Bangladesh's tariff tightrope: Leveraging potential amidst US trade pressure

Highlights:

• Bangladesh faces 35–50% US tariff on exports
• Bangladesh's slow diplomacy contrasts Vietnam's swift strategic concessions
• US tariff reductions favor nations with market access or resources
• Post-LDC graduation risks losing duty-free trade benefits
• Bangladesh urged to diversify markets, products, and investments
• Strong trade negotiation and local sourcing now critical priorities

As the 1st August deadline for new US tariffs looms, Bangladesh finds itself in a precarious position, with its key export sector facing a potentially crippling 35% tariff (potentially rising to 50% with existing duties).

While global trade negotiators are making last-ditch efforts in Washington, and a virtual meeting of Commerce Adviser Sheikh Bashir Uddin with US officials is scheduled for 29 July, the effectiveness of Bangladesh's strategy to secure deeper tariff cuts is under intense scrutiny.

The initial reduction of Bangladesh's tariff to 35% from an earlier proposed 37%, and its expectation of further talks, underscores the critical nature of this moment for the nation's export-driven economy. A position paper detailing potential offers to enhance American business interests has been sent to the USTR.

Trump's broad brush: A tough bargaining landscape

US President Donald Trump's "Liberation Day" tariffs, announced on 2 April and extended to 1 August, are sweeping and non-sectoral, making negotiations incredibly challenging for all trading partners, regardless of their geopolitical alignment or economic size. The current landscape reveals a transactional approach, where deals are struck based on perceived US gains, often involving market access commitments and investment pledges.

Only six countries have managed to secure significant tariff concessions since the initial announcement: China, the UK, Vietnam, Japan, Indonesia, and the Philippines. 

Japan, a close US ally, saw its tariff lowered to 15% from 25% for its crucial auto industry, in exchange for market opening and a massive $550 billion investment in the US economy. 

Indonesia achieved a significant cut from 32% to 19% by agreeing to eliminate 99% of its tariff barriers for US goods. 

The Philippines secured a modest 19% from 20%, agreeing to remove all import taxes on US exports. 

Vietnam, a direct competitor in the apparel sector, managed a drastic cut from 46% to 20%, though it faces a 40% transshipment tariff aimed at curbing Chinese re-exports.

In contrast, close allies like South Korea still face the original 25% tariff, and other ASEAN nations like Laos and Myanmar remain at high rates (40%), with Thailand at 36% and Malaysia at 25%. 

In South Asia, Pakistan faces a 29% tariff, India 26%, and Sri Lanka 30%. India, buoyed by Indonesia's deal, is actively seeking deeper cuts.

Trump's stated unwillingness to go below 15%, and the possibility of tariffs rising to 50% for some, indicates a strategic calculus driven by US economic and geopolitical interests, rather than traditional trade negotiation principles. 

Countries with valuable resources (e.g., Indonesia's copper, China's rare earth minerals) or significant investment potential (e.g., Japan's capital) appear to have fared better.

Bangladesh's limited leverage and missed opportunities

With a modest 2 percentage point reduction to 35% (and a potential effective rate of 50% for RMG), Bangladesh remains at a distinct disadvantage compared to key competitors like Vietnam and Indonesia in the crucial US market. 

While Bangladesh's exports to the US have shown resilience, growing over 21% from January–May 2025 despite the suspension of GSP benefits since 2013, the new tariffs threaten to reverse this trend.

The criticism of Bangladesh's response as slow and disjointed, with limited consultation of exporters, suggests missed opportunities for proactive engagement. 

Vietnam's experience, which involved early alignment with US expectations despite tough compromises, demonstrates the benefit of a swift and decisive approach. 

While Bangladesh has made substantial offers, including duty cuts for US goods and commitments to import more American cotton, soybean, energy products, and aircraft, the delayed response may limit its gains.

Furthermore, geopolitical factors appear to be influencing the US stance. Bangladesh's significant reliance on China for imports, which are crucial for its industrial sectors, may be a point of leverage for Washington, seeking to pressure Dhaka against embracing Beijing too closely.

Recalibrating for a post-LDC future

This tariff storm, affecting allies and rivals alike, serves as a stark reminder for Bangladesh to recalibrate its trade strategy, especially in light of its impending graduation from Least Developed Country (LDC) status. 

Losing preferential market access post-LDC graduation will intensify the need for diversification and robust trade diplomacy.

Key areas for Bangladesh to leverage and improve upon:

1. Market diversification: While the EU remains Bangladesh's largest export market with duty-free access, serving as a strategic alternative to the US, Bangladesh must aggressively explore other individual markets like India, Japan, China, and Australia, some of which still offer duty-free treatment. Diversifying beyond the predominantly RMG-focused export basket into pharmaceuticals, ICT, light engineering, shipbuilding, and agro-processing is crucial for long-term resilience.
2. Product diversification & value addition: The country should focus on moving up the value chain within the RMG sector (e.g., man-made fibre apparel, technical textiles, luxury clothing) and developing new, high-value export sectors. This requires investment in research and development, improved quality control, and adherence to international standards and certifications.
3. Strengthening trade diplomacy & negotiation: The need for skilled trade negotiators is paramount. Bangladesh must develop a proactive, unified, and consistent approach to trade diplomacy, involving both government and private sector stakeholders. The current lack of a clear, coordinated strategy, and the perceived disengagement of the private sector in negotiations, are significant weaknesses.
4. Addressing "Rules of Origin" & backward linkage: The US demand for 40% "rules of origin" poses a challenge given Bangladesh's reliance on imported raw materials. Investing in backward linkage industries to increase local sourcing will enhance competitiveness and meet such requirements.
5. Improving business climate: Beyond tariffs, the "Ease of Doing Business" environment, particularly the slow resolution of commercial disputes, continues to deter foreign investment. Swift resolution of such issues is vital to build investor confidence.
6. Sustainable and compliant production: Bangladesh's large number of certified green RMG factories offers a competitive edge. Emphasising and marketing this commitment to sustainability, labour rights, and compliance can differentiate Bangladeshi products and potentially command premium pricing, helping to absorb tariff costs.

Ultimately, while the immediate focus is on the 29 July virtual meeting and the 1 August deadline, the current crisis is a critical test that demands a comprehensive and forward-looking trade strategy for Bangladesh's economic future. The country's ability to adapt, diversify, and engage effectively in complex global trade negotiations will determine its success in navigating these turbulent waters.