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Notwithstanding the tariff blitz initiated by the United States (US) President Donald Trump three months ago, global trade registered a modest growth in the first half of the current year. It remains uncertain whether the pace of growth will continue in the second half of the year, as Trump has escalated the trade war by imposing new tariffs on 14 countries, including Bangladesh. He is also set to announce tariffs on other countries gradually by the end of this month.
Earlier on April 2, Trump imposed 10 per cent universal tariffs on all trading partners, which came into effect on April 5. Besides, he also announced additional tariffs at various rates on more than 60 trading partners, but later suspended the imposition for 90 days, allowing the countries to negotiate with the US. The 90-day deadline ended on Wednesday, and he further extended the deadline up to August 1. Nevertheless, his announcement of new tariffs on 14 countries came on Monday last or two days before his July 9 deadline, reflecting the uncertainty of Trump's tariff policy.
Trump argued that he is not imposing any fresh tariffs but reciprocating what the trading partners have been doing for a long time. This concept, termed as 'reciprocal tariff', is essentially a response to what the US perceives as unfair trade practices. The Trump administration strongly believes that trading partners are enjoying trade surpluses with the US due to bad trade practices and at the cost of the US.
For instance, Bangladesh has long enjoyed a trade surplus with the US as the country exports more than it imports from the US. By applying a simplistic but flawed formula, Trump initially determined the rate of so-called reciprocal tariffs on trading partners. For instance, the US bilateral trade deficit with Bangladesh was $6.16 billion in 2024. Exports from Bangladesh to the US or imports by the US from Bangladesh totalled $8.36 billion in 2024. So, the result of dividing the deficit by the total imports of the US from Bangladesh is 0.74. According to the Trump administration's formula, the figure means that Bangladesh has imposed a 74 per cent tariff on US goods, no matter how unbelievable it sounds. Trump then halved the value to determine a reciprocal tariff of 37 per cent on Bangladesh's exports.
In the latest announcement, Trump imposed 35 per cent tariffs on Bangladeshi products imported into the US. As Bangladesh is currently facing an average import tariff of 15 per cent when entering the US market, an additional 35 per cent tariff will result in a total tariff of 50 per cent on Bangladesh. The high tariff will increase the price of Bangladeshi products by at least 35 per cent, making these more costly for US consumers. So, they will reduce the consumption, leading to a decline in demand for Bangladeshi goods. The net result will be a decline in exports from the country to its largest destination.
Trump, however, hinted that there is still room for negotiation and Bangladesh needs to work hard to get a reduced rate of tariffs. There is a big problem in this connection due to the unpredictability and inconsistency of the Trump administration. Since January 20, when Trump officially assumed the presidency of the US, he has demonstrated a series of inconsistent moves, puzzling everyone. So, it is difficult to predict whether his administration will stick to any deal after the negotiation or push for sudden change within a short time.
Moreover, during the last couple of years of Hasina's regime, bilateral relations between Bangladesh and the US gradually turned bitter. With strong backing from India, Hasina continued to ignore the necessity of improving the strategic and economic relationship with the US. A few diplomatic missteps were also there. All these squeezed the routes of negotiation for the greater interest of Bangladesh.
As a student-led mass uprising in July last year forced Hasina to flee the country and take shelter in India, after killing some 1,400 people, a window of opportunity opened to streamline the bilateral relations with the US. Nevertheless, it is not an easy task. A complex dynamics is at work. The Yunus-led interim government has been trying to move ahead. According to some observers, Trump's return to power in the US made things tough.
Some are of the view that the imposition of 35 per cent tariffs on Bangladesh is not driven by economic interests only; some geopolitical factors are also there. They also speculate that a strong presence of the Indian lobby may have played a role in Trump's imposition of higher tariffs on Bangladesh. India has been negotiating a bilateral trade deal with the US, and there is a move from the Indian side to corner its trade competitors to some extent. So, it is not unlikely that India has been trying to encourage or instigate higher tariffs on its competitors. India may face a 20 per cent tariff due to a bilateral trade deal, as it is considering providing further tariff reductions on US products.
The World Tariff Profile 2025, released by the World Trade Organisation (WTO) last week showed that the bound tariff rate of the US is 3.4 per cent and the MFN applied rate is 3.3 per cent for all products. The simple meaning of the statistics is that the US is committed to the WTO to enhance the tariff rate up to 3.40 per cent on average, although the country is now applying a tariff at the rate of 3.30 per cent on all products on average. For agricultural products, both the bound and MFN applied tariff rates are, however, higher -- 5.0 per cent and 4.20 per cent, respectively. In other words, the way Trump is increasing tariffs is a clear breach of WTO rules and commitments.
President Trump, however, does not care about his country's commitment to the WTO and its members. He also knows that breaching the obligation will not bring any reprisal to his country from the trading partners through the lengthy process of the WTO dispute settlement mechanism. Moreover, during his first term, he blocked the appointment of jurists for the panel, making the Dispute Settlement Body (DSB) of the multilateral trade organisation partially dysfunctional.
Now, by initiating a systematic tariff war, Trump is driving the other nations to gradually abandon the WTO as a part of his administration's objective to replace the rule-based global order with the whims of powerful nations. Trump and his team believe in the policy of 'might is right', where a few powerful and big nations will dominate and determine the direction of the global order, including world trade. Tariff is the key instrument of Trump to reset the international trading system, where rule-based multilateralism will get a little space.