Reciprocal tariff shock: Navigating Bangladesh's export vulnerability and strategic response

The three-month suspension is expiring, and the US administration has started announcing new reciprocal tariff rates, generally in accordance with the initial strategy released in April. This action is bound to introduce new uncertainty to global trade and the world economy.

The United States' levying of a reciprocal tariff of 35% on Bangladeshi exports is a harsh economic blow, especially to the readymade garment industry.

With US tariffs on Bangladeshi imports now nearly doubling from roughly 15% earlier, this sharp and dramatic hike has the potential to erode the price competitiveness of Bangladesh's garments in its biggest export market.

In 2024 alone, Bangladesh exported around $8.5 billion to the US. The burden of this tariff hike will fall heavily on garment manufacturers and the millions of workers they employ, a majority of whom are women, raising the risks of slower growth, job losses, and a rise in poverty.

These are setbacks with wide-ranging economic and social consequences.

The rationale behind these reciprocal tariffs is weak, and this has added to the concerns. So far, it remains unclear what reciprocal tariff rates will apply to Bangladesh's major export competitors, such as Vietnam, India, Indonesia, Sri Lanka and Pakistan.

Among the 14 countries targeted in the first round, Bangladesh's 35% rate is among the highest. If the tariff rates on these competitors eventually prove to be lower, Bangladesh would face a serious competitive disadvantage, making supply chain decision-making more difficult and eroding the confidence of buyers and investors.

The broader implications are serious. Increased costs may encourage US buyers to shift orders to countries with lower tariff burdens. The Bangladeshi economy, which relies heavily on garments for over 80% of its annual export revenues, is especially vulnerable.

It is also disappointing that the Bangladeshi negotiators involved in bilateral tariff discussions with the US have seemingly failed to secure any favourable outcomes. The inability to reach a more balanced bilateral agreement only increases Bangladesh's vulnerability in a rapidly changing global trade environment and geo-political shifts.

There is no denying that, in an increasingly volatile and unpredictable global trading regime, countries like Bangladesh, characterised by highly concentrated export baskets, uncompetitive domestic business and investment climates, and limited diplomatic leverage, are particularly at risk. In this context, Bangladesh must adopt a strategic mix of responses to safeguard its economic future.

First, export diversification and competitiveness must be prioritised. This involves investing in productivity, upgrading technology, and developing industries beyond garments. Dependence on a narrow range of products and markets, primarily North America and Europe, makes Bangladesh highly susceptible to external shocks. Product and market diversification is no longer optional; it is essential.

Second, it is critical to accelerate FTA negotiations with key trading partners. Bangladesh must actively pursue FTAs with major developing economies in Asia, Africa, and Latin America and leverage South-South cooperation. Preferential access and the removal of trade barriers will help expand export markets and reduce the risk of overdependence.

Third, comprehensive domestic trade reform is urgently needed. This includes simplifying the trade regime by lowering tariffs, reducing non-tariff barriers, and streamlining import-export procedures. These reforms will not only strengthen Bangladesh's negotiating position in trade talks but also lower input costs, attract foreign investment, and support sectoral diversification.

As international trade rules continue to evolve, Bangladesh must respond promptly, strategically, and in a multifaceted manner. Failure to adapt quickly risks deepening economic vulnerabilities and undermining future prospects.

Selim Raihan is a Professor at the Department of Economics, University of Dhaka, and Executive Director, at the South Asian Network on Economic Modeling (SANEM). Email: selim.raihan@gmail.com 

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.