Bangladesh at the rough end of Trump’s radical realignment of US trade policy
Trade has long been a cornerstone of economic development and international diplomacy. By enabling the exchange of goods, services, and resources, it allows nations to specialize based on comparative advantage-driving efficiency, productivity, and improved living standards. From the ancient Silk Road to today's multilateral trading systems, global trade has not only spurred economic growth but also fostered cultural exchange and strengthened diplomatic ties.
Yet, the foundation of global trade is now under stress. On April 2, 2025, US President Donald Trump announced a sweeping Reciprocal Tariff policy aimed at revitalizing domestic industry, reducing trade deficits, and countering what he described as unfair foreign trade practices. The policy introduced a 10% universal tariff on all imports and country-specific tariffs targeting nations with significant trade surpluses with the US.
Following a 90-day implementation pause, the policy took effect in stages. By July 9, fourteen countries-including Bangladesh, Japan, Vietnam, and South Korea-had received formal tariff notifications, with rates ranging from 25% to 40%. Bangladesh's finalized tariff was set at 35%, effective August 1, placing it among the most severely impacted nations despite its modest trade footprint. While marginally lower than the initial 37% proposed in April, it remains significantly higher than the 20% rate secured by Vietnam through bilateral negotiation. Tariff decisions for other competitors such as India and Pakistan are pending, but existing rates on Vietnam, China, and Indonesia have already raised alarm among Bangladeshi exporters, who fear a loss of competitiveness in the US apparel market.
These new tariffs compound existing duties. According to the US International Trade Commission, the average tariff on Bangladeshi exports in 2024 was approximately 15%. With the additional 35%, the effective tariff burden rises to 50%, severely undermining Bangladesh's export competitiveness. President Trump has also warned that countries aligning with the BRICS bloc may face an additional 10% tariff, while sector-specific duties-targeting automobiles, semiconductors, and pharmaceuticals-remain under review. These developments underscore the seemingly disproportionate nature of the US tariff regime.
Likely Impacts
Bangladesh faces a huge burden under the Trump administration's Reciprocal Tariff regime. Despite contributing less than 0.25% of total US imports and maintaining a modest $6.2 billion trade surplus, it has been hit with a 35% tariff-one of the highest among the 14 targeted countries. This tariff disproportionately threatens Bangladesh's ready-made garment (RMG) sector, the backbone of its export sector. The RMG industry accounts for over 80% of national exports and employs 4 million workers, the majority of whom are women. The United States is Bangladesh's single largest export destination, absorbing more than $7 billion in apparel annually. With the new 35% tariff added to the existing average duty of 15%, the effective tariff burden rises to 50%, severely undermining price competitiveness.
The implementation of Reciprocal Tariffs under the Trump administration highlights a departure from established norms with established norms of proportional reciprocity and fairness within multilateral trading frameworks (Table 1).
Table 1 also highlights the inconsistencies of the US tariff regime. Bangladesh, with one of the smallest trade surpluses and the greatest reliance on apparel exports, faces one of the most punitive rates. In contrast, countries with exponentially larger surpluses, such as Vietnam and China, have secured lower or negotiated ceilings.
According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the tariff shock could trigger a 15-20% drop in US orders, as buyers begin shifting sourcing to countries with more favorable trade terms. The pricing gap is likely to shift US retailers to consider alternatives such as Vietnam, India, Pakistan, Egypt, and Kenya, where tariff rates are lower or negotiations are still underway.
Ripple Effects
The tariff is not merely a sectoral blow-it may threaten Bangladesh's broader export base and macroeconomic stability. The RMG sector is interwoven with multiple supporting industries. The disruption triggers a cascade across supply chains, service sectors, and financial institutions. The potential cascading impacts of US Tariffs on Bangladesh Economy is presented in (Table 2).
The RMG sector in Bangladesh is deeply interwoven with a network of supporting industries, forming a critical ecosystem for national economic activity and employment generation. The recent imposition of a 35% US tariff is expected to exert pressure on this interconnected system, potentially disrupting multiple supply and service chains.
In the textiles industry, demand for raw materials and fabrics may decline as export orders contract, particularly for US-bound shipments. Similarly, packaging industries could face reduced demand for cartons, labels, and polybags as the volume of export-ready goods drops. The transport and logistics sector may also experience a slowdown, with fewer shipments leading to underutilized fleets and possible inefficiencies at ports and inland container depots.
Financial institutions may come under growing strain, especially as export-reliant small and medium enterprises (SMEs) struggle with liquidity shortages. This could result in delayed repayments and a potential uptick in non-performing loans. The insurance sector, closely tied to cargo movement, may likewise experience a drop in premiums and increased exposure to claims.
Taken together, these ripple effects are likely to weaken Bangladesh's broader industrial foundation. They may dampen labor demand, contribute to job insecurity, and intensify the wider economic uncertainty and social stress already facing the country.
The Response
In an effort to manage the growing trade tensions with the United States and reduce its trade surplus, the Bangladesh government has initiated several strategic measures aimed at damage control. The Trump administration's Reciprocal Tariff policy is pushing Bangladesh toward trade concessions, particularly in sectors such as agriculture, aviation, and energy. As part of this approach, the government has reportedly agreed to import 300,000 tonnes of wheat from the US under a government-to-government (G2G) agreement. The deal comes despite the wheat being $20-$25 per tonne more expensive than supplies from traditional partners like India, Russia and Ukraine, and with higher shipping costs as well.
Bangladesh is also exploring opportunities to expand its import portfolio. These efforts include potential procurement of Boeing aircraft to support the country's aviation growth, as well as streamlining procedures and developing warehousing facilities to facilitate the import of US cotton for the textile sector. In addition, the government is reviewing the possibility of tariff adjustments on selected US exports-such as gas turbines, semiconductors, and medical equipment-with a view to promoting balanced and mutually beneficial trade relations.
Risk of Trade Distortions, Welfare Loss
To address US trade grievances and safeguard its RMG exports, Bangladesh has adopted a diplomatic posture aimed at narrowing the bilateral trade surplus. This strategy, while intended to de-escalate tensions and signal goodwill, raises concerns when assessed through the lens of trade theory and economic efficiency.
Through a government-to-government (G2G) procurement agreement, the Government of Bangladesh plans to increase imports from the United States-most notably through the purchase of wheat and the potential acquisition of aircraft. While these moves may align with strategic or diplomatic objectives, serious concerns remain regarding their price competitiveness and fiscal implications.
Reports indicate that US wheat is significantly more expensive-by $20 to $25 per tonne-compared to supplies from traditional partners such as India or Russia, in addition to incurring higher shipping costs. To prevent domestic food inflation, the government may need to subsidize the higher import costs, thereby straining public finances or, alternatively, allowing consumer prices to rise-both of which carry economic and political consequences.
Similarly, the government is encouraging the private sector to import more cotton from the US While US cotton is known for its high quality, its price remains higher than that of regional suppliers like India, Pakistan, and Brazil. For a price-sensitive and highly competitive sector like RMG, this move could significantly raise input costs, eroding Bangladesh's competitiveness in global markets.
Such a shift could be justified if accompanied by reciprocal trade concessions-particularly a reduction in the 35% US tariff on Bangladeshi apparel. In that case, the higher input costs might be offset by improved market access or lower export duties. However, in the absence of any preferential trade arrangement or tariff relief, the increased cost of US cotton would simply raise production costs and make Bangladeshi RMG products less competitive, not only in the US but also in other key markets.
These steps, while politically expedient, raise concerns under economic rationale. As Jacob Viner (1950) argued, trade diversion without trade creation leads to welfare loss. Similarly, David Ricardo's theory of comparative advantage cautions against politically driven procurement that ignores cost-efficiency. Bangladesh's current trajectory risks reinforcing structural asymmetries, inflating public expenditures, and weakening its bargaining position in future trade talks.
President Trump's Reciprocal Tariff policy is more than a unilateral economic measure-it represents a direct challenge to the rules-based multilateral trading system anchored by the World Trade Organization (WTO). By imposing country-specific tariffs outside established mechanisms, the policy violates core WTO principles, particularly the Most Favoured Nation (MFN) clause, which prohibits discriminatory tariffs among trading partners. Such actions could weaken the institutional framework that is vital for smaller and developing countries like Bangladesh, which rely on predictable, rules-based trade to maintain access to global markets.
Rather than seeking short-term relief through lop-sided concessions, Bangladesh should pursue a forward-looking, principled strategy-grounded in its transition from LDC to middle-income status. This includes leveraging the 2013 Trade and Investment Cooperation Forum Agreement (TICFA), the bilateral framework for promoting reciprocal trade, investment facilitation, and regulatory alignment between Bangladesh and the United States.
Such a strategic approach must emphasize geographic diversification to reduce dependence on a single market and expand into emerging regions; product diversification to move toward higher-value and resilient export categories; and trade diplomacy that balances bilateral engagement with multilateral commitments while safeguarding domestic competitiveness. It should further prioritize the pursuit of regional and preferential trade agreements to broaden market access. Above all, Bangladesh must continue to champion multilateralism by upholding a fair, rules-based trading order that ensures equitable treatment for all partners.
Dr Golam Rasul is Chair of the Department of Economics at IUBAT