Introduction
Being a second largest exporter in the apparel category in the world, Bangladesh is always on receiving end of several issues in the international trade. Nevertheless, a recent news about the proposed new tariffs by United States has created a fresh and grave concern to the ready-made garment (RMG) industries in Bangladesh. The possible effect of these tariffs, the causes, and their widespread implications on the economy of Bangladesh will be discussed in detail as presented below.
1. What is it that is causing this Fear of these New Tariffs? A number of factors are becoming apparent as possible causes on the imposition of new US tariffs. They include the attempts by the US to lessen its trade deficit and enact its America first policy. At one time or the other, the Trump administration had already levied other tariffs on the products of China and certain other states. This time a huge imbalance has been created in trade with Bangladesh and retaliatory tariffs might be imposed. There is a chance that it may be activated as early as August 1st even though a definite date has not yet been given.
2. Immediate Effects on the Garment Industry: The United States has been the largest single destination of Bangladesh ready-made garment exports, which account to about 20 percent of the entire exports of the country. With possible new tariffs (assuming up to 35 percent with up to 50 percent when added to the previous duties) in this massive market, the effect will extend deep and wide and will be disastrous.
Bangladesh Falling Behind: Due to additional duties, the price of Bangladesh-made garment will dramatically rise in the US market. Countries competing to exports like Vietnam, India or Cambodia or even Pakistan who do not pay these tariffs will get a market share advantage. The main strength of Bangladeshi ready-made garment is its low price; losing that will be hard for it to compete.
Loss of Orders: Big buyers such as Walmart are already thinking of stop giving some of their orders to Bangladesh. In the event this actually occurs, millions of factories will be denied an order thus causing a huge dent in the overall export revenue.
Effect on Employment: Bangladesh garment industry employs about 4 million people with a high percentage of women among them. When exports fail, the factories will as well lose production, and the fear of layoff or job loss will increase. This may bring social instability.
High Profits and Expanding: Tariffs will cost the exporter with the increased profit will have to be carried by the exporter or the buyer in which case he will seek the other sources. In both instances the Bangladesh factories will incur loss and there are chances of a large group of small and medium sized factories closing.
Rules of Origin (RoO) Challenge: The US threatens to impose a 35 per cent tariff to over 400 items unless 40 per cent of the value addition of the items manufactured are completed in the US. Bangladesh mainly relies on imported raw materials (yarn, fabric etc.) which makes achieving this condition very hard.
3. Bangladesh's Response and Possible Solutions In this situation, the Bangladeshi government and garment industry owners are not sitting idle. They are considering various measures to overcome potential losses:
Diplomatic Efforts: The Bangladeshi government is in close contact with the US administration. The Commerce Minister and other high-ranking officials are visiting the United States for discussions on this matter and appealing for the withdrawal of tariffs.
Market Diversification: Emphasis is being placed on increasing exports to Europe, Japan, Canada, Australia, and other emerging markets, reducing dependence solely on the United States.
Product Diversification: Focus is being shifted towards producing higher-value fashion items, technical textiles, and synthetic fiber garments, which can yield relatively higher profits, in addition to low-cost basic apparel.
Development of Backward Linkage Industries: The importance of increasing investment in local production of yarn, fabric, and other raw materials is being realized to reduce dependence on imports. This will also facilitate meeting 'Rules of Origin' conditions.
Proposal to Restore Trade Balance: The Bangladeshi government has proposed reducing Bangladesh's tariffs on some US products (such as wheat, LNG, aircraft, cotton, etc.) instead of the US reducing its import tariffs, to restore trade balance between the two countries.
4. Is the Future Truly at Risk? The new US tariffs undoubtedly pose a major challenge for Bangladesh's garment industry. However, Bangladesh has been able to overcome various adversities in the past. It is possible to overcome this crisis through proper strategy, strong diplomatic efforts, and strengthening the industry's internal capacity. However, this requires long-term planning, proper policy support from the government, and coordinated efforts from all relevant parties.
Conclusion: The proposed imposition of US tariffs is a turning point for Bangladesh's garment industry. It will not only affect export earnings but also profoundly impact the livelihoods of millions of people and the overall economy of the country. If Bangladesh can turn this crisis into an opportunity by strengthening its production processes, diversifying its markets, and bolstering its diplomatic relations, then a new door of possibility can open even amidst this risk. Although the future of Bangladesh's garment industry is uncertain, it is hoped that with the right steps, this industry will be able to prove its resilience.