries.

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