LET鈥橲 skip the lengthy introduction because it鈥檚 time for action. The US president Donald Trump鈥檚 tariff is on and Bangladesh, like almost every other country in the world, needs to do something about it. There are a few things we need to understand to craft an effective response.
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The tariffs are not reciprocal
CONTRARY to the claims, the tariff rates are not reciprocal. They are based on the US鈥� trade balance with other countries. Trade balance is simply exports minus imports. For the US, this number is almost always negative meaning the country imports more from than it exports to its trading partner countries. This is called a trade deficit (as opposed to a trade surplus).
Trump administration鈥檚 rationale for using trade deficit to calculate 鈥榬eciprocal鈥� tariffs is that if a country exports more to the US than it imports from them, they must be doing something to prevent US exports and therefore it鈥檚 a trade barrier and can be treated as a tariff on the US. This is, of course, not an argument which makes any economic sense.
But that鈥檚 not what we should be concerned with at this point. It is what it is. Bangladesh has been hit with a 37 per cent tariff and we need to respond.
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What does the US import from Bangladesh
WELL, it is readymade garments as we all know. In fact, according to UN Comtrade, the main source of international trade data, only six commodities accounted for almost half of the around 9.7 billion dollars of US imports from Bangladesh (annual average during 2022鈥�2024).
These are men鈥檚 cotton trousers, women鈥檚 cotton trousers, men鈥檚 cotton shirts, jerseys, cotton T-shirts, and headgears.
What鈥檚 important to note here is that most of the brands that have ultimate ownership of these commodities are in fact based in the US. I mean, Gap or H&M are not really Bangladeshi companies. These brands, which control research and development, marketing, etc. for the commodities receive the lion鈥檚 share of the profit from the final sale of these commodities.
For example, the average unit price of T-shirts imported from Bangladesh by the US in 2022鈥�2024 was $2. One can expect to buy the same T-shirt from an American retailer for $15鈥�20.
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What does the US export to Bangladesh
SINCE the tariff rates are based on the US鈥� trade deficit, an obvious way to bring them down is to import more from the US. Almost two-thirds of the around 2.4 billion dollars of US exports to Bangladesh are concentrated into just four commodities. These are scrap metal, cotton, soya beans and vaccines (annual average during 2022鈥�2024). The last commodity in the list could be due to Covid-19.
The important point here is that one of Bangladesh鈥檚 major import commodities from the US, cotton, is a raw material for Bangladesh鈥檚 textile industry which produces intermediate inputs (yarn, fabric) for the garments industry. So, there is significant American input embedded in Bangladesh鈥檚 exports to the US.
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What more can Bangladesh import from the US
ACCORDING to Bangladesh Bureau of Statistics, Bangladesh鈥檚 major import commodities are edible oil, fertilizer, petroleum, raw cotton, iron and steel, plastic items, textile yarn, and wheat. Bangladesh needs to explore whether there鈥檚 room for more imports from the US. This requires analysing Bangladesh and US鈥� trade complementarity, meaning determining where and how much Bangladesh鈥檚 imports needs align with US鈥� exports profile and vice versa. This will be very involved and is beyond the scope of this article. But it needs to be done.
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The missing piece
THERE is another type of trade which is often overlooked 鈥� trade in services. The data on service trade lacks availability and details. The US Bureau of Economic Analysis reports that the country exported one trillion dollars鈥� worth of services in 2023. If these figures are taken into account, the trade deficit the US has with many countries will be significantly reduced and so will the strangely calculated tariff rates.
The data is not detailed enough to know how much services was imported by Bangladesh from the US. But there鈥檚 urgent need for Bangladesh to come up with reliable estimates for the sake of negotiations. In general, given how the geopolitical landscape is evolving, there鈥檚 a need for Bangladesh to have a strong data ecosystem to support agile policy making.
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Key points for negotiation
Bangladesh must diversify its exports both in terms of commodities and partners to reduce vulnerability in the future. For the current situation, I recommend that Bangladesh鈥檚 negotiation to bring down the tariff rates focus on below points:
US companies own and account for the majority of value-added in the readymade garments commodities which are Bangladesh鈥檚 main exports to the US. Furthermore, significant US imports are embedded in those exports.
Bangladesh should estimate trade in services and supply of services through foreign affiliates with the US, and calculate its trade balance with US holistically. This will be significantly lower than trade balance calculated based on merchandise trade alone. Accounting for US imports embedded in Bangladesh鈥檚 exports could minimise the trade balance even further.
Bangladesh should explore how to increase imports from the US. We should especially focus on creating more co-dependences like imports of cotton from US being used as an input in Bangladesh鈥檚 exports.
Trump has totally upended the settled order of international trade. Things will eventually resettle. Bangladesh needs to position itself well to at least come out of it unscathed, and maybe even as a winner.
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Khalid Saifullah is a statistician.
