Trump’s reciprocal tariffs are fueling inflation in US consumer markets

After the assumption of office for the second term, US president Donald Trump has broken the 75-year history of its tariff liberalisation policy and created a seismic effect in the global trade system through imposing increased tariffs on its trading partners. 

Initially, his target was America's major trading partners like China, Canada and Mexico and on a limited number of products like steel, aluminium and copper. 

But on 2 April, President Trump imposed reciprocal tariffs on its 60 trading partners ranging from 11% to 50% — citing them as 'worst offenders'. He later allowed a 90-day deferment period to create a space for the trading partners to negotiate and to make a commitment to increase the import of US goods. 

The aim of these reciprocal tariffs was to reduce the US's persistent trade deficit with its trading partners, boost US manufacturing and create jobs. 

For Bangladesh, the initial reciprocal tariff was 37%, which was reduced to 35% on 9 June. As the US is the single-largest export destination for Bangladesh, its effect on our exports is paramount. In 2024, Bangladesh made $8.4 billion in exports to the US, of which approximately $7.34 billion belonged to garment products. 

Considering its devastating effects, Bangladesh eventually sat with the US administration and made a commitment to reduce its trade surplus with the US by assuring to increase the import of certain products like wheat, soybean, cotton and purchase of 25 Boeing aircraft and strengthen IP protection. 

After negotiation, the US reduced the applicable tariff for Bangladesh to 20%. Thus, Bangladesh remains as per with its major competitors — Vietnam at 20%, Cambodia at 19% and Pakistan at 19%.         

In the midst of Trump's tariff escalation, from the very beginning, experts have raised a number of concerns about the economic fallouts. They argue that an increase in tariffs would increase inflation in the US domestic market. 

The effects of inflation would be disproportionately higher among people living in the lower echelons of US society. On the job side, they argue that although increased tariffs would create jobs in certain sectors like steel and aluminium, the overall impact on the job market would be negative, as comparatively more jobs may disappear from different sectors. 

Meanwhile, through negotiations, many countries were able to reduce tariffs within the range of 15-20%, applicable from 7 August. But the impact of increased tariffs in the US has already started to unravel. 

According to the Yale Budget Lab, which recently revealed the impact of increased tariffs on consumers, the effective average tariff on a range of key products has increased to 18.6% — the highest since World War II. 

They observed that in the short term, the price increase on clothes is 36.6%, which may reduce to 18% in the long run. This scenario would encourage US clothing importers to look for alternative sources away from China and Vietnam, which may usher in advantages for Bangladesh's garments industry.   

In this context, the US importers would increasingly source clothes from Bangladesh, as Bangladesh produces mostly exportable, lower-end garment products. Despite that, the price would remain inflated because of the average tariff saddled at 18%. 

In that case, US buyers would be more likely to relegate the burden of the increased price to Bangladesh producers and try to push for lower product prices. If that is the case, Bangladeshi producers may need to reduce production and operating costs to remain competitive. 

And, to support producers to overcome emerging challenges, the government needs to embark on necessary policy support by offering efficient logistics, port facilities and less regulatory hassle to keep the cost of doing business lower.       

Md Waheed Alam is a development activist and policy analyst. He can be reached at waheed.alam19@gmail.com 

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