Trump’s tariffs threaten Bangladesh’s garment industry. Where should the battle begin?

“I’m not well, brother; 60 percent of our exports go to the US. This is a huge shock for us. Overwhelming!”

Shovon Islam, the managing director of Sparrow Garment Ltd, appeared stunned hours after US President Donald Trump announced sweeping changes to global tariff policy on Thursday.

Trump’s ambition to “Make America Great Again” has weighed heavily on the most important export-focused industry of the country. Although they engage in trade with 40 buyers across 20 countries, the vast majority of their work orders are from the US.

The sweeping penalties announced against the serene backdrop of the White House Rose Garden on Wednesday immediately unleashed turbulence across world markets and drew condemnation from other leaders now facing the end of an era of trade liberalisation that has shaped the global order for decades.

Trump said the "reciprocal" tariffs were a response to duties and other non-tariff barriers put on US goods. He argued that the new levies will boost manufacturing jobs at home.

He announced fresh tariffs and rate hikes on a range of products from more than 100 countries, with Bangladeshi exports facing a 37 percent fresh supplementary duty upon entry.

The US tariff rate on Bangladeshi products was previously 15 percent on average, and an additional 37 percent kicks the rate to a staggering 52 percent now. So Bangladesh will now have to pay Tk 52 for exporting goods worth Tk 100 to the US.

Shovon believes this will cause Bangladesh to see bigger price spikes than India.

He said, “This [new] tariff was added to whatever it was before. In this case, India is in a very advantageous position. India lowered duties by $3bn."

He implied that India's move to cut tariffs caused Trump to impose less duty on Indian exports.

From Apr 9, Indian goods will face tariffs of up to 27 percent. Before the tariff hike, US rates across trading partners averaged 3.3 percent, among the lowest globally, compared to India's 17 percent, according to the White House.

The US, however, is imposing even higher tariffs on China, at 54 percent, Cambodia, 49 percent, Vietnam, 46 percent, Sri Lanka 44 percent, and 45 percent for Myanmar while it was 37 percent for Thailand and 29 percent for Pakistan.

Shovon, a former director of the BGMEA, an organisation of ready-made garment manufacturers and exporters, said that now that there is a fear of Bangladesh's share in the US garment market decreasing, import duties on all products coming from there need to be lifted.

“All duties should be lifted immediately,” he said.

In 2024, Bangladesh exported goods worth nearly $8.4 billion to the US, of which $7.34 billion were ready-made garments.

However, since most of the countries competing with Bangladesh in the apparel sector received similar tariff revisions, Professor Mustafizur Rahman, honorary fellow of the Centre for Policy Dialogue (CPD), believes the odds of falling behind in the competition are next to none.

“The tariff is being imposed on our competitors as well. Therefore, we won’t see any big changes in the competition in the US, relatively speaking,” he said.

“Another thing is that the US doesn’t produce apparel either, so their consumers can’t buy from domestic producers. They’ll buy imported garments. So the competitive environment for imports won’t change that much.”

However, the economist predicts a slide in overall demand in the US and global markets in the midst of a “trade war”.

“Many countries will introduce fresh tariffs amid the global trade war which is about to begin. This will have an effect.”

“The overall demand in the US and the world will decline, so global trade is likely to slow down.”

HOW DID TRUMP DETERMINE TARIFFS?

Trump marked the announcement of the fresh tariff policy calling it “Liberation Day”, saying the US had been waiting for the day for a very long time.

"Now it's our turn to prosper, and in so doing use trillions and trillions of dollars to reduce our taxes and pay down our national debt, and it will all happen very quickly," he said.

A list released by the White House states that Bangladesh imposes tariffs of up to 74 percent on US goods. In response, a 37 percent "reduced supplementary tariff" will now be imposed on Bangladeshi goods entering the US market, it said.

The Trump administration says the new move is aimed at countering the "unfair trade practices" of countries that have imposed high tariffs on US exports.

Under the new policy, Trump imposed a 10 percent baseline tariff on all imports from Apr 5, and countries that have “manipulated” the value of the dollar and imposed protective tariffs and non-tariff barriers will be subject to higher supplementary tariffs.

In the tariff chart revealed by Trump, one column marks tariffs imposed on US goods, while the opposite column mentions reduced supplementary duties.

Casually looking over it may make it seem that Bangladesh imposes an average of 74 percent tariff on the products that the US exports.

But the NBR officials said most products from the US have zero or 1 percent tariffs. On gas, it’s 31 percent, while tariffs on edible oil have now been reduced.

Besides, Bangladesh does not impose duties on any specific country. A senior official from the NBR's customs policy branch said such a move is a "clear violation" of global trade policy.

He said that all types of customs duties in Bangladesh are based on the harmonised system (HS) codes, which are applicable to all countries.

The HS code is used in international trade to classify and identify products. This international standard is used to determine customs duties on imports and exports.

Bangladesh's total tariff burden increases due to additional levies, known as “para tariffs”.

For example, cotton, refrigerators, and machinery have an import duty of 0 to 1 percent, but a 15 percent value-added tax (VAT) and a 10 percent advance income tax and advance tax bring the effective tariff rate to 26 percent.

A report in The New York Times said the Trump administration did not consider actual tariff rates imposed by different countries when determining reciprocal tariffs.

Instead, it calculated tariffs based on the US trade deficit with each country.

The deficit was divided by that country's export volume to the US, and the resulting fraction was taken as the tariff rate imposed on US goods.

The administration then described President Trump as “generous” for imposing only half that rate on those countries.

According to the Office of the United States Trade Representative (USTR), the US trade deficit with Bangladesh stands at $6.2 billion, while Bangladesh exported $8.4 billion to the US.

Dividing these figures results in a fraction of 0.74, which the Trump administration rounded up to claim that Bangladesh imposes a 74 percent tariff on US goods.

However, economists have dismissed this calculation as fundamentally flawed.

Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM), said: "If you look at the available information, it's clear that the way these reciprocal tariffs have been calculated is deeply flawed."

"The 74 percent tariff rate assigned to Bangladesh is based on dividing the total trade deficit with the US by Bangladesh’s exports to the US. This method was applied to all countries.

"If this is true, then the reciprocal tariff rates are highly problematic," he said.

Economist Mustafizur Rahman said, "The US administration calculated the tariffs in a way that suggests Bangladesh imposes a 74 percent duty on US imports.

"But on what basis did USTR make this calculation? The claim that Bangladesh imposes a 74 percent duty on US imports does not align with any standard tariff calculations."

He explained, "Our main imports from the US include cotton, scrap iron, and petroleum gas. Cotton has zero tariffs, and scrap iron is also duty-free.

"Only petroleum gas carries a 31 percent duty. It appears that they did not just calculate import duties; they also factored in exchange rates and trade policies," he said.

Bangladesh imports several goods from the US, including grains, seeds, soyabeans, cotton, wheat, maize, gas, edible oil, refrigerators, machinery, and iron and steel products.

Of these, cotton imports alone are worth around $400 million.

On the other hand, Bangladesh's key exports to the US include ready-made garments, footwear, textiles, and agricultural products. Garments account for 90 percent of these exports.

INDIA TO GAIN ADVANTAGE

With higher tariffs imposed on other Asian countries, India is expected to gain a competitive advantage in the US apparel market, according to a Reuters report.

Fazlee Shamim Ehsan, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), echoed this view.

Ehsan, who is also the managing director of Fatullah Apparels Limited, said: "India is now in a better position because its tariff rate is 11 percent lower than Bangladesh's 26 percent."

"In our key export category, a difference of even 4 to 5 percent is a significant factor. This is a low-profit-margin business, and such a gap puts additional pressure on us."

While Vietnam and China were traditionally seen as Bangladesh's main competitors, India was not considered a major rival in the apparel sector.

However, Ehsan believes that is changing.

"We have benefitted from competing with Vietnam in certain areas, but India and Pakistan are now emerging as strong competitors in the US market," he said.

"As India’s production capacity increases, it will naturally capture more market share. They already have a well-established garment industry and a strong supply chain.

"At this point, India is our real challenge. We are not as concerned about other countries."

Sparrow Group MD Shovon pointed out that Bangladesh lags behind in efficiency.

"In terms of efficiency, productivity, and overall competitiveness, we are falling behind. Even with tariffs, we are struggling to stay in the race. Compared with India, we are behind in almost every aspect," he said.

He believes that India will fully utilise its existing capacity, allowing it to expand its market reach.

Prof Selim highlighted the tariff disparity between the two countries.

"India faces a 26 percent tariff, while Bangladesh is burdened with 37 percent. Naturally, India will gain an upper hand in many product categories, especially in garments," he said.

"When Indian policymakers heard about this issue in January, they immediately took action. They are now implementing different policy measures to maximise their advantage."

DID BANGLADESH HAVE ANY PRIOR PREPARATION?

After Trump took office for a second term, his administration imposed higher tariffs on multiple countries, including China, Canada, and Mexico.

As Trump continued to threaten new tariffs, many countries reviewed their trade policies and lowered import duties in response.

Countries like India and Sri Lanka took proactive measures to mitigate the impact.

However, bdnews24.com has learnt that Bangladesh did not take any such initiative.

Speaking to senior government officials on Tuesday, bdnews24.com was told that Bangladesh would formulate strategies only if tariffs were imposed.

Prof Selim believes Bangladesh’s policymakers were in a "comfort zone”.

"They assumed the tariff hikes would only affect India and a few other countries, not Bangladesh," he said.

"But back on Feb 19 and 20, I wrote two Op-Eds—one in The Daily Star and another in Prothom Alo. I clearly warned that Bangladesh was at risk."

He also noted, "Trump made his announcement last night, yet we have seen no response from the National Board of Revenue (NBR) or any key policymakers."

Industrialist Shovon highlighted the lack of action from Bangladesh compared with other nations.

"Sri Lanka has proposed a 100 percent duty-free entry for all American goods. India is renegotiating its terms. Vietnam is also engaging in further negotiations. But Bangladesh has done nothing," he said.

Another exporter Shamim Ehsan pointed out Trump's strict approach.

"Trump has taken a simplified approach—he looked at the average duty rate and imposed half of it. That’s what he has done."

"If you think, ‘this isn’t fair, he doesn’t understand our position, so let’s wait until he takes action’, then that’s not a strategy," Ehsan said.

The managing director of Fatullah Apparels Limited suggested that an early engagement could have made a difference.

"If those working on this issue had provided clear information beforehand, they could have explained that Trump's assumptions were incorrect. They could have clarified that our tariff structure is based on HS codes, not country-specific policies, and that many of our key export items have a zero-duty rate.”

WHAT CAN BANGLADESH DO?

BKMEA Executive President Fazlee Shamim Ehsan emphasised the importance of direct engagement with the US administration amid shifting trade policies.

“We have to explain the actual scenario we have at the moment to them, meaning the Trump administration, who are involved in this, and we have to do our work there,” he said.

“There is nothing else to do outside of this.”

Given the circumstances, he added, negotiation remains the only viable path.

“Since they have given it, we will definitely have to negotiate with them at this point.”

Prof Selim Raihan cautioned against unilateral tariff reductions for the United States, pointing out that such a move would be inconsistent with World Trade Organization rules.

“One thing to note is that we cannot unilaterally reduce tariffs for the US. This is not consistent with the WTO,” he said.

“If we want to do it, we have to do it for everyone. Review them. Our para-tariffs are very high. We have always said that. Rationalise them.”

Beyond tariffs, he stressed the urgency of enhancing Bangladesh’s competitive edge in the global market.

“We know that we have to increase our competitiveness. We have to increase our ability to compete. We cannot survive with our ability to compete solely on low labour costs,” he said.

In an increasingly unpredictable global trade environment, he warned, Bangladesh is particularly vulnerable.

“In this kind of global, unpredictable trade regime, countries like Bangladesh will be the most affected. However, those countries will survive, whose ability to compete is comparatively better.”

Elaborating on why Bangladesh faces an uphill battle, Raihan underscored the gaps in infrastructure, financial institutions, and workforce capabilities.

“If you look at it, their infrastructure is good, their workers are skilled. Then, banks are comparatively in a good position to take loans,” he said.

“The financial sector is better. They will do well. But Bangladesh is much more backward in these areas. So, our concerns are much greater.”

Prof Mustafiz pointed to existing trade mechanisms that Bangladesh could leverage, particularly the Trade and Investment Cooperation Forum Agreement (TICFA).

“What we can do is that we have TICFA. Since there is a platform, the United States should have discussed it earlier. They did not do it,” he said.

“Now, through TICFA, we can raise this discussion there—that how are you calculating, this calculation of 74 percent; from which you have now given an additional 37 percent. And the total stands at 52. How are you calculating this—we can ask.”

With no clear timeline on the current trade policy’s duration, he urged Bangladesh to initiate bilateral negotiations.

“I think we should start bilateral discussions now,” he said.

“The reason is that it has not been said how long this will last. And they will also continue to negotiate these. They will negotiate with different countries.”

Providing examples, he noted that other nations were already striking trade deals with the US.

“For example, Israel has zeroed all imports to the US. Then Thailand says that we will increase imports from the US. So, different people will negotiate.”

“Moreover, since Bangladesh imports cotton from the US and exports it there, there will be an opportunity for negotiation.”

CPD Honorary Fellow Mustafizur highlighted a potential discrepancy in the Trump administration’s trade rhetoric.

“It is saying that ‘we will import from you and manufacture ready-made garments and sell them to you.’ But there is a gap between what Trump is saying and what he is saying, namely that they will show some leniency to those who will produce with US commodities.”

Given this uncertainty, he stressed the importance of Bangladesh preparing itself through the TICFA platform.

WHAT IS THE GOVERNMENT DOING NOW?

NBR Chairman Abdur Rahman Khan acknowledged that Bangladesh’s budget process is unfolding amid the backdrop of newly imposed US tariffs.

“We normally do what we do during budgetary measures, now our budget process is going on. The issue of US tariffs was a consideration here,” he said.

The chairman emphasised that the impact of these tariffs extends beyond Bangladesh.

“And this is not just for us, it has happened worldwide,” he said.

“They have said that there will be an opportunity for negotiation on this. What action will we take after their action—then it seems they will take further action again.”

Abdur noted that he will meet with relevant stakeholders on Sunday to discuss the issue.

“We definitely have to take some measures,” he said.

“Of course, whatever we need to do in the national interest—we will definitely do it.”

Abdur also clarified that Bangladesh does not impose tariffs based on a product’s country of origin.

“They calculate where something goes from which country,” he said.

“The imposition of this duty on the US products that come to Bangladesh means that they assume that it has been imposed on them.”

Bangladesh’s trade relationship with the US primarily involves key imports, he noted.

“We normally import cotton from the US, then edible oil—something like that,” he said.

“Apart from that, we import major items—we are now working on that.”

As officials assess the situation, Abdur acknowledged that precise revenue figures related to these imports are still being gathered.

“I don’t have the data on how much revenue is collected from there, we are just starting to work,” he said.