How dicey is the Trump tariff deal?

The announcement of a 20 per cent reciprocal tariff on all imports from Bangladesh by Donald Trump, the president of the United States (US), has brought a palpable sense of relief in Bangladesh. This announcement, made on July 31, set new reciprocal tariffs on 70 countries, including Bangladesh. The tariff rates on these countries range between 10 per cent and 71 per cent and came into effect last Thursday. 

Earlier on July 8, the US president proposed 35 per cent reciprocal tariff on Bangladesh but suspended the same for three weeks to give room for negotiation. During the period, the official trade delegation of Bangladesh rushed to Washington to negotiate with the USTR officials and reach a deal with the Trump administration reducing the reciprocal tariff to a reasonable rate. It is to be noted that Trump first announced a 37.50 per cent reciprocal tariff on Bangladesh on April 2 this year, when he also imposed different rates of tariff on more than 100 countries along with a 10 per cent universal tariff. Soon, responding to requests from different trade partners, he suspended levying of the proposed tariffs for 90 days, literally asking them to make a deal individually with the US to get tariff reduction. Dr Muhammad Yunus, chief adviser of the interim government, in a letter to Trump, also requested him to provide a three-month time before finalising the tariff.

Nevertheless, three months is not enough at all for a country like Bangladesh to negotiate a reasonable trade deal or free trade agreement (FTA) with the world's most powerful nation. The structure of the US FTA with any-country goes beyond trade in goods and services. It extensively covers investment, intellectual property rights and standards of labour and environment. The US believes in 'deep integration' and so full liberalisation of goods and services is an inherent component of any bilateral (BFTA) with the US. Moreover, the BFTA goes beyond the obligation of multilateral Intellectual Property Rights (IPRs) or Trade Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organization (WTO). The US also stresses investment protection as embodied in the FTA, mainly for the protection of the interests of the US-based Multi-National Entities (MNEs). There are also provisions for environment and labour standards, and any BFTA with the US can't be complete without the inclusion of these two components. Thus, a BFTA with the US is actually a comprehensive agreement that supports economic and even political reforms in the partner countries. This is the reason why very few countries sign any BFTA with the US. So far, only 20 nations have signed BFTA with the US. 

After becoming the president of the US in 2016, Trump put stress on reaching BFTA with the trading partners and asked them to negotiate bilaterally instead of multilaterally under the umbrella of the WTO.  But during the four years of his first term, no country signed any BFTA mainly due to the complex structure and time-consuming negotiation. In his current term, Trump has virtually abandoned the practice of prolonged negotiation and started to use tariffs as the main tool to compel other countries to sign trade agreements with the US. It seems that tariffs as a weapon are working, as a number of trading partners have agreed to sign bilateral deals to avoid excessive tariffs.  

The Bangladesh delegation, led by the commerce adviser, demonstrated unwavering determination and hard work in convincing the Trump administration to agree to a lower tariff on Bangladesh.  In exchange, they agreed to a set of conditions, offering trade and non-trade benefits to the US, along with almost zero tariffs to almost all the products importable from that country. Though the details of the negotiated deal are yet to be unveiled formally, it is learnt from the media that Bangladesh is likely to purchase 25 aeroplanes from Boeing, the US aviation giant, along with an increase in imports of wheat, edible oil, crude fuel oil, cotton and military equipment. The country is also likely to sign a number of international agreements on IP rights and address the US concern on data protection act.  Finding no other alternative within such a short period of time, it appears Bangladesh has mostly aligned with the US FTA structure. One, however, needs to look into the past before making any final comment on the latest development.

Twelve years ago, the Obama administration suspended the GSP Generalised System of Preference (GSP) facility due to the Rana Plaza tragedy that claimed more than 1,100 lives of garment workers. Thus, the US gave a message to Bangladesh that prompted the country to sign the Trade and Investment Cooperation Forum Agreement (TICFA) in the same year. As GSP covered only one per cent of the total exports to the US, policymakers did not put much effort into restoring the facility. Instead, discussion on signing a BFTA with the US gained momentum. It had also paused for two reasons. First, Bangladesh did not sign any FTA with any country, let alone with a big trade partner. Second, the gradual deterioration of the relationship between the now ousted Hasina regime and the US.   If the policymakers put some serious effort into advancing a bilateral trade deal with the US at that time, instead of putting much effort into graduation from the Least Developed Country (LDC) status, Bangladesh might be in a better position today in dealing with Trump's tariffs. 

A big question now is whether Trump will stick to the 20 per cent tariff on Bangladesh. What will happen if he suddenly shifts his position even before signing the bilateral reciprocal trade agreement? Or even after signing the agreement? The answer is unknown as it is not possible to rule out such a possibility. Trump has already proved it by increasing the 25 per cent tariff on India to 50 per cent within 24 hours. He also asked India to stop purchasing oil from Russia or face the higher tariff on certain products, including textiles and clothing, after August 21. This is good news for Bangladesh as the country's clothing exports will face less competition with India in the US market at least for some time in the near future. Indian apparel exporters fear that many US buyers would move to Bangladesh and Vietnam because of higher tariff. 

asjadulk@gmaill.com