India nears deal to slash US tariffs. How will it impact Bangladesh?
The deal is expected to be formally announced at the upcoming Asean Summit later this month
Highlights:
- Announcement expected at ASEAN Summit this month
- Bangladesh's US tariff now 20% after August reduction
- Dhaka pushing for 15% but progress uncertain
- Exporters see limited short-term impact from 5% gap
- India's US focus may ease competition in Europe
- Long-term gap could draw investment to India's supply chain
- BGMEA, BKMEA say Bangladesh still leads in woven garments
India and the United States are close to finalising a trade agreement that would sharply reduce US tariffs on Indian imports – from the current 50% to around 15%-16% – lower than the 20% reciprocal tariff now applied to Bangladeshi products in the US market.
According to a Reuters report citing Indian media outlet Mint, the deal is expected to be formally announced at the upcoming Asean Summit later this month.
Keep updated, follow The Business Standard's Google news channel
Bangladesh, which successfully negotiated a tariff cut from 35% to 20% in August following a series of talks with Washington, has been lobbying for a further reduction to 15%. But there is little indication that Dhaka will reach that goal before New Delhi does.
A 15% rate for India will not pose much of a challenge for Bangladesh in the short term, but there is a fear of challenges in the long term.
Shams Mahmud, managing director, Shasha Denims Limited
Exporters believe that if the tariff gap between India and Bangladesh remains limited to around 5% in the US market, it will not have a significant negative impact on Bangladeshi exports in the short term.
They suggest that if India increases its exports to the US, it could potentially ease competition for Bangladesh in the European market.
However, exporters warn that if this tariff gap persists in the long term, it could spur increased investment in India's backward and forward linkage sectors, presenting a serious challenge to Bangladesh.
The Mint report said neither India's Ministry of Commerce and Industry nor the White House has yet responded to Reuters' requests for comment about the agreement.
Exporters downplay short-term impact
Despite the prospective tariff disparity, exporters in Bangladesh believe that a limited gap of around 5% will not cause a significant negative impact on Bangladeshi exports in the short term.
Inamul Haq Khan Bablu, senior vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told TBS that while a 5% tariff gap would cause "some problems, it would not be a major issue."
He explained that India is not a major competitor for Bangladesh in ready-made garments, as their product types are mostly different. "While there is some competition in knitwear, they are far behind us in woven garments," he noted.
He added, "If India boosts its exports to the US, that could actually make the European market a bit easier for Bangladesh. Until now, Indian exporters have been under pressure due to higher US tariffs and have been targeting Europe more aggressively. With reduced US tariffs, they might shift focus back to America, giving us some breathing space in Europe."
Echoing this, Shams Mahmud, managing director of Shasha Denims Limited, stated that the 15% rate for India "will not pose much of a challenge for Bangladesh in the short term, but there is a fear of challenges in the long term." He pointed out that a significant portion of India's exports to the US is home textiles, a sector where Bangladesh is less dominant.
"Still, if this tariff gap persists over the long term, India might increase investment in its linkage industries, which could eventually weaken Bangladesh's competitiveness," Mahmud cautioned.
Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), agreed that while there may be some impact, Bangladesh's apparel exports to the US would not face major disruption as a result of the India-US deal.
