Dr. Fahmida Khatun is the Executive Director of the Centre for Policy Dialogue (CPD), one of Bangladesh’s leading economic policy research organizations. She also serves as a board member of Bangladesh Bank and is on the governing body of BRAC, a leading development organization. In an interview with Bonik Barta, she discussed various aspects of the recent U.S. tariff hikes on Bangladeshi products. The interview was conducted by Sabrina Shorna.
The United States has imposed a 35 percent retaliatory tariff on Bangladeshi goods just three months after suspending higher tariffs. What impact do you expect this to have?
U.S. President Donald Trump has imposed a 35 percent retaliatory tariff on Bangladeshi products. On Monday (July 7), he sent letters to 14 countries, including Bangladesh, announcing the new tariff rate. The new rate is set to take effect from August 1. If this is added to the existing 15 percent tariff on Bangladeshi goods, the total tariff will rise to 50 percent. Raising it from 15 to 35 percent alone is already a major hike—but at 50 percent, it will be a severe blow to Bangladesh’s exports; especially the ready-made garments sector. This will undermine Bangladesh’s competitiveness in the U.S. market.
The U.S. has also imposed new tariff rates on some of Bangladesh’s key competitors in garment exports. For example, Vietnam is one of Bangladesh’s top rivals in apparel exports. That country will face a 20 percent retaliatory tariff. That’s 15 percent lower than Bangladesh’s rate. As a result, Vietnam’s competitive edge over Bangladesh will increase. India is another competitor in this sector. It’s not yet known what tariff rate will be imposed on India, but back in April this year, the U.S. had set a 26 percent retaliatory tariff on Indian goods—which is still significantly lower than Bangladesh’s. So, once again, Bangladesh’s competitiveness will fall behind. India is also moving toward a mini trade deal with the U.S., which could further reduce its tariffs, giving it even more advantage over Bangladesh.
In short, the announcement of a 35 percent retaliatory tariff on Bangladeshi goods after a three-month suspension is deeply concerning. The impact will not be limited to export earnings alone. It will hurt the export sector and also have broader negative effects on the overall economy. Banking and insurance services, transport, employment, and income will all be affected. In other words, the consequences of high tariffs on exports will be multi-dimensional and severe—there’s no doubt about that.
What can the government do now to overcome this situation?
To deal with this situation, the first step should be continued diplomatic engagement with U.S. policymakers before the new tariff rate takes effect on August 1. The goal should be to reduce the tariff as much as possible. Although we were given three months to negotiate, it’s now clear that the discussions during that time were not effective. The U.S. has only reduced the tariff by 2 percent, bringing it to 35 percent. In contrast, Vietnam held meaningful talks and offered tariff exemptions on U.S. imports to their market, which helped them reduce the retaliatory tariff on their exports to 20 percent. Despite having the same three-month window, we failed to achieve anything similar.
We should have had more in-depth discussions with all stakeholders, especially exporters, and prepared a list of goods that the U.S. imports from Bangladesh, along with the current tariff rates on those items. But news reports suggest that no such list was sent by the government. Our current fiscal year’s budget included tax exemptions on 100 products. But the key question is how the U.S. views these exemptions—whether they benefited at all from the tariff or tax relief on those 100 products.
Currently, discussions between U.S. Trade Representative (USTR) officials and Bangladeshi officials are ongoing. But exporters and other key players in trade should be involved in these talks. Many of them have said they were kept in the dark. Needless to say, excluding primary stakeholders from such a critical national interest issue is not the right approach.
Some conditions of the tariff deal have also been mentioned…
The terms of the deal haven’t been made public. So it’s hard to comment on them specifically. However, Bangladesh doesn’t exist in isolation. No country does. Every nation must maintain relations with others and abide by international laws and rules. Bangladesh is a member of various global policy-making bodies, including the World Trade Organization (WTO). As a WTO member, Bangladesh cannot act outside the established rules. Doing so would mean disregarding international norms.
Powerful countries might be able to bypass certain rules, but smaller nations like Bangladesh cannot. That’s why any decision must be made with a broader, long-term perspective. And above all, protecting the country’s interests should remain the top priority.
Trying to reduce high tariffs while also having to accept certain conditions — what do you think should be done if Bangladesh faces such dual crisis?
Economics cannot be separated from politics. Trump’s retaliatory tariffs have a geopolitical dimension. Because trade involves geopolitical factors, various countries become part of it. Bangladesh is a small player in this. In geopolitics, Bangladesh is not just a participant but is often used. Whether Bangladesh will get entangled in that geopolitical equation is a concern. Once caught in that political web, Bangladesh lacks the capacity to manage it. That’s why discussions should be limited strictly to economic and tariff issues, without getting involved in geopolitical equations.
If conditions beyond tariffs are imposed, complying with them could both undermine Bangladesh’s sovereignty and damage diplomatic and economic relations with other countries. Overall, no one benefits from such a situation. Nowadays, no country can function without mutual economic relations. No country can progress alone without trade. Every country must engage in trade. The rule of trade is that the country best suited to produce a product will make it, and others will buy it. Unfortunately, geopolitical equations have become such that trade, economic issues, and sanctions are used as tools. Bangladesh should not participate in such equations.
The United States is the largest market for Bangladesh’s garment exports. If the counter-tariff takes effect, this sector will be the hardest hit. What’s your recommendation for the sector?
If, after further negotiations, Bangladesh gains nothing, we’ll have to move forward with the higher tariff. That will definitely hurt the garment sector. This situation makes it very clear what happens when we rely too heavily on a single product or just a few markets. We’ve been saying for a long time that export diversification is essential. And not just diversifying products—we must diversify our markets too.
We need to explore new markets and produce goods tailored to their demand. Garments are going to the U.S. and European markets. We need different products for other markets. Countries in Latin America, Africa, and the Middle East should be explored. We also need to find potential markets for non-garment products. Outside of garments, we have sectors like leather, light engineering, pharmaceuticals, and jute goods.
Beyond that, our most valuable resource is our human capital. When we talk about export diversification, we also need to consider human resources and service exports. It’s time to shift our trade strategy. Trade shouldn’t remain limited to just one or two products—it needs to expand.
It will take time to develop new export-oriented sectors and find new export destinations. In the short term, what options does Bangladesh have?
Yes, it will take time to build other industries and markets. Right now, we need to increase productivity in the garment sector. Production costs must be lowered through technology and skilled labor. If we have to pay an additional 35 percent tariff to export products to the U.S. market, even reducing production costs by 5 percent now will bring some savings in total production expenses. There are many issues behind the high production costs here. For example, electricity costs are high, uninterrupted power supply is not available, road infrastructure is poor, and shipment and customs clearance of goods face delays. Bureaucratic complications and corruption are also major obstacles. If these problems aren’t resolved, reducing production costs will not be possible. Therefore, our main effort should be to tackle this challenge by lowering production costs while improving production efficiency and productivity. Besides, macroeconomic stability is also necessary. If the dollar exchange rate is unstable, trade and investment could face obstacles. Additionally, free trade agreements must be made with various trade partners to remove trade barriers. Vietnam has signed trade agreements with many countries and is in a much more advantageous position than us. Since the World Trade Organization has lost its power to promote free trade, countries are now conducting trade through bilateral free trade agreements. Bangladesh must quickly take this step. So, given the current context, we must pursue a multifaceted effort to face this challenge.
[This interview was originally conducted in Bangla and published in both the Print and Online editions of Bonik Barta. It has since been translated for the English edition.]