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On April 2, what was labelled as "liberation day", US President Donald Trump launched his global tariff war against every country in the world, including the uninhabited Heard and McDonald Islands off the coast of Antarctica. His tariffs were labelled as "reciprocal" despite they bore no relationship to any tariffs or other trade barriers these countries imposed on US exports.
Nothing like Trump tariffs have ever been imposed before, they outstrip by far, even the Smoot-Hawley tariffs imposed by the US in the 1930s. Those tariffs ultimately led to the Great Depression and social devastation culminating in Worl War II. Trump tariffs are an economic absurdity raised to new heights disrupting the rule based global trading system with serious implications for developing countries like Bangladesh and their economic future.
Trump imposed a 37 per cent reciprocal tariff (RT) on imports from Bangladesh on that very day chiefly affecting ready-made garments (RMG),triggering alarm among exporters. Washington maintains that the step is taken, because what the US administration calls the effective rate of tariff (a term that encompasses both taxes and regulatory compliance costs) that Bangladesh charges is 74 per cent on US goods.
But Bangladesh also faces disproportionately high taxes on clothing and footwear imports into the US already. Bangladeshi imports into the US were subject to an average tariff of 15.7 per cent. The Trump tariff rate for Bangladesh is higher than for its RMG competitors India (27 per cent) and Pakistan (30 per cent) but less than Cambodia (49 per cent), Sri Lanka (44 per cent), and China (40 per cent).
In fact, Bangladesh remains the most protected economy in the South Asian region and relatively tariff protected compared to other countries in the world, with a significant portion of its tariff lines not bound, meaning the government has the flexibility to raise applied tariff rates. This practice of trade mercantilism also creates uncertainty in market access for manufactured goods. Currently the average nominal tariff rate for imports into Bangladesh stands at 28 per cent and the total tax incidence (TTI) (including all taxes importers pay) is 54 per cent.
It is to be noted that tariffs are a tax that a country imposes on itself as it imposes costs in the same way that a tax on domestic products imposes costs. Tariffs can also harm trading partners, but that doesnot change the fact that the main victim is generally the country imposing tariffs.
There are several taxes that are imposed on imports in Bangladesh, and they include Customs Duty (CD)Value Added Tax (VAT), Supplementary Duty (SD), Regulatory Duty (RD) Advance Income Tax (AIT) and Advance Trade VAT (ATV). Tariffs (CD) are a significant source of government revenue, which greatly complicates efforts to lower tariff rates.
Up until "reciprocal tariffs" (RT) were introduced, Bangladeshi exports faced an average tariff of about 15.7 per cent. If the new tariff eventually come into effect, the average tariff rate could jump to 52.7 per cent.In 2024, Bangladesh exported goods worth nearly $8.4 billion to the US, of which US$7.34 billion were readymade garments (RMG). More than four million people work in the RMG industry in Bangladesh, and most of those workers are women and most of them?live pay check to pay check-are also facing increasing job insecurity. The Trump tariffs could force factory closures ?and workers being laid off, as such the stakes are not only?economic but also existential.
behind a tattered economy.
In fact, the impact of RT goes far beyond the RMG industry and people directly and indirectly associated with it. The flow on effects of any declining export earnings will negatively impact macroeconomic stability of the country, could further exacerbate the balance of payments crisis.
As Bangladesh deals with this latest trade shock, it is becoming increasingly clearer that?the US is being remade by rising American economic nationalism under the banner of "Make America Great Again" (MAGA). But for Bangladesh, this is not merely a matter of the after-effects of US policy - it is?a question of national survival.
Since taking over the rein of the country the interim government headed by Nobel Laureate Mohammad Yunus has faced numerous challenges, from high inflation and unemployment to delays in implementing crucial reforms across the judiciary, political system and economy, primarily due to ongoing law and order issues. Also, there is a growing concern that members of the criminal syndicate run by ousted Hasina are regrouping.
Till now the economic and political situation in Bangladesh remains fragile and fluid. Under such circumstances Trump tariffs are an alarming news for the country because the US is Bangladesh's single largest export destination accounting for about 17 per cent of the country's exports. It is estimated that about 86 per cent of total exports to the US are RMGs. Other goods include leather footwear, leather goods, home textiles.
If Bangladesh wishes to continue to rely on RMG exports, the industry needs to keep pace with technological progress and innovate to remain a relevant player in global apparel trade. Now the future of the RMG industry depends on robotics and AI technologies which will begin to reshape the RMG industry as already happened in most other industries already.
Immediately after the imposition of the tariffs, Head of Bangladesh's interim government Muhammad Yunus has written to US President Donald Trump requesting a three-month pause on a 37 per cent tariff on imports from Bangladesh, citing efforts to boost imports from the US. To reduce the US$6.2 billion trade surplus with the US in 2024, Bangladesh has pledged to add 100 American products to its duty-free list, according to the commerce advisor. "We hope the letter will have a positive impact. Our main goal is to narrow the trade gap," he further added.
On May 7, in a letter to the Commerce Adviser, USTR Jamieson Greer stated that the US administration acknowledges the response from the Bangladesh government and is prepared to begin trade negotiations within the framework of President Trump's "reciprocal tariffs" policy. The US will cooperate closely to address bilateral trade imbalances.
However, on May 16, Trump said U.S. trading partners should expect individual letters from Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick "at a certain point over the next two to three weeks," in which they would be "telling people what they will be paying to do business in the United States." He did not specify which countries would receive letters telling them what they would pay, and which countries still could negotiate.
It is likely that many smaller, poorer countries, not considered to be of great importance to US economic relations, but which were hit by heavy tariffs, will get a letter reimposing the April 2 measures.
One of the objectives of RT is to expand market access for US agricultural products to bridge the trade gap. In fact, Bangladesh mostly imports agricultural products from the US among others. Any trade negotiation with the US to bridge the trade gap will mostly likely involve Bangladesh agreeing to import more agricultural products.
In 2023, the share of agriculture in Bangladesh's gross domestic product (GDP) was 11 per cent, but the sector is a significant employer, with approximately 45 per cent of the total labour force engaged in agricultural activities. The sector is beset with various challenges such as unsafe work environments, low wages, and long working hours. Also, a high proportion of rural women are engaged in farm activities.
Therefore, importation of highly subsidised US farm products could pose a threat to the livelihood of marginal to small farmers and farm labourers notwithstanding the impact on country's drive to attain food grain self-sufficiency. Therefore, if Bangladesh agrees to import more subsidised agricultural products it must make it clear to the US administration that any subsidised agricultural products may be subject to Countervailing duties (CVD), also known as anti-subsidy duties.
CVDs are tariffs on imported goods that are imposed to offset subsidies by the exporting country's government. CVDs help offset any negative domestic impacts that producers of the same good might experience due to competition from foreign subsidised products, in this case subsidised US agricultural products. The WTO permits CVDs to be charged only after proper investigation has been conducted by the importing country into the subsidised exports.
The interim government has already expressed its desire to start negotiations with the Office of the US Trade Representative (USTR) and is reviewing Bangladesh's own?tariffs on American imports in a bid to resolve the standoff. Now in view of Trump's declaration on May 16, it is not clear whether Bangladesh will receive a letter unilaterally deciding the tariff rate for Bangladesh or will be able to negotiate.
In either case, Bangladesh's trade relationship with the US is unlikely to undergo any drastic changes soon, but the Bangladesh government needs to approach the trade imbalance issue very carefully and strategically to ensure that the interest of Bangladeshi farmers are safeguarded.
Bangladesh could also build coalitions with similarly affected countries like Cambodia, Pakistan, Vietnam and Sri Lanka to jointly raise concerns at the WTO-- however symbolic that might be given the WTO has been rendered ineffective by the US.
But the process of bringing about changes in tariff schedules and changes in trade policy in Bangladesh is slow and complicated because of longstanding vested interests who have been benefitting from the current trade regime. Also, the political and bureaucratic systems are deeply corrupt and socially patronage culture is very widespread. As such governance issues thwart the development of a competitive economy in Bangladesh. And Bangladesh can only ignore addressing these issues at its own peril. Business as usual will take Bangladesh nowhere as has been exemplified by the mega projects implemented under the kleptocratic Hasina regime.
Bangladesh ranks 131st out of 167 countries in the Economic Complexity Index, indicating a less diverse economy. Bangladesh is ranked 143rd out of 195 countries in the world for nominal GDP per capita which is around US$2,651, making it a lower-middle-income country.
Trump tariffs now could be a defining moment for Bangladesh keeping in view the current state of the economy. A thorough reimagining of the economy could create new opportunities and spark a long-overdue economic transformation.