To answer in a single sentence, Bangladesh will not face a major loss due to the U.S.’s latest counter-tariff of 20 percent. However, it’s also not fair to say that the country gained anything from the proposed reduction. It is clear that the economy will face challenges in the future.
Looking at it from two perspectives, Bangladesh has not lost in this tariff race. First, the initial proposed counter-tariff of 37 percent was reduced to 35 percent. Then, following a third round of discussions at the end of July, it was further lowered to 20 percent. The second point is that Bangladesh’s competitor countries in the U.S. market are also facing similar counter-tariff increases. As a result, Bangladesh will not have to face unfair competition to maintain its position in the international market.
However, the reason Bangladesh hasn’t gained anything is because the new 20 percent tariff is added to the previous average 15 percent tariff, bringing the total tariff to 35 percent and considering the previous 16.5 percent for garments products, it’s now 36.5 percent. This is not a small amount in international trade. According to the laws of supply and demand, this will likely cause a slight decrease in the demand for Bangladeshi goods in the U.S. market. This will be a key challenge for Bangladesh’s export trade in the future. The U.S. is a major market for Bangladesh’s ready-made garments, which is why the country is so cautiously discussing and analyzing the new counter-tariff rate.
Reviewing the position of competitor countries
After last-minute discussions, a new tariff rate has been set for 70 countries, including Bangladesh. While this new counter-tariff rate brings a sense of relief, the challenges remain. Bangladeshi products already faced an average tariff of 15 percent in the U.S. Now, an additional 20 percent tariff is being added.
Furthermore, decisions have also been announced for Bangladesh’s competitor countries in the American market: Vietnam and Sri Lanka will face a 20 percent tariff, India 25 percent, Cambodia 19 percent, and Indonesia 19 percent. Neighboring Myanmar will be subject to a 40 percent tariff, and Pakistan 19 percent. However, since the counter-tariff rate for China is still undecided, Bangladesh will have to wait longer to finalize its profit and loss calculations.
Some of Bangladesh’s and China’s export products in the American market are similar. If China receives a comparatively lower counter-tariff, it will pose a challenge for Bangladesh. Conversely, if a higher tariff is imposed on China, it will benefit Bangladesh. However, considering the objective behind the U.S.’s initial imposition of a counter-tariff in April, China is not expected to receive significant benefits. The discussion about preventing the free flow of Chinese goods into the American market has been a relevant topic alongside the counter-tariff talks for the past few months.
Ready-made garment exports
Vietnam is Bangladesh’s biggest competitor in the U.S. ready-made garment export market. In terms of garment exports, Vietnam is second only to China. Statistics from last year show that Vietnam has a garment market of $17-18 billion in the U.S., while Bangladesh’s garment exports are valued at $11-12 billion.
In recent years, Vietnam has been rapidly advancing in international trade by leveraging technology-driven production and free trade agreements. Despite lagging in the U.S. market, Bangladesh still holds a higher position than Vietnam in the global garment export market. Previously, Vietnam had a 10 percent tariff for the U.S. market, while Bangladesh’s tariff was 16.5 percent after the GSP facility was revoked.
According to the new announcement, the tariff for Vietnam will be 30 percent in the coming days, and for Bangladesh, it will be 36.5 percent. The 6.5 percent tariff advantage that Vietnam currently holds is not new. The main reason for this is Vietnam’s free trade agreements with the U.S. However, if any Vietnamese product shipment goes to the U.S. market via China, it will be subject to the tariff rate set for China.
As a result, there will be no significant numerical change in the level of competition between Bangladesh and Vietnam. The main factor here will be high production capacity. Countries that can advance with technology-driven production will be able to strengthen their position in the global market.
U.S. market competition
Another competitor for Bangladesh in the U.S. ready-made garment export market is neighboring India. India’s main strength is in strong yarn-based production. Bangladesh relies on India and China for good quality yarn as a raw material. Until this dependence can be reduced, we will not be able to improve our competitive position against India.
Currently, we are competing with India and China by leveraging the advantage of cheap labor. However, if we fail to improve our production systems to be more technology-driven like China and India, the advantage of cheap labor will not be very useful in the future.
Cambodia is another competitor for Bangladesh. Like Vietnam, it previously enjoyed a 10 percent base tariff. With the new 19 percent tariff, the country will now have to pay a total of 29 percent. Cambodia also has the advantage of cheap labor like Bangladesh, although its market is comparatively smaller. The new tariff could also cause a decrease in demand for products from competitor countries like Sri Lanka and Indonesia.
In the first eight months of the 2024-25 fiscal year, Bangladesh exported $850 million worth of leather products to the U.S. market. The major competitors for Bangladesh in this product category are India, China, Vietnam, and Italy. In home textiles, our competitors are India, the Philippines, Pakistan, and China. With the new tariffs, all these countries, except Italy, will face challenges similar to Bangladesh. Due to some bilateral agreements, Pakistan has the potential to advance in home textiles exports to the U.S. market.
Another relevant point here is what kinds of bilateral agreements various countries are making with the U.S. Without reviewing the profits and losses of new agreements, the calculations of gains and losses from the counter-tariff will remain incomplete. When these bilateral agreements are made public, a proper review can determine the true gains and losses.
The U.S. tariff structure and imposition of counter-tariffs
The U.S. was primarily a low-tariff country. Towards the end of the 20th century, in response to the policies of the World Trade Organization and free trade, the country’s tariffs on various essential goods were no more than 1.5 percent to 3 percent. Tariffs of 10 percent to 15 percent were only imposed on textiles, leather, and agricultural products. Low-income countries were given GSP benefits and MFN (Most-Favored-Nation) status.
Later, considering its internal economy, the Trump administration imposed a 10 percent base tariff. This was followed by the counter-tariffs, which generated global discussion and criticism. In this latest round, Syria has been subjected to the highest tariff, at 41 percent. The tariff on Canada has been increased from 25 percent to 35 percent.
For some countries, the effective date of the new tariff has been changed. If new agreements were not reached, the tariffs were supposed to be effective from the first day of August. However, the new reciprocal tariffs for more than 70 countries will now be implemented within the next seven days. According to a White House message, goods loaded onto ships or already in transit by August 7 that arrive in the U.S. by October 5 will not be subject to the new tariffs.
The Trump administration primarily pursued counter-tariffs for several reasons, including internal economic protection, maintaining a trade balance, and exerting diplomatic and geopolitical pressure. Looking at the initial phase, it seems the U.S. has been successful with these counter-tariffs. This is because most of the 70 countries that have had tariffs imposed on them are trying to reach an agreement with the Trump administration to lower the tariffs. While the rates have been reduced for many countries, they have also been increased for some. The tariff on Canada, for instance, has been raised from 25 percent to 35 percent, and Syria has been hit with the highest tariff of 41 percent.
For some countries, the new tariff has a changed effective date. If no new agreements were made, the tariffs were set to take effect on the first day of August. However, the new reciprocal tariffs for over 70 countries will now be implemented within the next seven days. A message from the White House states that goods shipped by August 7 or already in transit, which reach the U.S. by October 5, will not be subject to the new tariffs.
What Bangladesh should do
The U.S. has indicated that there is flexibility to increase or decrease these counter-tariffs in the future. It’s clear that the amount of the counter-tariff will depend on the capacity of the respective countries and their bilateral relations with the U.S. The best approach for Bangladesh is to focus on its own capabilities by adopting new innovations and technology. India and Vietnam are already doing this successfully. Bilateral relations also depend on a country’s strength.
On the other hand, a country like Bangladesh, which is geographically important, has to be very careful in its bilateral relations because many parties have geopolitical and political interests involved here. Considering everything, there is no better alternative for Bangladesh in the future than to increase its own innovative and technological capabilities.
Nur e Alam: Senior Programme Manager at BRAC Microfinance, an Author and Economic Analyst