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As promised, Donald Trump, President of the United States of America (USA), has imposed reciprocal tariffs on more than 180 countries. He slapped the tariffs on Wednesday last through an executive order titled 'regulating imports with a reciprocal tariff to rectify trade practices that contribute to large and persistent annual United States goods trade deficits.' His move aims to address the 'undue' trade deficits faced by the US with its trading partners. In his 4,700 words written order, Trump argued that a lack of reciprocity in bilateral trade, disparate tariff rates and non-tariff barriers, and US trading partners' economic policies suppressing domestic wages and consumption 'constitute an unusual and extraordinary threat to the national security and economy of the United States.' He also mentioned that the threat is reflected in the large and persistent annual US goods trade deficits. As President of the US, Trump argued, his highest duty is ensuring the country's and its citizens' national and economic security. So he has declared 'a national emergency arising from conditions reflected in large and persistent annual US goods trade deficits.' He added that the deficits have grown by over 40 per cent in the past five years alone, reaching $1.2 trillion in 2024.
The imposition of reciprocal tariffs and 10 per cent universal levies has already created global anger and disappointment. Big nations like the European Union (EU) and China reacted sharply and threatened to impose counter-tariffs. On Friday, China hit back by announcing the imposition of reciprocal 34 per cent tariffs on all imports from the US with effect from April 10. The global financial market has tumbled due to Trump's escalation of a worldwide trade war. Tariffs on China, the world's biggest goods exporter, will rise to more than 54 per cent after Trump imposed a further 34 per cent duty on top of the 20 per cent levies he placed on the Asian nation this year. The EU will face total tariffs as high as 20 per cent, while imports from Japan - one of Washington's closest allies - will face tariffs of 24 per cent. There is a 10 per cent tariff on UK exports. For Bangladesh, the reciprocal tariff rate is 37 per cent. The reciprocal tariffs are due to take effect on April 9.
Trump's belief that the US trade deficit with any country is a reflection of unfair trade practices and 'cheating' has led his administration to adopt a unique formula for determining reciprocal tariffs. This formula, which has left trade economists scratching their heads, involves dividing the US trade deficit with a country by the value of goods that country exports to the US. The resulting figure is then considered as the 'tariffs charged to the USA, including currency manipulation and trade barriers.' Finally, the US president halves this figure to determine the reciprocal tariffs.
For instance, the US bilateral trade deficit with Bangladesh was $6.16 billion in 2024, with exports from Bangladesh to the US totaling $8.36 billion. By dividing the deficit by the total exports, we arrive at a figure of 0.74. According to the Trump administration's formula, this means that Bangladesh has imposed a 74 per cent tariff on US goods. Halving this value results in a reciprocal tariff of 37 per cent, which is what Trump has imposed on Bangladesh's exports.
The Trump administration's determination of the tariff rates charged to the USA puzzled everyone. Some argued that it is an arbitrary mechanism defying the most favoured nation (MFN) applied tariff rates, while some mentioned that, given the urgency of the situation, it looked like the 'Trump administration created an estimate that fits their policy goals.' For instance, Bangladesh's MFN applied (simple average) tariff rate is 14.10 per cent for all products. For agriculture, it is 17.70 per cent, and for non-agriculture, it is 13.50 per cent. Imports from the US faced an 8.5 per cent simple average tariff rate in 2022, while the weighted average rate was 15.20 per cent, according to the World Tariff Profile 2024 published by the World Trade Organization (WTO). Moreover, rates of tariff vary from product to product.
The imposition of 37 per cent of the reciprocal tariff on Bangladesh is inconsistent with various norms and regulations of the WTO. It is subject to challenge in the multilateral trade body. Last month, Canada and China filed complaints against the US for imposing and enhancing tariffs on the number of products these countries produce. For instance, Canada claimed that the announced additional US ad valorem duties of 25 per cent on all non-energy goods and 10 per cent on energy goods originating in Canada are 'inconsistent with various provisions of the General Agreement on Tariffs and Trade (GATT) 1994 as well as the WTO's Trade Facilitation Agreement (TFA).' So, Canada formally requested WTO dispute consultations with the US in this connection.
However, Bangladesh and most of the countries are not in a position to go to the WTO seeking dispute consultations with the US for obvious reasons. Trump doesn't like WTO, and in his first term, he blocked the appointment of judges in the dispute settlement panel of the organisation. Biden continued the step, turning the WTO dispute settlement mechanism partially dysfunctional. In his current term, Trump will maintain the stance and may even act aggressively to make the whole organisation dysfunctional. Only a few countries will take the risk to drag the US into WTO.
Suggestions have started flowing from various quarters for the Bangladesh government to address the big challenge. However, many of those reflect the lack of understanding on the matter. One suggestion is to immediately reduce the tariffs on US products and increase the imports of goods from the country. It is not possible to increase the imports immediately. Moreover, there are some problems with unilaterally reducing tariffs on imports from the US. As there is no bilateral free trade agreement (FTA) between Bangladesh and the USA, any unilateral move by Bangladesh to reduce tariffs will breach the WTO MFN principle. In that case, any other trading partner like India may raise objections to dragging Bangladesh into WTO, which will be troublesome.
Against this backdrop, Dhaka needs to maintain its restraints before addressing Washington's reciprocal tariff. Instead, the country must carefully watch what other countries, especially competitors and peers, are doing. The government may also explore the options to initiate talks with the US under TICFA, which provides a unique platform. As the USA is a developed country, Bangladesh cannot sign a Preferential Trade Agreement (PTA). So, negotiation to sign an FTA for goods with the USA may be the only option to address the challenge in the long term. It will help cut tariffs by both countries, widening opportunities to enhance the exports of ready-made garments (RMG), which is 84 per cent of Bangladesh's total exports to the US.