Trump's tariff war 2.0: A windfall for Bangladesh?

When US President Donald Trump imposed a 25% tariff on imports from Canada and Mexico and a 10% tariff on Chinese goods, the shockwaves were felt far beyond these three economies. European nations and Japan are also on edge, bracing for the ripple effects of this aggressive trade manoeuvre. 

As expected, Canada on Saturday announced a tit-for-tat 25% tariff phased in across $107 billion worth of American products, while Mexico and China said they were preparing similar tariffs on US goods.

However, amid this global anxiety, a silver lining emerges for Bangladesh.

Take, for instance, the soybean market. China is one of the largest buyers of American soybean oil. If Beijing counters Washington's tariffs by imposing levies on US soybean imports, its demand for the product will decline, pushing prices down. This, in turn, is good news for Bangladesh as local commodity importers anticipate cheaper access to soybean oil. The same scenario could unfold for Canadian wheat, oil, and chemicals, making essential imports more affordable.

The real jackpot, however, could be in the apparel sector.

With a 10% tariff driving up the price of Chinese garments, American retailers and brands might look elsewhere for cost-effective sourcing. As the world's second-largest RMG exporter, Bangladesh stands to gain significantly.

If US inflation spikes due to the tariff measures, consumers will seek lower-cost alternatives – precisely where Bangladesh can step in as the top choice for affordable clothing. Additionally, Chinese factories may shift to third countries like Bangladesh to avoid the extra tariffs on US exports.

Entrepreneurs believe that American buyers will increasingly turn to Bangladesh, along with Vietnam and India as alternatives to China. Furthermore, Bangladesh is poised to gain an edge in importing raw materials like cotton for the apparel industry from the US, surpassing China's competitiveness.

The US is Bangladesh's largest single export market, with around $10 billion worth of goods exported annually. The majority of these exports are ready-made garments. Currently, Bangladesh holds a 9% share of the US market, making it the third-largest apparel exporter to the country, after China and Vietnam.

Opportunity for commodity importers

Taslim Shahriar, deputy general manager of Meghna Group, said the US produces 30% of the world's soybean, with China being its largest market.

When Trump initiated the trade war with China in 2016, US soybeans became more accessible to Bangladesh. During that tenure, global soybean prices remained stable, with imports priced at $880-$900 per vessel, he told The Business Standard.

"However, under Biden, soybean prices nearly doubled, reaching $1,500-$1,600 in three years," he added.

Shahriar also mentioned that while Bangladesh imports wheat and edible oil from Canada, these items are not always readily available. "If the US reduces its purchase of Canadian wheat, Bangladesh could benefit, making Canada a viable alternative market alongside Brazil and Argentina."

Trump launches trade war with tariffs on Mexico, Canada and China

Bangladesh primarily imports lentils, edible oil, oilseeds, fertilisers, machinery, paperboard, scrap, and optical, medical, scientific and technological equipment from Canada.

Luthful Kabir Shaheen, director (business development) at City Group, believes these products will become more accessible and affordable due to shifting global trade dynamics.

Two benefits in apparels

Md Mohiuddin Rubel, former director of the Bangladesh Garments Manufacturers and Exporters Association (BGMEA), said Trump's new trade policies present Bangladesh with two major opportunities.

Firstly, as inflation rises, consumers in Europe and the US will lean towards more affordable clothing, prompting brands to increase sourcing from Bangladesh.

"In fact, Bangladesh's garment exports to Europe have already risen due to inflation," said Mohiuddin.

Secondly, the tariffs imposed on China will drive American buyers to seek alternative markets, with Bangladesh being a prime option for low and medium-end brands.

"Also, Chinese RMG manufacturers may shift their operations to Bangladesh to avoid further tariffs," said the former director of the apex apparel body.

However, Mohiuddin cautioned that Bangladesh may struggle to capitalise on the opportunities due to infrastructure challenges. Rising costs for gas and electricity are increasing business expenses, and unreliable supply of these resources is disrupting production.

Meanwhile, countries like Vietnam and India are ready to seize the opportunity, he observed.

Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), noted that Bangladesh will not benefit from the US trade war with Mexico and Canada.

However, if tariffs on China increase, there is potential for greater sourcing from Bangladesh by the US as well as opportunities for investment shifts. Hatem cautioned, though, that rising business costs and political unrest could undermine these opportunities.

"Increasing global trade costs could lead to higher expenses for sourcing raw materials and product supply in Bangladesh," he added.

Long-term risks

Despite these short-term gains, economists warn of potential long-term risks. They believe if more countries follow the US' lead in reducing imports to boost self-reliance, Bangladesh – heavily reliant on export markets – could face significant challenges in the future.

Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, explained that Bangladesh's RMG sector has flourished largely due to globalisation and duty-free access to US and European markets.

However, Trump's current policies, driven by nationalist ideas, oppose globalisation. "If this trend continues, Trump could impose tariffs on Bangladesh and other countries after China."

Besides, other nations might follow suit, which could result in short-term gains for Bangladesh but long-term harm to global trade and the country's economy, warned the economist.

"The ongoing trade wars between the US and China, Mexico and Canada will likely slow global economic growth, reducing purchasing power in these regions. This could lead to lower demand for low-cost garments, ultimately hurting Bangladesh in the long run," added Moazzem.

He also raised concerns that if Trump grants tariff advantages to allied countries, it could negatively impact Bangladesh.