Turning Trump's tariffs into an advantage

The business community and policymakers heaved a sigh of relief when the US imposed a 10% flat tariff on imports from Bangladesh instead of the earlier proposed 37%—part of a broader "reciprocal tariffs" policy. 

Unlike our peers, Bangladesh's heavy reliance on ready-made garments leaves it exposed to shifting global trade dynamics. With the 90-day pause in place, the focus now shifts to strategic adjustments that could mitigate losses and even turn the situation into an opportunity.

The US Trade Representative's (USTR) 2025 report revealed persistent concerns about Bangladesh's trade regime, including high tariffs, non-tariff barriers and delays in World Trade Organisation (WTO) compliance. These issues, coupled with labour rights shortcomings that led to the suspension of GSP benefits in 2013, complicate negotiations. 

Yet, Bangladesh's potential as a "China Plus One" alternative — where global buyers diversify supply chains away from China (on which a 125% tariff is still in place)—offers a silver lining, provided we can address structural inefficiencies and align with US expectations. With LDC graduation looming in 2026, Bangladesh must act swiftly to secure long-term trade stability, whether through bilateral deals or deeper reforms.

The path forward hinges on three critical steps: Resolving US grievances through the Trade and Investment Cooperation Forum Agreement (TICFA) and trying to sign a bilateral trade agreement, boosting competitiveness in man-made fibre (MMF) apparel to match rivals like Vietnam, and carefully calibrating tariff concessions to avoid fiscal strain. 

Dr Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said, "When there were different reciprocal tariffs on different countries, we could have exploited the difference to our comparative advantage. Now that there's a 10% tariff on everyone but China, that scope isn't there for the next 90 days. Vietnam and Cambodia faced higher reciprocal tariffs (46% and 49%, respectively), but Bangladesh's reliance on cotton-based garments (70% of RMG exports) makes it vulnerable to shifts in global sourcing." 

But Bangladesh competes with China in a number of products in the US market, and Bangladesh can use it to its advantage. Moreover, the brands and buyers have been pursuing the China Plus One strategy. The strategy involves international businesses establishing a second production facility, typically in another Asian economy, alongside their existing operations in China. This approach aims to diversify risks, reduce costs and avoid over-reliance on China as a single supply source.

"Bangladesh is likely to get more business from other countries due to the China Plus One strategy," said Dr Mustafiz, "as brands and buyers will increase their business in Bangladesh due to volatile US-China relations." 

The USTR's 2025 National Trade Estimates Report highlights three core concerns regarding Bangladesh's trade regime: high tariffs, non-tariff barriers (NTBs), and lack of WTO compliance. The US argues that Bangladesh's failure to notify customs valuation laws to the WTO and delays in submitting Trade Facilitation Agreement (TFA) transparency measures undermine predictability. Additionally, US firms face opaque procurement processes, Intellectual Property Rights (IPR) violations and investment hurdles like equity caps in sectors like telecom and energy.

"First, the government should prioritise TICFA to address US grievances, including IPR enforcement and procurement transparency. Second, Bangladesh could offer duty-free access for select US products — like semiconductors and medical equipment — but must weigh the revenue loss from extending these concessions to other WTO members under MFN rules," said Dr Mustafiz. 

"The US has previously signed FTAs with developing nations such as Costa Rica, the Dominican Republic, Bahrain, and Jordan. Bangladesh should carefully analyse these agreements to understand negotiation dynamics, particularly regarding non-reciprocal concessions and phased implementation of trade liberalisation."

Dr Mustafizur Rahman, distinguished fellow, CPD.

The CPD estimates eliminating duties on three key US exports (gas turbines, semiconductors and medical equipment) would cost Bangladesh $117.3 million annually in lost revenue.

Zahid Hussain, former lead economist at the World Bank Dhaka office, said, "We need to work on the concerns expressed in The Foreign Trade Barriers 2025 report. There are points that are rather problematic, and they should be resolved immediately." 

The US executive order allows tariff reductions for products with 20% US-originating content. Bangladesh imports 12% of its cotton from the US ($268.7 million in 2024). By expanding imports and establishing dedicated bonded warehouses for US cotton, Bangladesh could incentivise apparel buyers to source more from factories using American cotton, qualifying for lower tariffs, added Dr Mustafiz. 

Dr Zahid Hussain is also of the same opinion in that regard. 

The US market is shifting towards MMF apparel, where Bangladesh lags behind Vietnam and China. Only 30% of Bangladesh's RMG exports to the US are MMF-based, compared to Vietnam's 64%. 

The 90-day window should be used to incentivise MMF production through tax breaks and infrastructure upgrades. Additionally, reducing lead times by improving port efficiency and adopting automation could offset tariff-induced cost hikes. 

The USTR's emphasis on labour rights and GSP restoration cannot be ignored. Bangladesh's suspension from the US GSP since 2013 stems from inadequate labour reforms. Addressing the 11-point US Labour Action Plan — particularly unionisation and safety compliance — could rebuild trust. 

Meanwhile, binding more tariff lines at the WTO (currently only 17% are bound) and negotiating a bilateral FTA with the US would provide long-term stability, though this requires aligning with stringent IPR and investment norms.

But there is an issue. 

"If Bangladesh offers duty-free [or reduced-duty] import to the US for selected items, it will need to offer the same treatment to other countries for the import of similar products according to the most-favoured nation [MFN] principle of the WTO. This will have revenue implications for Bangladesh," said Dr Zahid Hussain.  

On the other hand, it is to be noted that if Bangladesh's import duties are reduced on an MFN basis, the US loses its comparative advantage vis-à-vis its competitors in the Bangladesh market.

Offering tariff concessions to the US must be balanced against fiscal impacts. The NBR estimates reducing duties on 20 low-revenue US items ($100 million import value) would have minimal revenue loss. However, broader cuts require compensating measures, such as rationalising supplementary duties or expanding the tax net.

Bangladesh could explore negotiating a bilateral FTA and investment treaty with the US to secure long-term trade stability. 

However, this would require urgent preparatory work, particularly in aligning domestic policies with US expectations. Key compliance areas include labour standards, IPR and the removal of perceived trade and investment barriers.

Dr Mustafiz said, "The US has previously signed FTAs with developing nations such as Costa Rica, the Dominican Republic, Bahrain, and Jordan. Bangladesh should carefully analyse these agreements to understand negotiation dynamics, particularly regarding non-reciprocal concessions and phased implementation of trade liberalisation. Any FTA discussions must balance Bangladesh's economic priorities with the need to meet stringent US regulatory and policy requirements." 

Bangladesh will be graduating from the LDC status in 2026. And the reforms to diversify our exports need to be carried out with haste, said Dr Zahid. 

"We need to create a comprehensive reform plan to present in our negotiations with the US," he added. "We can not afford to delay."