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Bangladesh looking to make the most of US-China trade war

  • Published at 09:40 pm July 13th, 2019
Bangladesh looking to make the most of US-China trade war
Bangladesh exports to US

Bangladesh’s leather exports to the US market already have gained from the trade war, registering a 34% growth in the just concluded fiscal year

Apex Footwear Limited, a local leather goods and footwear manufacturer and exporter, has recently been audited by two US brands expressing their intent to purchase goods from Bangladesh as part of their relocation plan from China.

These two buyers are new, who started negotiation with the Apex Footwear in recent times to tie up with Bangladeshi manufacturers — a phenomenon triggered by the ongoing US-China trade war.

Bangladesh’s leather exports to the US market already have gained from the trade war, registering a 34% growth in the just concluded fiscal year. 

According to Export Promotion Bureau (EPB) data, exporting leather and leather goods including footwear Bangladesh earned $207.13 million, up by 34.10%, which was $154.47 million in the previous fiscal year.

“As a spill-over effect of the US-China tariff tension, work orders from the existing importers already increased. Besides, new brands are willing to source leather shoes from us. Though tariff has not been imposed yet, some buyers are trying to relocate their sourcing base gradually,”  Abdul Momen Bhuiyan, deputy managing director of Apex Footwear Ltd, has told Dhaka Tribune. 

"Vietnam is already saturated with orders shifted from China, while synthetic and non-leather  goods are moving to Cambodia. Leather shoes are coming towards Bangladesh but it will take some times," says Momen.

"Two American new brands audited our factory. We are in the process and waiting to get their responses, which hopefully will turn into reality through placement of work orders," Momen adds. 

Like the leather industry, the trade war has opened scopes for other sectors, especially the apparel goods, to grow further in the US market taking the advantage of the tension. 

MB Knit Fashion Ltd, a Naryanganj-based knitwear products manufacturers, is supplying about three lakh pieces of T-shirt to two new brands for the last six month, which used to source from China.

Bangladesh’s apparel exports to the US market stood at $6.13 billion, up by 14.60%, which was $5.35 billion in the FY18.  

Meanwhile, Bangladesh’s exports to US market rose by 14.92% or  $893 million to $6.88 billion, which was $5.98 billion in the previous fiscal year. US alone imported 16.96% of total Bangladesh’s export to the global markets. 

“After the escalation of the trade war, two American buyers contacted me, who used to procure from Chinese makers, for sourcing basic T-shirts from Bangladesh,” Mohammad Hatem, managing director of MB Knit Fashion Ltd, has told Dhaka Tribune.

" I am supplying T-shirts worth $300,000 a month, which is an impact of the tariff tension between the US and China," Hatem mentions.

In addition, a good number of new retailers are thinking to relocate their businesses in Bangladesh considering prices of goods, who have already started contacting manufacturers and my colleagues are receiving queries from them," he informs.

As per sources in the apparel sector, Walmart will import knitwear products (T-shirt) worth $190 million out of its total purchase worth $220 million from here.

"Currently, there are 5,733 tariff lines on imports worth $200 billion which include apparel goods worth $3.7 billion dollar. This is currently under 25% duty, imposed by the US, on China,” BGMEA President Rubana Huq has told Dhaka Tribune.  

"In general, US import has grown 11% on a month on month basis. As per year on year growth figures, volumes are up by 5.5% and value is up by 6.6%," says Rubana, also managing director of Mohammadi Group. 

Bangladesh and Cambodia have gained 10.2% in year on year growth, Pakistan 10.16%, India 8.5%, China 6.8%, Vietnam 4.7%, so Bangladesh continues to grow but the growth in value terms must be looked into, she adds.

How to reap maximum benefit

There are challenges for Bangladesh in grabbing more works orders from the western retailers as the country's infrastructure is still inefficient and producing only basic products.

The sharp rise in Bangladesh exports to the US is due to tariff war between US and China, which also contributes a lion share to overall exports. 

“Though Vietnam has gained more from the trade war, a good number of work orders moved to Bangladesh, which pushed up exports to US sharply,” World Bank Bangladesh Lead Economist Zahid Hussain tells Dhaka Tribune.

"It could be higher if Bangladesh had had high value addition to apparel goods," he notes.  

"In new tariff list, there is a good number of products, which Bangladesh can produces. So, we need to be prepared quickly to take the advantage as the it may not last long," Zahid points out.          

As price competitiveness is an advantage for Bangladesh, the manufacturers have to move to increasing the productivity through technology upgrade and automation to remain competitive, suggests the economist.   

 Moreover, Bangladesh has to attract investment, which is being relocated from China, to sustain the growth as new investment will increase production capacity.

As a probable impacts of the trade war, foreign investment in China would witness adverse impacts as investors will be unwilling to invest fearing further escalation, Centre for Policy Dialogue (CPD) Research Director Khondaker Golam Moazzem says.

"So, the investors are now thinking beyond Vietnam as it is almost saturated and Bangladesh is at the top on the list. Bangladesh needs to focus on grabbing desired investment to create employment and increasing manufacturing capacity," he mentions.

He also calls for improving the ease of doing business by improving infrastructure to attract investment. 

In addition, businesspeople and economists think that government initiatives of establishing 100 special economic zones (SEZs) could play a big role in attracting investments. 

US-China trade war 

Analysis by Bloomberg Economics shows that for the thousands of categories of Chinese goods that saw tariffs imposed from July 2018, US imports were down 26% year-on-year in the first quarter of 2019.

The world economy could lose$1.2 trillion of output by 2021 if the trade war escalates, according to Bloomberg Economics. That estimate is based on 25% tariffs on all US-China trade and a 10% drop in equity markets. 

According to a new survey from Reuters, China's economy is expected to grow by 6.2% this year, approaching a near 30-year low hampered by the hundreds of billions of dollars in tariffs levied by the Trump administration over the last year. 

Most recently, President Trump raised tariffs on $200 billion of Chinese goods to 25% from 10% in May. 

The tit-for-tat trade war has seen American and Chinese orders for more than half of the 1,981 tariffed products so far being re-routed to other countries, including Vietnam and Malaysia.