Impact of U.S. Reciprocal Tariffs on Bangladesh: A Comparative Analysis with India and Vietnam

For example, Bangladesh was cited as levying an estimated 74% tariff-equivalent on U.S. goods, leading the U.S. to impose a 37% tariff on Bangladeshi imports ^[4]. Similarly, India and Vietnam now face U.S. import tariffs of 26% and 46%, respectively ^[5]. These tariffs are unprecedented in recent history — reaching levels not seen since the Smoot-Hawley era — and have triggered concerns of a global trade war ^[6].

Bangladesh’s Trade Dependency on the U.S.

Bangladesh’s export-oriented economy is heavily reliant on the ready-made garment (RMG) industry, which has been the engine of its growth. The RMG sector accounts for the vast majority of Bangladesh’s exports – about 84% of total export value in 2022–23 ^[11] – and reached about $47 billion in exports in 2023 ^[12].

The United States is one of Bangladesh’s largest export markets (alongside the European Union). In 2024, U.S. imports from Bangladesh were valued at $8.4 billion ^[13], with apparel and textile products comprising the bulk of these imports.

For context, Bangladesh’s total global exports of goods were roughly $50 to $60 billion annually in recent years, so the U.S. market accounts for approximately 15–20% of Bangladeshi exports by value. The U.S. is the single largest destination for Bangladesh’s RMG, making it critically important for Bangladesh’s export earnings and employment.

Notably, Bangladesh’s garment industry directly employs around 4 million workers (predominantly women) and indirectly supports the livelihoods of tens of millions. The sector contributes significantly to GDP (export of goods is ~10% of GDP, mostly garments) and is a key source of foreign exchange. Given this heavy dependency, any shock to Bangladesh’s access to the U.S. market – such as a steep tariff hike – could have far-reaching repercussions on its economy and society.

However, Bangladesh’s trade relationship with the U.S. has some vulnerabilities. Unlike its duty-free access to the EU under the Everything-But-Arms scheme (thanks to its least-developed country status), Bangladesh does not enjoy broad tariff-free access to the U.S. market.

Even before the new tariffs, Bangladeshi apparel faced U.S. import duties (often around 15% on clothing) as part of normal trade relations (Bangladesh has been ineligible for the U.S. GSP program since 2013 due to labor issues). This means Bangladeshi exporters were already accustomed to some tariff costs in the U.S., but the jump to a 37% tariff presents a qualitatively different challenge. It more than doubles the previous duty level on garments, threatening to erode Bangladesh’s price competitiveness in the American market.

Comparative Tariff Rates: Bangladesh vs. India and Vietnam

Under the new policy, the U.S. tariff rates differ markedly among countries, ostensibly based on Trump’s notion of reciprocity. Bangladesh faces a 37% tariff, compared to 26% for India and 46% for Vietnam ^[14]. Table 1 summarizes these rates alongside some key trade metrics:

Economic Implications for Bangladesh

The imposition of a 37% U.S. tariff is poised to have significant economic impacts on Bangladesh. Key areas of concern include export earnings, GDP growth, employment, and the trade balance:

• Export Earnings and Trade Balance: The U.S. accounts for roughly one-fifth of Bangladesh’s goods exports. A high tariff will likely reduce Bangladeshi exports to the U.S. in volume and/or value. American importers may cut orders due to higher costs, or demand discounts from Bangladeshi suppliers to share the pain. Even a partial loss of the U.S. market could translate into billions of dollars of lost export revenue. For instance, if Bangladesh’s apparel exports to the U.S. fell by say 20-30% in the coming year, that would be a loss of around $1.5–2.5 billion. Such a drop would widen Bangladesh’s overall trade deficit. (Bangladesh ran a $6.2 billion goods surplus with the U.S. in 2024^[21], which helps offset its large deficits with other countries – reduced exports will shrink this surplus.) The foreign exchange earnings from exports could decline, putting pressure on Bangladesh’s external accounts and currency (taka). Bangladesh relies on export earnings plus remittances to finance essential imports (like cotton, machinery, fuel); a hit to exports might contribute to balance of payments strain and potential currency depreciation.


• GDP and Growth: Exports of goods and services constitute around 15% of Bangladesh’s GDP​ ^[22]. A slump in U.S.-bound exports will have a dampening effect on GDP growth. While it’s hard to estimate precisely, consider that the garment sector itself is roughly 8-10% of GDP; if a chunk of its output can’t find a market or faces lower prices, the sector’s growth could falter. Some economists project Bangladesh’s GDP growth could slow marginally as a result. For example, if export growth falls a few percentage points due to tariffs, overall GDP growth (forecast around 6% for 2025 pre-tariff) might be trimmed. The impact on GDP might not be catastrophic in aggregate percentage terms (since domestic demand and other export markets still contribute), but it will be non-negligible and concentrated in certain industries and regions.


• Employment: Perhaps the most acute concern is for employment in the garment (RMG) sector. With roughly 4 million workers, any significant decline in orders from the U.S. could lead factories to scale back production or even close, threatening jobs. Many Bangladeshi garment factories operate on thin margins and high volumes. A 37% tariff effectively raises the cost of Bangladeshi apparel in the U.S. market; if retailers cut back orders, factories may reduce shifts or workforce. Even a 10-15% contraction in export orders could translate into hundreds of thousands of jobs at risk. This has social implications in Bangladesh – many workers are female and primary earners for their families, so unemployment spikes could increase poverty and hardship. There may also be knock-on effects on related sectors (textiles, transport, packaging, etc.) and on rural areas from where many workers migrate.


• Industry and Investment: The tariff shock may deter investment in Bangladesh’s export sectors in the short term. Both local entrepreneurs and foreign investors could pause expansion plans amid uncertainty about access to the U.S. market. Over time, some manufacturers might attempt to relocate or diversify production to get around tariffs – for example, a Bangladeshi apparel firm might explore setting up a unit in a third country with lower U.S. tariffs. (This is a complex process, bound by “rules of origin” trade rules, but it’s a consideration for risk mitigation.) Additionally, Bangladesh’s industries may need to absorb some cost of the tariff (by lowering FOB prices) to remain competitive, which would squeeze profit margins and potentially reduce tax revenues from the sector.


• Inflation and Consumers: While Bangladesh’s consumers won’t directly feel the U.S. tariff (it’s applied in the U.S.), indirect effects could arise. If the Bangladeshi taka depreciates due to lower export inflows, the cost of imported goods (fuel, food, inputs) could rise domestically, fueling inflation. The government might also consider subsidy support or stimulus for affected industries, which could strain the fiscal budget if export losses are protracted.

Export Composition & Diversification

Bangladesh is far less diversified in its exports than India or Vietnam. Clothing and textiles dominate Bangladesh’s export basket (over 80%^[23]​), whereas India’s exports to the U.S. include significant volumes of gems & jewelry, machinery, vehicles, pharmaceuticals, IT services, and some apparel, and Vietnam’s exports span consumer electronics (phones, computers), electrical equipment, machinery, furniture, as well as apparel and footwear. This means Bangladesh is more exposed to a single industry shock. The U.S. tariff specifically hits Bangladesh where it hurts most (apparel), while India can lean on other sectors less affected (and India’s pharma exports were explicitly exempted from the tariffs by the U.S.​^[24]). Vietnam will certainly suffer in electronics and furniture, but those industries have options like rerouting some production to other markets or the fact that some tech supply chains are harder to shift quickly for U.S. importers. Bangladesh’s garment sector, by contrast, faces many global competitors ready to take market share (India, Pakistan, Indonesia, even Africa), making the competitive challenge severe.

Supply Chain and Infrastructure

Vietnam is often considered to have better infrastructure and ease of doing business than Bangladesh. It has attracted massive foreign direct investment and built efficient ports, which lowers cost of exporting. Bangladesh struggles with higher logistics costs, energy shortages, and infrastructure bottlenecks. These structural issues mean Bangladesh has less cushion to absorb new tariffs – it was already operating near razor-thin margins. India, while having higher costs, benefits from a huge domestic market and better infrastructure than Bangladesh (though still lower than China/Vietnam in manufacturing efficiency). Therefore, Bangladesh’s competitiveness was more narrowly built on cheap labor, which is precisely what an import tariff can neutralize to an extent. Over time, if Bangladesh cannot improve productivity, it could lose out to countries like India that now have the dual advantages of better infrastructure and lower relative tariff.

Market Alternatives

India and Vietnam both have multiple major trading partners. India exports relatively less to the U.S. as a share of its total exports (around ~20%) and has growing markets in the Middle East, Africa, etc., plus a vast domestic market that can absorb some production. Vietnam also trades heavily with China, East Asia, and Europe (it has an FTA with the EU). Bangladesh, while also exporting a lot to Europe (the EU is actually a larger market than the U.S. for Bangladeshi goods), may find it difficult to rapidly increase exports to the EU or other regions to compensate for a U.S. shortfall. (The EU market has its own demand limits and Bangladesh already enjoys near-duty-free access there until its LDC graduation; it’s largely maximized current capacity between EU and US). Thus, Bangladesh’s outside options are limited in the short run, making it more vulnerable compared to India (which can fall back on domestic demand) or Vietnam (which might lean on intra-Asia trade).

Diplomatic Engagement with the U.S.

Bangladesh’s government has strong incentives to seek a resolution or mitigation of the tariff issue through diplomacy. It could engage the U.S. administration in talks to negotiate relief – for example, by highlighting Bangladesh’s developing-country status and the potential humanitarian impact on millions of workers. However, Trump’s tariff policy is globally applied with few exceptions, and his administration has framed it as a non-negotiable stance to force others to lower their barriers. Still, Bangladesh could explore specific concessions: one idea floated by industry groups is to ask for duty-free access for apparel made from U.S.-grown cotton​^[26]. The logic is that if Bangladesh buys cotton from American farmers (benefiting the U.S.), then garments made with that cotton could be imported back tariff-free or at a lower rate. This kind of quid pro quo arrangement could appeal to U.S. interests (supporting its cotton industry) while helping Bangladesh maintain some competitiveness. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has indeed lobbied for such a mechanism​^[27].

Trade Negotiation Options

One direct route could be to pursue a bilateral trade agreement or a partial scope agreement with the U.S. Since the Trump administration favors bilateral deals (“America First”), Bangladesh could propose opening talks for a free trade agreement (FTA) or at least negotiate certain sectoral deals. Admittedly, a comprehensive FTA with the U.S. would come with stringent demands (on tariffs, intellectual property, labor rights, etc.) that Bangladesh might find hard to meet quickly. But even signaling willingness to negotiate could create a pathway to exempting Bangladesh from these one-size tariffs in exchange for concessions. For example, Bangladesh might offer to lower its own high tariffs on U.S. goods (currently averaging 74% by U.S. calculations​^[28]) as a bargaining chip. Reducing its import duties on American agricultural or industrial products could address the U.S. “reciprocity” gripe and possibly lead to a reduction of the U.S. tariff on Bangladeshi goods. This kind of deal – essentially Bangladesh liberalizing some imports in return for U.S. lowering the reciprocal tariff – would be painful for some Bangladeshi industries (exposing them to U.S. competition) but might be a necessary compromise to salvage export access.

Risk Mitigation Strategies and Structural Reforms for Bangladesh

To mitigate the risks from the U.S. tariffs and fortify its economy for the future, Bangladesh should consider a multifaceted strategy:

1. Diversify Export Markets: Bangladesh should intensify efforts to diversify its export destinations. This means not only relying on the U.S. and EU. There is potential to expand exports to regional markets (such as India – which already imports Bangladeshi jute, some apparel, etc. – and China, Japan, Canada, Australia, Middle East countries). For instance, Bangladesh could negotiate preferential access or make better use of existing regional trade agreements (like the South Asian Free Trade Area, though it’s limited) to send more goods to neighboring countries. Markets in Latin America and Africa could also be explored for apparel exports (these are smaller, but even incremental growth helps). Diversification will reduce vulnerability to any one country’s trade policy. Bangladesh’s recent trade talks with countries like Japan, Canada, and Australia should be pursued to secure low-tariff or duty-free treatment (especially as its LDC perks expire).
2. Diversify Export Products: Equally important is broadening the product mix beyond garments. The shock of the tariffs could be a catalyst for Bangladesh to invest in other export-oriented industries. Some promising sectors include pharmaceuticals, IT services, shipbuilding, light engineering, leather goods, ceramics, and agro-products^[26]. For example, Bangladesh’s pharmaceutical industry has grown in capacity; with the right compliance, it could export more generic drugs (the U.S. tariff notably exempted pharma for India^[27] showing that critical sectors can get carve-outs – Bangladesh could aim to make its pharma sector globally critical). Information technology and business process outsourcing is another avenue – services are not directly hit by goods tariffs, and Bangladesh’s young workforce could be trained for IT exports (which would diversify foreign exchange sources). These shifts require structural reforms (improving education, technical skills, investment in technology parks), but would reduce over-reliance on RMG.
3. Move Up the Value Chain in RMG: The garment sector itself can be made more resilient by moving up the value chain. Bangladesh traditionally produces basic, low-margin apparel. By investing in product quality, design, and branding, Bangladeshi firms could try to command higher prices that can better absorb tariffs. For instance, shifting some production to higher-end apparel or developing Bangladeshi brands (rather than only doing contract manufacturing) could allow some differentiation. If Bangladesh can produce more specialized technical textiles or apparel with unique features, U.S. buyers might be willing to bear some tariff cost because the products are not easily substitutable. Additionally, improving productivity and efficiency in factories (through automation, better management) can lower per-unit costs, offsetting part of the tariff impact. Some large Bangladeshi manufacturers are already automating to reduce reliance on sheer labor cost advantage – this needs to accelerate.
4. Strengthen Backward Linkages: One structural drawback for Bangladesh is that it imports most raw materials (like cotton, fabrics) for its garment industry. This import dependence means a lot of the value in “Bangladeshi” exports actually comes from abroad. Strengthening backward linkages – e.g., developing a domestic textiles industry (spinning, weaving, dyeing), or synthetic fiber production – could improve competitiveness. It would reduce lead times and costs, making Bangladeshi garments more competitive globally (helpful when facing tariffs). Government policy can encourage investment in textile mills, perhaps via incentives or public-private partnerships. The more value added locally, the more Bangladesh retains value even if gross exports fall.
5. Currency and Fiscal Measures: In the short run, Bangladesh’s central bank might allow a controlled depreciation of the Taka to make exports cheaper in dollar terms, effectively counteracting some tariff impact. Care is needed to avoid inflation, but if export orders plummet, a weaker currency can help exporters quote lower prices to retain buyers. On the fiscal side, the government could consider temporary support for affected exporters – such as subsidies on utility rates for factories, or expansion of the cash incentive schemes it already provides to export sectors. While such subsidies cost money and could be challenged under WTO rules, in the extraordinary circumstance of a trade war, Bangladesh may justify them as relief measures. The government must also manage its budget wisely since a hit to exports could mean lower tax revenue from the export sector.
6. Improve Business Climate: Structural reforms to improve the overall business environment will pay dividends in resilience. Simplifying regulations, improving logistics (ports, customs clearance), reducing corruption, and ensuring reliable power supply all contribute to lowering the cost of doing business. If Bangladesh becomes a more efficient place to manufacture, it can attract new industries or new buyers even in a protectionist global climate. For example, if global companies look to relocate some production from China (due to U.S.-China tensions), Bangladesh can pitch itself as an alternative – but it must address ease-of-business issues to seize that opportunity. Recent improvements in port capacity (like the development of Payra deep-sea port, new economic zones, etc.) should be expedited.
7. Alliances with Foreign Investors: Bangladesh can also seek out foreign investment from countries not heavily tariffed by the U.S. For instance, investors from the Middle East, Europe, or even the U.S. itself might be enticed to set up manufacturing in Bangladesh if they see long-term potential (especially if Bangladesh signals eventual trade deals or improvements). Joint ventures can bring capital and know-how that upgrade local industry. In the context of tariffs, Bangladesh could negotiate with U.S. firms – for example, an American apparel company could invest in a factory in Bangladesh, and Bangladesh could use that as political leverage, arguing that high tariffs hurt U.S. investors in Bangladesh too.
8. Risk Management and Social Safety Nets: Finally, Bangladesh should prepare safety nets for the human impact. If layoffs occur in the garment sector, programs for worker retraining or temporary income support will be crucial to prevent a social crisis. In parallel, encouraging entrepreneurship and small business development in other sectors can absorb some displaced workers. Over the medium term, improving education and vocational training will equip the workforce to transition to new industries if needed, thus reducing vulnerability to external shocks like tariffs.

Implementing these strategies requires coordination between the government, industry bodies, and development partners. Bangladesh has overcome challenges in the past (such as the phase-out of MFA quotas and compliance pressures after the Rana Plaza disaster) through adaptive measures and international support. Similarly, by pursuing reforms and proactive policies, Bangladesh can aim to weather the tariff storm. The situation, while difficult, can be turned into an opportunity to accelerate necessary reforms in the economy.