THE United States has introduced a 37 per cent reciprocal tariff on Bangladeshi exports as part of a broader trade policy shift, significantly affecting the country鈥檚 apparel industry, which accounts for 80 per cent of Bangladesh鈥檚 export revenue.
Reciprocal tariffs refer to trade policies where a country imposes tariffs on imports from another country. They are often used in trade disputes or negotiations to encourage fairer trade relations. The global trade arrangements under the World Trade Organisation, GATT does permit countermeasures where a country violates trade agreements or engages in unfair practices.
Countervailing duties are tariffs imposed on imported goods to counteract subsidies provided by the exporting country鈥檚 government. These duties aim to level the playing field by ensuring that domestic producers are not unfairly disadvantaged by foreign competitors who receive financial support to lower their prices. The World Trade Organisation regulates the use of countervailing duties, requiring an investigation to determine whether subsidies have harmed domestic industries before imposing these tariffs. The goal is to maintain fair competition and prevent subsidized imports from disrupting local markets.
There is a question as to whether the Trump tariffs are retaliatory measures or countervailing duties in a technical perspective. World Trade Organisation agreements specify that affected nations can impose countermeasures, including reciprocal tariffs, after receiving approval from the World Trade Organisation鈥檚 dispute settlement body. The Trump administration has not supported the World Trade Organisation, deeming it unfair. So, technically, they are saying that the tariffs are countervailing duties even though they call them reciprocal measures.
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Computation basis
TO EXPLAIN this simply, the formula can be reduced to a simple quotient of goods trade deficit over goods trade exports. To explain this in numbers the US claims that Bangladesh charges America a 74 per cent tariff. It gets to this absurd number by dividing the 2024 $6.2 billion trade deficit with Bangladesh by the total $8.4 billion in exports to America: 6.2/8.4 = 0.738 = 74 per cent. It then takes 50 per cent of 74 per cent, ie 37 per cent tariff on Bangladesh.
This is not the correct way to calculate a countervailing duty. The relevant WTO agreement specifies measures for doing so. This requires a weighted average tariff rate based on the trade basket that also adjusts for non-tariff barriers. It seems that the Trump administration took a simplistic approach of looking at the country specific trade in goods deficit, rather than the complex formulae of the countervailing duty agreement.
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Implications
THE higher tariffs will harm Bangladesh鈥檚 competitiveness compared with countries like India and Pakistan, which have lower additional tariffs. The US tariffs may prompt the United States to pressure Bangladesh to increase agricultural imports, potentially disrupting Bangladesh鈥檚 agricultural economy and threatening food security, rural livelihood and local production systems. Furthermore, banks in Bangladesh are likely to face credit-negative impacts because of the higher reliance on exports to the United States, potentially straining loan growth and hurting loan quality. Finally, the apparel sector may experience decreased exports and revenue due to the increased tariffs.
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A call for action
SHORT-TERM measures include: (i) reviewing the tariff rates on major imports from the US products by reducing tariffs on certain intermediate goods such as scrap iron and raw cotton; imports from the United States should increase which will have a positive impact on our local industries and be viewed positively in trade negotiations; (ii) ensuring that apparel buyers do not undercut prices while the post-pause tariff system is being determined; (iii) providing support for industries affected by the tariffs such as the apparel sector if the new tariffs are implemented at the end of the three months鈥� pause period. Also, regular economic analyses need to be conducted to assess the impact of the tariffs and identify opportunities for growth and development.
As an immediate action, Bangladesh needs to engage in a close dialogue with Washington, especially with the legislative branch. For far too long, Bangladesh has been seen as a supplicant, rather than as an important, market for US goods and as a strategic partner. The basic premise for this was that Bangladesh is a massive market for wheat, corn and unrefined soya bean oil. In 2022, it was the second largest single country market for the latter. Global grain prices were low in 2024, especially wheat and corn. Thus, the acreage to be planted and the soya component are key decisions that were made in February as spring planting season came up.
According to Professor Yunus鈥檚 letter dated April 7, 2025, a high-level delegation met US officials to kick-start increased imports of agricultural goods. The goal was to arrange imports of about $2 billion in imports. With this, the trade deficit would become (6.2-2) $4.2 billion, resulting in a deemed tariff rate of 4.2/8.4 = 50 per cent. So, the reciprocal rate would be 25 per cent, lower than Vietnam, India and Pakistan. Unfortunately, no follow-up took place.
Medium term measures include:
鈥� Allowing exchange rate markets to function to support competitiveness; do not lean against market pressures and burn up forex.
鈥� Accelerating trade reforms, liberalising domestic trade regimes (including services), reconsidering non-tariff barriers and communicating about trade liberalisation moves not just on tariffs but also on non-tariff barriers. A deeper regional integration should be prioritised to create larger markets. The role of services trade, including the digital economy should be expanded. This risk of losing export markets should be used to improve export competitiveness by improving logistics and trade facilitation. Behind-the-border quality standards should be improved to ensure access to key markets.
鈥� Explicitly seeking new export markets and products. The Covid pandemic highlighted the importance of supply chain diversification. The tariff shock has highlighted that demand-side diversification is also necessary. Therefore, countries should explicitly seek to diversify their export markets and products by entering into new bilateral/regional trade agreements (South Africa has already announced its intention to diversify its export markets, focusing on Asia, Europe, the Middle East, and within Africa). Diversifying export markets could involve more vigorous use of export promotion services and 鈥榮mart industrial policy鈥� Whatever the steady state post-tariffs,听growth requires the access to technology and scale economies that integration in the global economy offers.
鈥� Complementing trade reforms with domestic investment climate reforms to raise productivity and strengthening forward and backward linkages and productivity spillovers between export firms and the rest of the economy. This would significantly impact productivity growth, create well-paying jobs and embed supply chains more deeply in the domestic market. Business deregulation and promoting competition are critical for ensuring that more firms and people can participate in the growth process.
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Ziauddin Hyder, a former senior health, nutrition and population specialist, World Bank Group, is an adviser to the chairperson of the Bangladesh Nationalist Party.