Navigating the Tariff Storm: How Bangladesh Can Sustain Its Garment Exports to the U.S.

April 3, 2025 by Tashfin Delwar

Bangladesh’s garment industry, a cornerstone of the nation's economy, faces significant challenges with the new reciprocal tariffs implemented by the United States starting April 2025. The increased tariff rate from 15.62% to 37% threatens to raise costs dramatically, placing Bangladesh's $7.37 billion (2024) apparel exports to the U.S. under severe pressure.

Impact on Bangladesh’s Garment Industry

The sudden tariff hike means an additional $1.58 billion annually in duties, substantially impacting competitiveness. Given the price sensitivity of apparel, particularly basic garments like t-shirts and sweaters, Bangladesh risks losing significant market share to competitors with lower tariffs such as India (26%) and duty-free countries like Mexico and CAFTA-DR nations.

Projected Consequences

Immediate Impact: Potential decline of 10-20% in exports to the U.S., translating into a loss of approximately $0.74-$1.47 billion in revenue.
Medium-Term Risks: Possible erosion of 2-3% in overall U.S. apparel market share by 2026 if corrective actions are not swiftly implemented.

Competitors Favored by Tariff Changes

The new tariffs significantly shift competitive advantages towards specific countries:

1. India (26% Tariff)

Lower tariff compared to Bangladesh's 37%, Vietnam's 46%, and Cambodia’s 49%.
Robust textile infrastructure and vertically integrated supply chains.
Already a significant exporter to the U.S., contributing about 5-7% ($10.8 billion in 2023-24) of total U.S. apparel imports.
Likely to absorb market share lost by Bangladesh due to lower comparative tariff costs.

2. Mexico (Duty-Free via USMCA)

Duty-free access due to the USMCA agreement, providing substantial tariff advantage.
Geographical proximity to the U.S. reduces logistical costs and lead times.
Currently accounting for around 2-3% of U.S. apparel imports, but poised for growth due to competitive tariff positioning.

3. Central American Countries (CAFTA-DR)

Duty-free access under CAFTA-DR makes these countries highly attractive sourcing alternatives.
Collectively contribute about 5-6% of U.S. apparel imports.
Expected to significantly enhance their share due to tariff advantages and logistical benefits.

4. Turkey (10% Tariff)

A substantially lower tariff compared to Asian competitors.
Established textile and garment industry, proximity to European and American markets.
Attractive alternative for U.S. importers seeking quality apparel with relatively lower tariffs.

Strategies for Bangladesh to Mitigate Tariff Impact

To safeguard its vital garment exports and protect the economy, Bangladesh must urgently take comprehensive actions:

1. Diplomatic Engagement

Negotiate with the U.S. to reduce reciprocal tariffs by addressing Bangladesh’s existing 74% tariff on American imports.
Advocate strongly for reinstatement of Generalized System of Preferences (GSP) or negotiate a new apparel-specific trade agreement, leveraging labor and safety improvements.

2. Boost Production Efficiency

Accelerate adoption of automation and technology to reduce production costs.
Shift production focus toward higher-value apparel, such as technical garments and synthetic fibers, reducing vulnerability in basic apparel segments.

3. Market Diversification

Aggressively explore alternative markets like the European Union, Japan, India, and emerging economies to reduce dependence on the U.S.
Enhance export diversification strategies targeting countries with lower tariff implications.

4. Policy Reforms and Preparation

Reform domestic trade policies to lower input tariffs, aligning with international standards.
Prepare proactively for Least Developed Country (LDC) graduation in 2026 by negotiating free trade agreements (FTAs) with strategic markets.

5. Brand Promotion and Advocacy

Strengthen Bangladesh’s brand identity as a sustainable and ethical manufacturing destination to maintain loyalty among U.S. buyers.
Collaborate closely with U.S. industry groups and buyers who oppose higher tariffs, leveraging their advocacy to negotiate tariff exemptions or reductions.

Increasing U.S. Tech Consumption to Balance Trade

Bangladesh already indirectly invests significantly in U.S. technology, notably in advertising on social networks like Facebook, Netflix, Cloud Services, Developer tools, LLM subscriptions and many more. Currently, millions of dollars flow into U.S. digital platforms unofficially, creating a hidden trade dynamic that remains unrecognized in official trade statistics. By formalizing these expenditures through legal channels, Bangladesh can visibly reduce its apparent trade imbalance with the U.S., presenting a stronger case in trade negotiations. Encouraging legitimate transactions for digital services and software, cloud infrastructure, cybersecurity solutions, and other U.S. technologies can further balance trade, enhance Bangladesh's digital infrastructure, and strengthen diplomatic leverage. Making Digital products and services import from USA tax free will add to this diplomatic leverage.

Potential Implications for the IT Sector

Indirectly, the tariff surge also poses risks to Bangladesh’s burgeoning IT sector. A weaker economy and currency depreciation could limit investments in critical IT infrastructure and adversely affect local market demand. To mitigate these risks, Bangladesh should pursue diversified market engagements and leverage digital platforms to secure and expand global IT service clientele.

Moving Forward

Navigating these complex trade dynamics requires decisive action, strategic planning, and swift implementation from both government and industry stakeholders. Bangladesh must prioritize diplomatic engagement, efficiency improvements, market diversification, and strategic reforms. By doing so, it can not only mitigate tariff-related impacts but also strengthen long-term economic resilience, ensuring continued growth and prosperity despite the evolving global trade landscape.