What gains Bangladesh can make from a weak dollar

Summary: 

• Weaker dollar lowers import costs, easing Bangladesh's domestic price pressures
• US tariff hikes may boost Bangladesh's apparel exports as buyers seek alternatives
• Lower Fed rates reduce borrowing costs, easing pressure on Bangladesh's currency
• Chinese export decline opens opportunities for Bangladesh in US apparel market
• Bangladesh's exports to the US grew 45.93% year-on-year in January 2025

The weakening dollar against major global currencies and US tariffs slapped on top trading partners including China offer some opportunities for Bangladesh to ease pressure on foreign exchange market and make some gains in apparel exports to the USA.

A weaker dollar is expected to lower the cost of imported products, thus helping Bangladesh keep domestic prices in check. Prospects of further cuts in US Federal Reserve's policy rate will ease the borrowing cost for local banks and businesses from foreign lenders, giving the Bangladesh Bank some breathing space to put on hold any further depreciation of taka in near term.

Taka lost more than 40% value against dollar in the last three years from Tk85.80 per dollar to Tk122, partially due to Fed rate hikes that made the greenback strong mainly after the Russia-Ukraine war broke out in February 2022.

US investors are losing faith in the dollar and finding safe havens such as yen and Swiss franc as they fret about tariffs and their impact on the US economy.

The US dollar dropped to multi-month lows against the euro and yen and had its weakest week in early March since November 2022 as Donald Trump's administration argued for a weaker currency saying that the greenback's strength is a problem for American industry.

The dollar index that measures US currency against six others stood 104 Friday evening.

A senior executive of the Bangladesh Bank said he expects exchange rate stability in near future due to weakening dollar as it will reduce borrowing cost for banks from abroad. As a result, it will ease pressure on taka devaluation, he added, speaking to The Business Standard.

He, however, said they do not see any immediate impact on monetary policy from dollar weakening.

He said the countries which have forex reserves in other currencies will gain when the dollar loses value. But in the case of Bangladesh, it has no impact as 90% of its reserve currency is in US dollars, he added.

Market insiders see gains from the falling dollar price in the global currency market which will pave the way for private sector business to secure low-cost foreign funds.

They also expect the near-term impact on exports mostly from the tariff hike on China as US buyers will shift to other countries to source cheaper apparel products and Bangladesh could be their natural choice along with Vietnam and other Asian sources.

A 10% tariff hike on Chinese imports, upping the ordered rate to 20%, making them costlier, could lead to a slowdown of imports from China and potentially benefit other textile exporting nations.

But weakening dollar and simmering trade tensions have raised concerns of US economic slowdown and rising inflation as US tariff actions on China, Canada and Mexico are feared to make things costlier in American markets.

"We're bringing wealth back to America," Trump said in a Fox News interview, declining to predict whether the USA could face a recession.

But Citi strategists shared their concerns, stating that "a slowdown in consumer spending, upcoming government job loss and decline in equity prices" may prompt further Fed rate cuts in May.

US investors are losing faith in the dollar and finding safe havens such as yen and Swiss franc as they fret about tariffs and their impact on the US economy. Fed Chair Jerome Powell early this month said it remains to be seen if the Trump administration's tariff plans will prove to be inflationary.

Sharing the observation over US dollar movement, Majedur Rahim, director of Giant group said there is both positive and negative impact of weakening dollar.

The positive side is the tariff hike could lead Chinese investors to invest in Bangladesh as US buyers will go for alternative apparel sources. On the other hand, a weak dollar will make exports expensive for Bangladesh. It will create inflation in the US market which may reduce export orders, he said.

He said though the US plans to focus on boosting domestic manufacturing by increasing tariffs, it is not practical for garment industries. It is because garment industries are more labour intensive even after automation. So, manufacturing low value garments will not be viable in the US due to higher wages.

Citing an example, he said if an American buyer gets an imported shirt at $40, the cost for manufacturing in the US will be $100. In that case, consumers will buy less and the high cost will also create inflation pressure.

However, higher tariffs will work for other capital incentive industries like car manufacturing, semiconductor, AI and robotics, he said.

For instance, Taiwan says chipmakers move to invest billions in the US.

On the other hand, China is the major apparel supplier in the US market which will be costlier due to high tariffs. US buyers will look for other sources to avoid high cost and keep supply smooth.

As a result, Bangladesh could be another source with other countries like Vietnam, Cambodia, he added.

Bangladesh has already been experiencing higher export orders due to diversification of sourcing by US buyers possibly influenced by competitive costs.

Bangladesh achieved a remarkable 45.93% year-on-year growth in apparel exporter to the US in January 2025, according to the latest data published by the Office of Textiles and Apparel (Otexa) and compiled by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

On the other hand, China has been losing its shares in apparel exports to the US market even before the new tariffs came into force. From 2014 to 2023, China's apparel exports to the US saw a massive decrease by 45%.

When talking with TBS, a former assistant director of the Federal Reserve Board, Washington DC, wishing not to be named, said a weaker dollar might make exports expensive for Bangladesh as American consumers will buy less amid rising inflation.

However, it will reduce the import cost due to increased inflow of dollars, said the official.

He said we have to see the net profit as the loss of export may compensate with low cost import.

Moreover, a weaker dollar will help to ease inflation as well as less money will be needed to buy dollars which means less money circulation in the system, he added.