Tariff relief brings comfort for Bangladesh, but export future still hinges on China

The United States has reduced its reciprocal tariff on Bangladeshi exports from 35% to 20%, easing pressure on the country's key export sectors. The move brings Bangladesh in line with major competitors and is expected to help stabilise its position in the U.S. market.

The recent reduction in the US reciprocal tariff rate for Bangladesh, from 35% to 20%, is a welcome development for the country's export sector. This revision comes as part of a broader recalibration of the United States' reciprocal tariff framework, which appears to apply to many of its trading partners. For instance, Sri Lanka's rate has been lowered to 20% (from 30%), and Pakistan's to 19% (from 29%). Bangladesh's other competitors like Vietnam and India face tariff rates of 20% and 25% respectively. In this context, Bangladesh's new tariff rate now aligns more closely with those of its key competitors in the US market, suggesting a reduced risk of trade diversion and a lower likelihood of significant disruption to its exports, particularly in the ready-made garments sector.

A notable element of uncertainty, however, remains in the global trade landscape: the reciprocal tariff rate for China is yet to be finalised. Given China's central role in global manufacturing and its competitive overlap with Bangladesh in several export categories, the eventual US decision on China's tariff rate will be pivotal in shaping future patterns of global trade. If China is subject to significantly higher tariffs, Bangladesh and other South and Southeast Asian exporters may see a shift in demand in their favor. Conversely, a more favorable rate for China could intensify competition. As such, the final terms for China will be critical in determining how trade flows realign in the months ahead.

While the rate adjustment brings short-term relief, it also raises questions about what Bangladesh may have offered the United States in return. Some of these commitments, such as agreements to import US goods including wheat, cotton, and aircraft, have been made public. However, it is reasonable to assume that more sensitive obligations may have been agreed upon under confidentiality clauses or non-disclosure agreements and may not be disclosed in the near future. This underscores the need for greater scrutiny, transparency, and long-term strategic planning in Bangladesh's trade diplomacy.

This episode offers an important lesson for Bangladesh. It highlights the need to build greater resilience into the country's external trade profile. Three strategic priorities emerge from this experience. First, Bangladesh must accelerate efforts to diversify its export basket and expand into new markets beyond its traditional partners. Overdependence on a narrow range of products and destinations, particularly the US, exposes the economy to avoidable vulnerabilities. Second, meaningful domestic reforms in trade, taxation, and investment policies are essential to enhance competitiveness and attract sustained foreign investment. Improvements in the regulatory and business environment will help position Bangladesh as a more stable and attractive trade partner. Third, the country should explore targeted free trade agreements with emerging economies in Asia, Latin America, and Africa. These partnerships can serve as a buffer against future protectionist pressures and provide alternative channels for export growth.

Therefore, while the downward adjustment in the reciprocal tariff rate is encouraging, it should not lead to complacency. Rather, it presents an opportunity and a clear warning for Bangladesh to take proactive steps toward building a more diversified, competitive and resilient trade strategy.

On 2 April, US President Donald Trump announced higher tariffs on several countries, citing trade deficit concerns. At that time, Bangladesh was subject to a 37% tariff. 

Later, on 9 April, Washington suspended the tariffs for three months, giving countries an opportunity to negotiate with the US on the matter.

The three-month deadline ended on 9 July. 

The day before, President Trump wrote to Bangladesh's interim government chief adviser, Professor Muhammad Yunus, informing him that the tariff for Bangladesh had been reduced to 35% from 37%. However, the tariffs were not enforced immediately after 9 July.

Countries were given until 31 July to reach trade agreements with the US to lower the tariff rates.

Later, yesterday (31 July), the White House announced a reduction of the tariff to 20%, after the final round of the talks took place between a Bangladesh delegation and US officials in the US capital.