The price of tariff relief: Why Bangladesh’s trade deal with Washington demands scrutiny

On 9 February 2026, Bangladesh's then interim government signed a "Reciprocal Trade Agreement" with the United States, three days before the national elections. The announcement was received with cautious optimism in Dhaka, with leaders of the Bangladesh Garment Manufacturers and Exporters Association framing it as a breakthrough for garment exporters. That optimism warrants closer examination.

A careful reading of the agreement suggests it is not fully reciprocal. Rather, it represents a trade-off: a 19% tariff in exchange for concessions that intrude into Bangladesh's policy autonomy, with potential implications for its long-term development trajectory.

The agreement did not emerge from routine diplomatic negotiation. The crisis originated in Executive Order 14257 of April 2025, which imposed a 37% retaliatory tariff surcharge on Bangladeshi products, citing "unfair trade practice". The measure appeared largely driven by bilateral trade imbalances and was imposed on top of Most Favoured Nation tariffs, significantly raising total duties.

The recent agreement reflects a pressure dynamic in which one party imposed punitive tariffs and the other sought partial relief. Bangladesh has agreed to phase out customs duties across several categories – immediately for some goods and over five to 10 years for others. It has also accepted automatic recognition of US product standards without independent regulatory review, effectively limiting domestic regulatory discretion.

Annex III, Section 6 introduces mandatory purchase obligations. Bangladesh is required to purchase approximately $21.5 billion worth of US goods across sectors including Boeing aircraft, LNG, agricultural products such as wheat and soybeans, and defence equipment. Failure to meet purchase benchmarks would trigger reversion to the higher tariff schedule.

For a small economy, such contractual steering towards a single supplier risks distorting market choices. It also raises diplomatic and commercial concerns, as Bangladesh maintains established relationships with alternative suppliers in energy, aviation and agriculture.

Article 5.3 provides zero-tariff access for certain garment exports, conditional upon sourcing cotton and man-made fibres from the United States. At present, Bangladesh procures these inputs competitively from India, Brazil and West African suppliers. A forced shift to higher-cost US inputs with longer logistics chains could erode competitiveness in global markets.

The agreement also contains geopolitical provisions. Articles 3.2, 4.3.4 and 4.3.5 introduce foreign policy conditionalities within a trade instrument.

Article 4.3.4 maintains the agreement only if Bangladesh refrains from entering free trade agreements with countries designated by the US as "non-market economies", primarily targeting China and Russia. Article 3.2 creates a termination trigger for digital trade or technology agreements with countries deemed to "jeopardise essential US interests". Article 4.3.5 prohibits procurement of nuclear reactors, fuel rods or enriched uranium from such "non-market economies".

These provisions directly affect the Rooppur Nuclear Power Plant expansion. Russia is currently the only country financing and delivering the project under a state credit line of $12.65 billion. The clauses effectively compel Bangladesh to treat trade and investment relationships as a binary geopolitical choice.

Bangladesh's economic strategy has historically relied on diversification – engaging with the United States, the European Union, China, India, Japan, Middle Eastern partners and ASEAN economies. Diversification is not ideological; it is a risk-management strategy for a developing economy.

The timing of the agreement is significant. Bangladesh is on course to graduate from Least Developed Country status this year, a transition that entails the gradual loss of multilateral trade preferences. At such a juncture, preserving policy flexibility is critical.

Article 5.2 prohibits enterprise subsidies for goods-producing industries, while Article 3.4 bars requirements for technology transfer. Automatic recognition of US product standards further constrains regulatory instruments.

Historically, industrial policy tools such as targeted subsidies, technology licensing requirements and calibrated market protection have supported development trajectories in countries including South Korea, China and Taiwan. For Bangladesh, still navigating structural transformation, these instruments remain relevant.

This does not suggest disengagement from the United States. The US remains a major export market, a source of capital and technology, and an influential actor in the global trade architecture. Bangladesh seeks a stable and mutually beneficial relationship.

However, tariff relief from a punitive measure does not automatically constitute an equitable agreement. A renegotiated framework that preserves genuine market access gains for the ready-made garment sector, removes foreign policy conditionalities and restores procurement autonomy would better serve Bangladesh's interests.

On 20 February, 2026, the Supreme Court of the United States ruled that the IEEPA-based reciprocal tariffs were unlawful, holding that measures of significant economic consequence require congressional approval. As the US–Bangladesh agreement has not been ratified or entered into force, Bangladesh is under no legal obligation to proceed. The commerce secretary has indicated that the ruling weakens the agreement's legal foundation.

While the Donald Trump administration has introduced temporary tariffs under the Trade Act of 1974, that statute does not provide the same sweeping authority. Bangladesh therefore has a window to pause ratification, reassess the terms and pursue renegotiation.

Dhaka should also utilise multilateral channels. Engagement through the World Trade Organization, including the Committee on Trade and Development and the LDC Group, may help assert rights under the Enabling Clause and special and differential treatment provisions. Regional platforms such as BIMSTEC and SAARC, alongside coalitions of developing economies facing similar pressures, can strengthen negotiating leverage.

For economies at Bangladesh's stage of development, trade and industrial policy sovereignty is not optional. It underpins long-term economic resilience.

Jahid Hossain is a Research Assistant at Dacca Institute of Research and Analytics (daira). Shabnam Sultana is a Research Intern at Dacca Institute of Research and Analytics (daira).

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.