IN A world of escalating trade tensions and transactional diplomacy, tariffs have re-emerged as pivotal instruments for recalibrating national economies. At their core, tariffs are not merely financial levers; they are strategic tools for what one might call economic homeostasis — a term borrowed from physiology, which refers to maintaining equilibrium across key economic indicators like employment, production and consumption amid shifting global market dynamics. Tariffs serve as instruments to preserve this balance by regulating the flow of foreign goods, shielding domestic industries from external shocks and unfair competition.
Just as the human body constantly works to preserve physiological homeostasis by maintaining temperature and pH within narrow limits for optimal functioning, modern economies seek to stabilise employment, production and revenue flow despite global shocks. In this framework, tariffs — when skilfully calibrated — can protect vital sectors, generate public revenue and cushion local industries against disruptive foreign competition. The recent US–Bangladesh tariff negotiation, culminating in a reduced 20 per cent tariff on Bangladeshi garment exports, is a telling case study of this delicate balancing act — and the asymmetric outcomes such deals often yield.
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Bangladesh’s predicament
ON APRIL 1, 2025, President Donald Trump announced a sweeping package of tariff increases affecting over 70 nations — rebranded by the White House as the ‘Liberation Day Tariffs.’ Bangladesh, heavily reliant on its readymade garment industry, was slapped with a proposed 37 per cent tariff, sending shockwaves through Dhaka’s policy circles. For a country whose garment exports account for more than 80 per cent of export earnings, employing over 4 million workers and contributing nearly 10 per cent of GDP, the prospect of a 37 per cent duty in its single largest export market was not just bad news — it was existential.
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The deal: From 37 per cent to 20 per cent
FOLLOWING the initial shock, Bangladesh swiftly requested and received a three-month negotiation window, during which it assembled an impressively coordinated strategy across ministries and industries. The final breakthrough came in late July, when Bangladesh secured a reduction to a 20 per cent reciprocal tariff, putting it on par with regional competitors like Vietnam, Indonesia and Sri Lanka. India, by contrast, failed to reach a deal and is currently subject to a 25 per cent tariff, giving Bangladesh a crucial edge.
The negotiated agreement wasn’t merely symbolic; it was backed by tangible trade commitments. Bangladesh pledged to import substantial quantities of US goods — 700,000 tonnes of wheat annually, Boeing aircraft, LNG, soybeans, cotton and industrial equipment. These moves were designed not only to offset trade deficits but also to appeal to powerful domestic interests in US farm and energy sectors.
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Winners and losers: the immediate impact
Bangladesh: Bangladesh is the clear near-term winner. By avoiding a 37 per cent tariff, it preserves critical market access and pricing competitiveness in the US garment market. Industry associations in Dhaka welcomed the outcome as a ‘relief,’ while business leaders like Mohiuddin Rubel noted that although short-term pressures remain, Bangladesh has safeguarded its position on the global supply chain map.
India: Conversely, India finds itself on the back foot. With no agreement in place, its 25 per cent tariff leaves it vulnerable to trade diversion. Indian exporters in Gujarat and Tamil Nadu warned of lost demand as US buyers reevaluate sourcing decisions. Indian textile stocks slid as much as 7 per cent following Bangladesh’s success, underscoring investor anxiety over competitiveness.
United States: The US emerges with short- to medium-term strategic gains. It secures tariff revenue while expanding export opportunities in agriculture, aviation and energy, particularly from politically significant swing states. However, American retailers and consumers face higher prices, especially in fashion retail, where the added 20 per cent cost on garments may translate into increased shelf prices or tighter margins. Many US buyers are already pressuring Bangladeshi suppliers to absorb part of the tariff — an untenable demand for smaller factories already operating on razor-thin margins.
By adopting a trade- and tariff-friendly approach, the US strengthens its position as a winner in preserving geopoliticonomic goodwill — a blend of geopolitical leverage and geo-economic influence — across its trading partners and the global community.
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The free trade mirage: would 0 per cent have worked?
CONSIDERING these developments, one might ask: what if the US and Bangladesh had agreed on a 0.0 per cent reciprocal tariff deal? On paper, this appears ideal — frictionless exchange of garments for machinery, a textbook exercise in comparative advantage. But economic asymmetry lies beneath the surface.
For the US, removing tariffs on Bangladeshi goods does not spell fiscal disaster. Although federal customs revenue is lost, state governments recoup much of it through sales taxes — typically 5–10 per cent on imported clothing sold in stores. Additionally, American companies benefit from higher profit margins or cheaper inputs, potentially spurring greater domestic consumption and tax receipts.
In contrast, Bangladesh lacks such downstream tax mechanisms. High-value American imports like medical equipment or aircraft often avoid VAT since they’re not retail goods. For Dhaka, a 0 per cent tariff equals zero border revenue and minimal consumption-based recovery — a double loss for a country still heavily reliant on import duties for public finance. The supposed ‘reciprocity’ is, therefore, not fiscal reciprocity. It’s a structural imbalance between a tax-diversified economy and a duty-dependent one.
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Strategic diplomacy and economic homeostasis
THE resolution of the 20 per cent tariff agreement reflects a broader principle: economic homeostasis is achieved not by eliminating friction but by managing them intelligently. Bangladesh’s victory lies not only in tariff reduction but in its deft navigation of trade diplomacy. Chief adviser Muhammad Yunus and national security adviser Khalilur Rahman’s coordinated approach — leveraging strategic imports to balance geopolitical demands — illustrates a maturing diplomatic calculus.
For the US, the deal secures market penetration for its agricultural and industrial sectors while maintaining leverage over trade partners. But it must now grapple with domestic consequences — higher apparel costs, squeezed retail margins and the risk of overplaying its tariff-based strategy.
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Long-term risks and opportunities
Demand sensitivity: Even at 20 per cent, Bangladeshi garments are now more expensive. One study estimated a 35 per cent price increase could reduce US demand by over 10.5 per cent. Though the lower rate mitigates this, US buyers may still shift towards cheaper alternatives — or demand price concessions from Bangladeshi suppliers.
Structural weaknesses: Bangladesh’s continued reliance on RMG exports and tariff-based revenue is a vulnerability. This should serve as a wake-up call to diversify exports, modernise production and invest in higher-value manufacturing.
Regional dynamics: Bangladesh’s advantage is temporary unless consolidated. If India renegotiates a lower tariff soon, the window of relative competitiveness may narrow. Similarly, Sri Lanka and Vietnam could adjust their positions, recalibrating sourcing decisions across US buyers.
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A strategic win, but not the endgame
THE 20 per cent tariff deal marks a significant diplomatic and economic achievement for Bangladesh, averting a catastrophic disruption to its flagship industry and outmanoeuvring regional rivals like India — at least for now.
But the long-term challenge lies in capitalising on this breathing space. The key is not to return to status quo dependency but to transform trade vulnerabilities into strengths: building fiscal capacity beyond customs revenue, scaling up into green textiles, embracing automation and design innovation and expanding into new product lines and markets.
As global trade enters a more transactional, interest-driven era, maintaining economic homeostasis will require more than defensive manoeuvres. It will demand vision, resilience and strategic upgrades across the board. In that race, the winners won’t be those who merely avoid tariffs — but those who evolve beyond them.
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Dr Abdullah A. Dewan is a former physicist and nuclear engineer at BAEC and is professor emeritus of economics at Eastern Michigan University, USA.
