After a lot of struggles, negotiations, deals, and promises, Trump’s "Liberation Day tariffs" have been set at 20% for Bangladesh. Compared with peer competitors, this rate neither provides any competitive advantage nor puts the country at a disadvantage. However, the discussion on the tariff should not be limited to whether this rate is in the country's interest or against it; instead, analysis should focus on how Bangladesh ultimately lost the opportunity to address its own problems again.
While the world argued that Trump’s counter-tariffs are damaging global trade and deviating from the US’s own free trade agenda, Bangladesh should have used this incident to tackle its economic weaknesses and implement real reforms instead of relying on one-time bandages to temporarily safeguard its economy.
Bangladesh's economy, especially foreign reserves, has long depended on its remittance and export proceeds from the RMG sector. However, the sector has not just developed itself but has also cultivated its own weakness over the years. Bangladesh as a country put all its export eggs in the RMG basket and similarly the sector itself put its stakes highly on the US market. As a result, in April of this year, when the Trump administration’s retaliatory tariff policy, a 37% tariff was imposed on Bangladeshi products, the BGMEA went into panic fearing the blow it might experience
In the last fiscal year 2023-24, a total of 7,561 Bangladeshi enterprises exported goods around the world amounting to $42.69 billion. The US received $5.95bn worth of exports from 2,326 Bangladeshi exporters. Among them, approximately 280 RMG factories rely solely on the US market for exports, while over 600 other factories export between 75% and 99% of their goods to the US. Undoubtedly, over-reliance on a single export destination is a blow to these specific firms. The lack of diversification in export products and markets has always been pointed out by policy-makers and businesses were advised to expand their export basket both in terms of products and destination.
As there was immense pressure on the already troubled economy, Bangladesh had no choice but to negotiate with the US for securing a good deal. The motive of the US was also the same; it wanted to bring countries on a bilateral negotiation table instead of a global one. Every nation moved with the same agenda: To secure a lower tariff, if possible zero tariff; but with different negotiation cards.
Amidst multifaceted discussions and criticism, Bangladesh kept pursuing its diplomatic efforts to reduce tariffs. The country signed agreements with the US for the import of wheat, soybeans, and LNG, and made a significant deal for the purchase of 25 Boeing airplanes. Finally, on July 31, the White House declared the tariff rate to be 20% for the country.
This latest tariff cut is encouraging for the short term. As Bangladesh's RMG factory has been valued because of the price advantage, with a tariff of additional 20%, it will still have that competitive advantage. Thus, the negotiation seems to be successful. However, this rate has been a damaging deal for the country in the long run.
What the country gave up to secure a lower tariff rate is the extent of power to formulate its policies independently. The country can no longer inquire for economic viability and be benefited from the cheaper price of global spot markets for the products spontaneously. Then again, the Trump administration’s tariff policy is neither one-time nor fixed, but rather a variable and unpredictable system. For example, while tariff negotiations with India reached almost 20%, considering India's transaction with Russia, the tariff was set to 50%. While India looked to make deals with Russia to safeguard its economy, a threat of 100% or more tariff has been made by Trump himself. Given such uncertainties even after a believed close relation with India, it is difficult for Bangladesh to find full reassurance on the promises of the Trump administration.
Had the country embraced the primary blow of the tariff, it might have come up with a stronger, more shock-resistant economy. Businesses, for their own survival, would have chosen to look for more diverse export destinations, bringing out more quality products. Pharmaceutical companies would have focused more on RnD to tackle the effect of losing TRIPS after LDC graduation, instead of enlarging their business into exporting generic drugs to the US. Instead of just limiting itself to negotiate with the US, Bangladesh could have also locked bilateral deals with other countries which do have a demand for the RMG and other products the country produces.
Thus, in the bargaining, though Bangladesh retained its competitive advantage with a 20% tariff, it lost the opportunity to diversify its exports. Undoubtedly, Bangladesh had to face an export decrease of significant amount due to the tariff, but as the export of RMG sector imports raw material, the import would have also reduced. Considering RMG export brings 20-30% value addition net of import, if Bangladesh could attain its remittance inflow the Balance of Payment of the country wouldn't have been strained as much as the BGMEA predicted.
For a stronger economy what Bangladesh needs first is to ensure skilled labour and easy services for the workforce and keep the increased remittance inflow ongoing. And then work on export diversification, helping other sectors to grow beside the garments industry and finally focus on waste management that has huge potential for the country.
It is high time Bangladesh worked on establishing a more diversified, stable, and competitive trade framework. Expanding alternative markets, enhancing capacity, and reducing labour unrest are the key areas Bangladesh must focus on. Efforts should also be made to reclaim orders lost to China and other competitors due to high tariffs. Moreover, Bangladesh must elevate its brand value in the global market -- not only through competitive pricing but also by delivering quality products and services.
Only through long-term labour reforms, well-planned preparation, and prudent strategies can Bangladesh find a pathway that not only guarantees market access but also opens a new door for sustained competitiveness.
Anik Dey is a freelance contributor.
