How global economic turmoil is shaking up Bangladeshi trade
Trade wars, sanctions and shifting alliances are closing in. How will Bangladesh’s export engine face its future test?
How can a small economy like Bangladesh, heavily dependent on trade, stand in a world where every big player appears to be going in a different direction?
For years, Bangladesh's export engine, made up of just ready-made garments and a steady demand from the West, has been holding its growth story up.
But now, all of that momentum is going down.
Keep updated, follow The Business Standard's Google news channel
Global tariffs, sanctions and changing geopolitical interests have placed challenges on Bangladesh from many angles, leaving businesses struggling amid increasingly rough waters.
The tariff trap
When the US introduced its new regime of reciprocal tariffs, many believed Bangladesh had fared well. While China and India faced tariffs of 30% and 50%, respectively, Bangladesh landed in a comparatively lighter bracket of 20%. At first glance, it seemed an opportunity to gain ground in its largest export destination.
"Beyond the US tariffs and sanctions imposed globally on various countries, we are also having to deal with a number of our own internal issues."
Yet the advantage is still somewhat deceptive. As the overall size of the US market began to contract, so did the potential for export growth. According to trade data, Bangladesh's shipments to the US are projected to fall by about 14%, equivalent to around $1.25 billion, even as its competitors face steeper losses, according to a recent estimation by Research and Policy Integration for Development (RAPID).
The reason lies in the chain effect of tariffs. Once imposed at the border, they travel down the supply chain, which forces retailers to raise prices and manufacturers to lower quotes. For an industry that survives on thin profit margins, this squeeze can be devastating.
As prices rise, American buyers become more conservative, cutting back on orders and pushing suppliers to meet tougher compliance requirements at lower rates.
Nafis-Ud-Doula, director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), described the situation as a "web of multiple challenges". "Beyond the US tariffs and sanctions imposed globally by various countries, we are also having to deal with a number of our own internal issues," he said.
Even after negotiations with the US, which were meant to expand Bangladesh's market access, the results have been uneven. "Our position in the European market has been weakening, and India is taking advantage of that gap," Nafis said. "They are entering into new agreements with European countries, which is gradually eroding our previous hold."
While expectations of growth in the US market remain, the conditions tied to that growth have proved difficult for many factories to meet. "Not every factory can meet those requirements," he noted. "There have been no significant efforts to relax them either. It is difficult to move forward under such circumstances."
Europe's slowdown and the war effect
If the US tariffs have strained exporters, Europe's economic slowdown has compounded the pressure. The ripple effects of the Russia–Ukraine war have reached far beyond the battlefield, altering the economics of trade and energy.
"What we are seeing now is a shortage of work. The owners of many [RMG] factories are looking for subcontracts. All things considered, the market is not doing well."
Sanctions on Russian financial institutions and disruptions in global supply chains have pushed up oil and food prices. As one of the world's largest oil producers, Russia's exclusion from global trade has triggered inflation that small economies like Bangladesh can barely absorb. Import bills have risen sharply, especially for fuel, fertiliser, and wheat.
Before the war, Bangladesh exported about $550 million worth of ready-made garments to Russia and imported around $480 million of goods, including key food commodities. With trade routes disrupted and sanctions in place, this flow has slowed considerably. The effect has been felt on factory floors.
Fazlee Shamim Ehsan, president of the Bangladesh Employers' Federation, said the war has added to existing strains. "Our political instability has certainly had its impact. We have not yet been able to recover from the effects of the US tariff," he said. "Meanwhile, the Russia-Ukraine war has caused a downturn in Europe's economy, which has also affected our garments sector."
Factories across the country are reporting fewer orders. "What we are seeing now is a shortage of work. The owners of many factories are looking for subcontracts. All things considered, the market is not doing well," Ehsan said.
The consequences extend to the national balance sheet. As import costs rise and export earnings decline, Bangladesh's current account deficit has widened.
A fragile outlook
The combination of US tariffs, European slowdown, and domestic uncertainty has created a fragile outlook for Bangladeshi trade. The country is also preparing for its graduation from the Least Developed Country (LDC) category, which will end some of the preferential trade benefits that exporters have long enjoyed.
Doula believes the next few months will require restraint and patience. "It is difficult to predict what lies ahead," he said. "The next six months are likely to remain rather stagnant. This is a period when everyone should hold their ground and proceed with caution."
Yet within this caution lies a call for adaptability. The interlinked crises have made it clear that reliance on a few key markets is no longer sustainable. Diversifying both products and destinations has become essential.
Experts say that Bangladesh's low-cost garment industry has been its strength, but transitioning to higher-value products and new markets will be necessary for survival in an ever-changing trade environment.
