Bangladesh may have won a crucial tariff reprieve from the United States but exporters in the key garment industry remain concerned that they face stiffer competition from regional rivals and higher operating costs.
The US this month reduced its tariff on Bangladesh’s garments to 20 per cent from an earlier proposed 35 per cent levy – a move seen as key to preserving the country’s competitive edge in its biggest export market, according to the South China Morning Post.
Industry leaders and government officials have welcomed the decision, with interim Prime Minister Muhammad Yunus calling it a “decisive diplomatic victory”.
Even with the reduction, the levy on the country’s garment exports to the US amounts to 36.5 per cent, including a pre-existing 16.5 per cent tariff, according to Mahmud Hasan Khan, president of the Bangladesh Garment Manufacturers and Exporters Association.
The new tariff applicable to Bangladesh is broadly aligned with those imposed on exporters from Sri Lanka and Pakistan and is potentially higher than the levy for Vietnam.
“Yes, the new tariff will give some relief. At the same time, the overall tariffs will still be higher than before, which means our garments will become more expensive for US buyers,” said Abdul Wadud, whose company Winter Group exports knitwear and jumpers globally.
“Garment buyers are bound to ask for the reasons why our prices have increased and may look for alternate destinations such as Vietnam if they get similar products cheaper.”
Bangladesh is the world’s second-largest garment exporter after China, with the industry generating more than 80 per cent of the country’s total export earnings and employing around 4 million workers, mostly women.
Its competitiveness lies in low-cost, large-scale production of basic and mid-range apparel, but analysts say that advantage is being eroded by rising competition – particularly from Asian rivals – and thin profit margins.
Most Bangladeshi garment factories rely on imported cotton from China and India, as well as local suppliers, to reduce logistics expenses – a strategy that has helped them stay competitive on costs. But Washington’s tariff policies have clouded an already uncertain business outlook.
Meanwhile, under a trade deal reached between Vietnam – one of Bangladesh’s biggest competitors in the garment business – and the US last month, Washington agreed to a 20 per cent tariff on most Vietnamese exports to the US and a 40 per cent tariff on goods transshipped through Vietnam from other countries. In return, Vietnam has said it will eliminate tariffs on US imports.
Another country seen by Bangladeshi garment exporters as a key competitor, India, is facing a 25 per cent tariff, though this could potentially be reduced in coming negotiations between New Delhi and Washington, according to analysts.
“It may seem like the tariff rates have been brought down for Bangladesh, but it is still not a comfortable situation because the country is going through challenges. It has to restore political and economic stability,” said Sreeradha Datta, a professor of international relations at O.P. Jindal Global University.
It would take about three months before the impact of Washington’s tariff on Bangladesh’s garment industry could be assessed, she added.
Jamus Lim, an associate professor of economics at ESSEC Business School Asia-Pacific, said low-cost non-East Asian garment-producing countries, such as Bangladesh, India and Turkey, could capture some additional market share from the US. The impact of the higher 40 per cent levy on transshipped goods from China could affect Vietnam more than it would Bangladesh, he added.
Concessions at what cost?
Like several of Washington’s smaller trading partners, Bangladesh could secure lower tariffs only after promising business deals to the US, Datta said.
Bangladesh has said it plans to increase the number of Boeing aircraft purchases from 14 to 25 as part of efforts to persuade the administration of President Donald Trump to lower tariffs on its exports.
Towards this goal, Bangladesh has reached a deal to import 700,000 tons of US wheat annually over five years. The deal, signed last month between Dhaka’s Directorate General of Food and the US Wheat Associates, marked a diversification for Bangladesh’s wheat sources, traditionally dominated by Russia and Ukraine.
Priyajit Debsarkar, a London-based author who specialises in South Asian issues, said Bangladesh’s commitment to buy more US wheat had raised questions about the price it would be paying for the grain.
On the Boeing deal, Debsarkar said it remained to be seen if Bangladesh’s aviation industry had the capacity to support the additional aircraft and whether debt-ridden Biman Bangladesh Airlines could derive any competitive benefit from it.
The trade talks come at a crucial stage of Bangladesh’s political transition, with its interim government set to hold general elections between April and June next year, following the ousting of the government led by then prime minister Sheikh Hasina in an uprising last year.
The political situation had added another layer of complexity as “whatever deals they are making [with the US] at this point in time might be overturned by a later elected government”, Debsarkar said.