Can Bangladesh navigate the US tariff trap?

The announcement of steep tariff hikes by the United States under its new trade posture—currently on a 90-day pause—has sent ripples across global markets. For Bangladesh, the stakes are especially high. The readymade garment (RMG) sector, which accounts for more than 84 percent of national export earnings and employs over four million workers, faces a new wave of uncertainty. Since the US is Bangladesh's single largest RMG export destination, purchasing over $6.8 billion worth of apparel in fiscal year 2023-24, the proposed tariff regime poses real challenges.

At the heart of this development is the US shift toward "reciprocal tariffs", a policy designed to match the duties American goods face abroad. While initially aimed at China, the new tariff expansion now covers apparel from key manufacturing hubs, including Bangladesh, Vietnam, and India. For Bangladesh, the impact is striking—tariffs on cotton-based garments have surged to 37 percent, up from 15.2 percent, while synthetic garments—an area where Bangladesh is still building its capacity—now face a 9 percent duty.

The immediate risk is clear—a loss of price competitiveness in the US market. Bangladesh's exports are dominated by low-cost cotton garments such as T-shirts, trousers, and knitwear. With higher tariffs, American buyers may pass on the extra costs to consumers, reduce order volumes, or shift sourcing to other countries. Vietnam, with its diversified and higher-end apparel portfolio, particularly in synthetic and man-made fibre (MMF) garments, may weather the tariff storm more effectively and could even capture some market share. In a tariff war, the vulnerabilities show up more in the low-cost end, where margins are razor-thin.

Despite the gloomy headlines, Bangladesh's strength in fast fashion and affordable apparel can still help cushion the blow, especially given the fact that inflation in the US is projected to climb from 2.8 percent to around 4 percent. History offers some comfort—after the 2008 global financial crisis, Bangladesh's RMG exports to the US jumped by over 44 percent in 2010-11, as cost-conscious American consumers sought out budget-friendly clothing. However, global competition has evolved. Buyers today are increasingly shifting toward synthetic, functional, and sustainable fabrics—areas where Bangladesh still lags behind competitors. Without bold adaptation, Bangladesh risks ceding ground not just to Vietnam but also to emerging players across Asia.

Strategic responses and the road ahead

One promising path lies in negotiating stronger trade ties through targeted imports. Currently, only about 9 percent of Bangladesh's cotton is sourced from the US, with most coming from Brazil, India, and West Africa. By increasing US cotton imports, Bangladesh could build goodwill with American policymakers and strengthen its case for tariff relief. Moreover, marketing products under a "Made with US Cotton" label may resonate positively with American consumers and trade officials alike.

Diversification is equally critical. Geographically, Bangladesh needs to push harder into markets in Asia, Latin America, and Africa to reduce its reliance on the US. Product-wise, moving up the value chain into MMF, sportswear, and sustainable apparel will be essential. This requires focused investment in synthetic and recycled fabric capabilities, allowing Bangladesh to meet shifting global demands and strengthen its supply chain resilience.

The ripple effects of tariffs also extend into Bangladesh's financial and manufacturing ecosystems. Many listed textile and spinning mills are deeply exposed to US orders, and sustained tariffs could compress their margins, forcing production cuts and dampening earnings. Already, textile stocks on the Dhaka and Chittagong exchanges are lagging behind. The knock-on effects are likely to be felt by accessory makers, dyeing units, and even banks with large RMG loan portfolios. A sudden drop in orders could strain loan repayments, potentially adding stress to an already cautious banking sector.

The author is a capital market analyst and can be reached at [email protected]