Trump tariff: implications for Bangladesh and the world

The US President Donald Trump on April 2, 2025 slapped reciprocal tariffs, effectively reversing nearly all US tariff liberalisation since the Great Depression of the 1930s. This move has apparently signaled the onset of a global tariff war reminiscent of the Smoot-Hawley Tariff of 1930, which imposed a 20 per cent duty on 20,000 imported items. While its intention was to protect American farmers and businesses, it had unintended consequences that exacerbated the Great Depression. The act led to retaliatory tariffs from other countries, significantly reducing international trade by 67 per cent between 1929 and 1934.

President Trump has attempted to justify this policy as a measure to protect US industries and correct trade imbalances, asserting that the US has been unfairly treated by other nations. Viewing trade as a zero-sum game, he has argued that lower import tariffs compared to export tariffs need to be stopped to realign trade dynamics in favour of the United States.

Bangladesh, under the new paradigm, now faces a 37 per cent reciprocal tariff. In 2023, Bangladeshi imports to the US were subject to an average tariff of 15.7 per cent, generating $1.02 billion in customs duties on $8.28 billion worth of goods.

Textiles and apparel, already burdened by some of the highest US tariffs, continue to face challenges. PEW Research has highlighted the disproportionately high taxes on clothing and footwear imports from Bangladesh in the US Despite this, Bangladesh is subject to reciprocal tariffs due to USTR estimates that the combined tariff, para-tariff, and tariff equivalent of non-tariff barriers against US imports into Bangladesh is 74 per cent.

Amidst this drastic shift in US trade policy, there is a silver lining: competitors face similar or even higher reciprocal tariffs. For example, Vietnam is subject to 46 per cent, India 26 per cent, Cambodia 49 per cent, Sri Lanka 44 per cent, Thailand 36 per cent, Pakistan 29 per cent, Myanmar 44 per cent, Laos 48 per cent, China 34 per cent, and Indonesia 32 per cent. This offers little comfort in the face of a potential global demand contraction triggered by the Trump tariffs.

Global merchandise trade may witness a one per cent contraction this year due to Trump's tariff war and the latest reciprocal tariff burden on nations, according to a statement from the World Trade Organisation (WTO). Ngozi Okonjo-Iweala, Director-General of the WTO has observed, "the WTO Secretariat is closely monitoring and analysing the measures announced by the United States on April 2, 2025. Many members have reached out to us, and we are actively engaging with them in response to their questions about the potential impact on their economies and the global trading system. While the situation is rapidly evolving, our initial estimates suggest that these measures, coupled with those introduced since the beginning of the year, could lead to an overall contraction of around 1 per cent in global merchandise trade volumes this year". She added, "I am deeply concerned about this decline and the potential for escalation into a tariff war, with a cycle of retaliatory measures leading to further declines in trade. I encourage members to utilize this forum to engage constructively and seek cooperative solutions."

      Similarly, IMF Chief Kristalina Georgieva has also observed that US tariffs "clearly represent a significant risk to the global outlook and Washington has been urged to work with its trade partners constructively to resolve trade tensions and reduce uncertainty."

This awkward evolving dimension has led geo-strategists and socio-economists to try and identify how damage can be controlled so that there can be a reasonably smooth transition in Bangladesh's economic dimensions. The interesting aspect is that goods currently en route to the US will be subject to the new tariffs.

This has raised the question as to who will bear the cost. Some economists are suggesting that our strategic aim should be to shift the tariff burden onto buyers. A key advantage is that buyers have limited alternatives, as many of our competitors face similar or even higher reciprocal tariffs. Such an assumption does not appear to be completely true. We should also explore the possibility of qualifying our exports for duty exemptions by emphasising their status as low-priced essential products.

At this point one needs to refer also to some of the dimensions of the USTR.

Economist Zahid Hussain has indicated that the USTR's 2025 Foreign Trade Barriers report serves as a negotiating guide, outlining reforms necessary to reduce the combined tariff rate on US imports. It highlights tariff and non-tariff barriers in Bangladesh's import policies, corruption in government procurement, inadequate intellectual property protections, unrestricted government access to computer systems, data localisation requirements for classified information, criminalisation of certain forms of free expression, internet shutdowns, equity caps on foreign ownership, delays in repatriating investment-related capital, export subsidies, worker rights violations, and bribery and corruption. The report acknowledges the interim government's recognition of these issues and its commitment to reform. For instance, it notes that the interim government has agreed to formal repayment agreements with US companies owed arrears and pledged to streamline bureaucratic processes for repatriating investment-related capital.

In this context, Bangladesh needs to influence the goodwill generated by these reform commitments to finalise and implement changes that could reduce the combined tariff rate, ensuring a more favourable trade relationship moving forward.

Another economist Selim Raihan has observed that the new US tariffs are likely to impact Bangladesh in multiple ways, particularly affecting exports, a key pillar of its economy. He has noted, "such tariff measures could significantly hurt exports, particularly the ready-made garment (RMG) sector, the backbone of Bangladesh's economy." He has also indicated that we need to remember that in a highly competitive global apparel market, US importers may favour suppliers from countries with lower costs even after the reciprocal tariff, reducing Bangladesh's market share. It has also been pointed out by this economist that "beyond RMG, other industries such as leather, footwear, and pharmaceuticals, which have increasingly relied on the US market, are also at risk."

All these factors suggest that although Bangladesh already lacks duty-free access to the US. Rather the US government suspended the Generalized System of Preferences (GSP) following the Rana Plaza disaster in 2013. The country's upcoming graduation from Least Developed Country (LDC) status in 2026 now faces further risks.

Within this matrix, Professor MM Akash has given a positive suggestion. He has emphasised the necessity of diversifying Bangladesh's export base to mitigate the impact of the tariff and has suggested the need to tackle this awkward situation by expanding our trade to multiple countries with a variety of products.  According to him, Bangladesh needs to be selective, pursuing protectionist policies in some areas, engaging in free trade in others, and strengthening ties with China and India where necessary. However, Bangladesh Institute of International and Strategic Studies (BIISS) Research Director and economist Dr. Mahfuz Kabir has presented a slightly different view, saying that Bangladesh cannot swiftly redirect its export markets and has reminded us that "eighty-five per cent of our exports come from the apparel sector, which must remain intact. In the long term, we may consider diversification, but immediate alternatives are limited."

Dr. Zaidi Sattar, Chairman of the Policy Research Institute of Bangladesh (PRI), has in this context made an interesting observation. He has pointed out that "Bangladesh's exporters may retain their relative competitiveness, but the overall impact remains uncertain due to reduced trade flows as tit-for-tat tariffs raise prices and dampen demand worldwide." In this context, he has observed that "China has also been hit hard as it is now subject to 54 per cent additional tariffs because of the 20 per cent tariffs already slapped on its imports" -- explaining how Bangladesh could benefit from trade diversion away from China as global buyers seek alternative suppliers. Bangladesh, according to him, has the relative advantages of cost competitiveness, high production capacities, increasing environmental compliance, and reliable and dynamic entrepreneurs.

Talking over US tariffs and global developments, the former World Bank economist termed US "reciprocal tariffs" announced on April 02 'a reality' and added that these tariffs, if they last, will fundamentally change world trade. Ostensibly, according to him, the US has invoked "economic emergency" and "national security" Article XXI exception to WTO rules. In practice, it is by far the most appalling attack yet on the global rules-based trade order.

One needs to conclude by referring to another suggestion by Dr Sattar. He advises reducing anti-export bias and incentivising exports to the US market and that, "RMG exporters need to work with buyers on ways to share the cost escalation from tariffs through adjustment of prices, within the constraints of very limited market power for Bangladeshi suppliers."

 Trump views tariffs as a catch-all solution-to raise revenue, reduce trade deficits, reshore manufacturing, protect national security, ensure reciprocity, and even penalise countries for issues like migration or drug trade. However, history is filled with examples of failed attempts at tariff protection. Targeting trading partners does little to resolve domestic challenges and instead harms the US economy while fostering foreign resentment and retaliation. A universal tariff on all imports is neither practical nor effective. Even as a negotiating tool, tariffs cause significant collateral damage.

Though Trump has suspended reciprocal tariffs for three months on April 9, one has to wait and see what happens within the next six months.

Muhammad Zamir, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance.  muhammadzamir0@gmail.com