Sigh of relief for RMG exporters as held-up orders start coming back after US tariff cut

Bangladeshi exporters and their buyers in the United States are expressing a sense of relief after the US lowered its reciprocal tariff rate on Bangladeshi products, with a new rate that is now more competitive than those for key rivals like China and India.

This development is already leading to renewed discussions and the revival of previously held-up orders, exporters say.

During a press conference in Dhaka yesterday, Mahmud Hasan Khan Babu, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said, "Many exporters have informed us that buyers' representatives have started making contact and held-up orders are beginning to return." However, he also stressed that the industry should not become complacent and must focus on improving its competitive edge.

The US on 31 July announced that it was reducing the reciprocal tariff rate on Bangladeshi goods from 35% to 20%. The new rate is lower than the rates for China (30%) and India (25%). The rate is on par with the rate for Vietnam (20%) and slightly higher than the rates for Pakistan (19%). 

According to the BGMEA, the 20% tariff will be added to the existing 16.5% tariff, bringing the total to 36.5%.

Buyers restarting stalled orders

Interviews with six exporters by TBS revealed that four of them have been contacted by US buyers since the new tariff rates were announced. Some buyers have even requested to continue orders that were previously put on hold.

Shovon Islam, managing director of Sparrow Group, a major apparel exporter to the US, shared a positive outcome, saying, "US buyers had put on hold orders for 3,00,000 pieces of clothing worth about $5 million due to the tariff issue. After the rate was lowered to 20%, they contacted us and asked to continue the order."

Sparrow Group exports approximately $300 million worth of garments annually, with $160 million going to 17 US buyers. 

Shovon noted that 12 of his top-tier buyers did not pass on the additional tariff costs to his company and are continuing to absorb the new tariff rate themselves. The new orders will similarly proceed without additional cost-sharing, although shipments arriving in Chattogram by 5 August will still fall under the existing rate, he said.

Other exporters reported similar developments. Liang Fashion Limited, a US buying house in Dhaka, confirmed that its client SouthPole finalised an order of 76,600 pieces of long pants and shorts the same day the tariff was revised, with a similar order expected soon.

SM Khaled, managing director of Snowtex Group, another leading exporter to the US, expects a large order that was on hold to be confirmed within a week. 

While formal communication is yet to happen, he said, "The fear that the order would go to another country has been eliminated because our tariff is almost the same as our competitors'." 

However, Khaled emphasised that his company, which exports $80 million to the US annually, would not be offering discounts, despite potential price pressures.

He also said, "Although the country currently accounts for 20% of its total exports, it will soon rise to 27%."

MA Jabbar, managing director of DBL Group, a company with 30,000 employees, is optimistic. "We are in contact with US buyers and expect better business. There is a possibility that some orders will shift from China to Bangladesh."

He further said, "Over the past few years, our growth rate in the US market has been good. Even last year, Bangladesh's growth rate was 14%. In such a situation, we were worried because of the new tariff. However, that concern has now passed, and the market will be better for us."

Kazi Iftequer Hossain, president of the Buyers Council, which represents foreign buyers in Bangladesh, believes the new rates will prevent orders from shifting to competing countries. 

He said, "Fresh negotiations on held orders will begin within a week, which will clarify how buyers intend to handle the additional tariff pressure."

Opportunities in cotton and raw materials

During the BGMEA press conference, it was noted that the US executive order on tariffs offers an additional benefit: if a minimum of 20% of the raw materials used in a garment are sourced from the US (such as American cotton), the 20% tariff may not apply to the value of those materials. This is a significant advantage for Bangladesh, as approximately 75% of its garment exports to the US are made of cotton.

The Bangladesh Textile Mills Association (BTMA) has already initiated steps to increase cotton imports from the US. Bangladesh requires over $4 billion in cotton annually, with only $300 million currently sourced from the US. The BTMA plans to increase this to $1 billion.

Bangladesh exports goods worth around $8.4 billion annually to the US market, of which approximately $7 billion are apparel products.

 Uncertainty over value addition clause

Despite the positive news, there is still uncertainty regarding the conditions for availing the new 20% tariff rate. Exporters are unclear if they must meet a minimum 40% value addition requirement.

Rakibul Alam Chowdhury, managing director of HKC Apparels Limited, expressed concern, saying, "We don't know yet if there is a 40% value addition condition. If there is, we will face problems, as it's not possible to achieve that rate for some products." 

Mahmud Hasan Khan Babu and international trade expert Mostafa Abid Khan echoed this, stating that it is premature to conclude before all the conditions are known.

 Need for enhanced competitiveness

Exporters also anticipate that a portion of the 20% tariff burden might be passed on to them. To remain competitive, the BGMEA president stressed the need for improved logistics, customs efficiency, and increased productivity. 

He called for government support in maintaining uninterrupted power and gas supplies and improving the efficiency of the National Board of Revenue (NBR) and Chattogram Port.

Mostafa Abid Khan agreed, stating that the price pressure will be shared among exporters, buyers, and consumers. "To withstand this pressure, exporters must enhance their efficiency and reduce trade costs, noting that customs-related delays could be a key area for improvement."