In case of a global recession, how might Bangladesh fare?

Illustration: TBS

Donald Trump's tariff policy temporarily eased for many countries as he announced a 90-day pause on duties affecting dozens of nations, though this reprieve excludes China where tariffs have escalated to 145%. The initial shockwaves sent across global markets have been followed by ongoing volatility as the world grapples with uncertainty over what happens after the pause ends.

US Treasury Secretary Scott Bessent has attempted to assuage sceptics by announcing that more than 75 countries want to start trade negotiations. Trump himself has expressed hope for a deal with China, saying, "I'm sure that we'll be able to get along very well," while noting he respects Chinese President Xi Jinping whom he described as "a friend of mine for a long period of time."

"There will be a blow to the export demand for our RMG. However, there is a caveat. There might be cases where people who previously wore expensive clothes but cannot afford them now due to recession may buy our cheaper clothes. The net effect, I think, would still be negative and our RMG export would decline. It will depend on the duration of the recession."

Dr Zahid Hussain, former lead economist, World Bank Dhaka office

Despite these diplomatic overtures, financial markets remain unsettled. The S&P 500 fell 3.5% on Thursday and is now down about 15% from its February peak. Asian indices followed Wall Street lower with Japan's Nikkei down nearly 5% and Hong Kong stocks heading towards their biggest weekly decline since 2008. Oil prices are also set to drop for a second straight week.

Goldman Sachs maintains its forecast of a 45% chance of U.S. recession in 2025, unchanged from previous assessments. Other major firms like JP Morgan continue to see a 60% chance of a US and global recession. Although some banks like Morgan Stanley do not yet list recession as their base scenario, they admit it is becoming more plausible given the ongoing trade tensions.

Meanwhile, Bangladesh has started to take baby steps towards economic stability after years of uncontrollable inflation, a decreasing balance of payment and a volatile political situation. Confidence in the economy has started to return, albeit slowly. The country has been combating inflation, which rose slightly in March, driven by non-food inflation (increased to 9.70% from 9.38% in February). 

Growth in agriculture and service sectors has declined. The path to recovery remains difficult and uncertain.

For Bangladesh, the situation remains fluid. The country may benefit from the 90-day tariff pause, potentially delaying the implementation of the previously announced 37% reciprocal tariff. This offers a critical window for diplomatic negotiations similar to those being pursued by Vietnam and Japan. 

The US has already agreed to begin formal trade talks with Vietnam, and Japanese Prime Minister Shigeru Ishiba has set up a task force for negotiations that hopes to visit Washington next week.

Dr Mohammad Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID), said, "Bangladesh has always been affected by the global recession. From July 2019 to January 2020, our export growth was negative due to global uncertainty created by the US-China trade war. This was before Covid-19 hit our economy." 

According to experts, there would be two immediate effects on the Bangladesh economy. One would be our ready-made garments export market and the other would be remittance inflow. 

Without a negotiated solution, Bangladesh's products would eventually face a substantial price hike due to tariffs; a Bangladeshi-made shirt that once sold for $11.60 in the US due to a 16% tariff would cost over $15 under a 37% tariff. This price increase represents a significant shift in the product's affordability, potentially driving US consumers to reconsider their purchasing habits and seek alternatives.

The direct consequence of this tariff burden is not merely an increase in cost; it is a potential erosion of market share, as American shoppers weigh the added expense against the appeal of Bangladeshi-made apparel.

There are speculations that the US garment market would shrink by as high as $30 billion due to a recession. Then, Bangladesh would lose significant market share. And it may affect garment markets worldwide. 

Dr Zahid Hussain, former lead economist at the World Bank Dhaka office, said, "There will be a blow to the export demand for our RMG. However, there is a caveat. There might be cases where people who previously wore expensive clothes but cannot afford them now due to recession may buy our cheaper clothes. We call it the Walmart Effect," he said.

"There can be an income effect, which would decrease our RMG demand, and a substitution effect, which would increase it. The net effect, I think, would still be negative and our RMG export would decline. It will depend on the duration of the recession," Dr Hussain added.

The continuing tension between the US and China, however, could reshape global supply chains in ways that might benefit Bangladesh's garment industry. As companies potentially seek to diversify away from Chinese manufacturing due to the sustained high tariffs (now effectively at 145%), Bangladesh could position itself as an alternative source.

Dr Syed Akhtar Mahmood, a former lead private sector specialist at the World Bank Group, thinks that our RMG export would not fall as much as the alarmists are fearing, due to the substitution effect. 

"There isn't much price elasticity to the type of garments we export," he said, "so there wouldn't be much decrease, because these are almost essential products. We can hope that our exports to the US will not be much affected, just like that of 2007-08. However, we can not talk about the effect on our European market." 

The president of the CFA Society Bangladesh and chairman of EDGE AMC Limited, Asif Khan, is also hopeful about RMG exports. 

"About 20% of our RMG export is to the US market. This is around 2% of GDP. The rest is exported to other markets. If Bangladesh can negotiate with the US and bring down the tariff rate, we will not be hurt too much," he said. 

Another important aspect of the recession speculation is remittance. Until recently, the biggest source of our remittance used to be the Middle East. However, in FY2024-25, the US overtook the first position. Bangladesh received $2.9 billion in remittances from the US from July 2024 to January 2025. And the second place went to the United Kingdom, with inflows totalling $1.47 billion. Remittance may decrease from these sources in case of a global recession. 

"Some of our migrant workers may lose their jobs; some may take less-paying jobs," said Dr Akhtar Mahmood. "Most importantly, remittance may decrease from the West, since our migrants there usually live with their families and they may need to keep more money at hand to maintain their families there. So, we may see less remittance due to the global recession." 

Even though the effect on the RMG sector may be a little unclear, remittance inflow would surely take a hit, he opined. Moreover, foreign investment in Bangladesh would decrease, putting hurdles in our path to economic recovery in the post-Hasina period.

Dr Razzaque hopes that Bangladesh will not be as affected as our competitors, mostly because our export basket is not quite extensive yet. 

"Unlike Vietnam, our exports are much less. Also, we already do not receive much foreign investment or FDI from abroad. So, the impact on our economy will be less than that of our peers," he said. 

Another factor that may affect our economy is the price of fuel. Trump's tariffs have caused the price of petroleum, coal and natural gas to decrease. Cheap fuel can accelerate our economic activities, which had slumped due to the high cost of energy import between 2022 and 2024. 

Dr Zahid Hussain said, "Our industries need more gas. Cheaper gas may help them to speed up their production. We use all three of the fossil fuels for electricity production. So, cheaper fuel would benefit our economy as well."

Asif Khan is also hopeful about Bangladesh benefiting from lower oil prices.

But a low price for fossil fuel due to recession may also affect our remittance from the Middle East adversely, offsetting our gains in the process, he added.

For now, much depends on the bilateral negotiation between Bangladesh and the US during this 90-day window. The government should take immediate steps to enter negotiations with the US, following the examples of Vietnam and Japan. 

How many concessions Bangladesh may be able to achieve and how the global market reacts after the tariff pause expires would ultimately set the trajectory for the country's economic future.