Is Bangladesh under diplomatic and psychological pressure over trade deal with US?

2 April 2025. Spring had arrived in the Rose Garden of the White House. In a speech delivered there, US President Donald Trump described the day as “one of the most important in the history of the United States” and declared it “Liberation Day”, or a day of “economic independence”.

Signing an executive order, he declared a “national emergency” to address the US trade deficit and later imposed additional “reciprocal” tariffs ranging from 11 per cent to 50 per cent on countries with which the United States had the largest trade deficits.

Trump had said at the time, “From now on, we will be smart again and a very rich country.” He claimed the new policy would boost domestic production, create jobs, and “bring in trillions of dollars to cut taxes and pay off the national debt.”

Many economists said the formula used to calculate the “reciprocal” tariffs was overly simplified and had little connection to real trade barriers.

Some argued that it was less about reducing trade deficits and more about pursuing geopolitical interests. Importers said the tariffs would come directly out of their pockets. For consumers, the message was simple: they would have to buy goods at higher prices.

On 14 April, five small American businesses filed a lawsuit against the Trump administration. The businesses included a wine importer from New York, a cycling apparel brand from Vermont and an educational materials manufacturer from Virginia.

They argued that the tariffs posed a serious threat to their survival. Under the International Emergency Economic Powers Act (IEEPA), they said, the constitutional authority to impose such tariffs lies with Congress, not the president.

Despite being aware of the legal dispute, Bangladesh’s interim government signed a non-disclosure agreement with the United States in June 2025 while the case was still ongoing.

As the terms of the agreement were kept secret, questions immediately arose among citizens about whether the interim government had the authority to sign such a deal. The move drew widespread criticism. When parts of the agreement were later leaked, a ministry official was blamed and subsequently dismissed from service.

2.

On 29 August, when the United States Court of Appeals ruled that most of the global tariffs were illegal, it dealt a major blow to the foundation of Trump’s aggressive trade policy. The law he had invoked to impose the tariffs, the court said, did not actually grant him such authority.

The world then came to understand that there was serious constitutional debate over whether the president could unilaterally impose such tariffs.

Even after the case moved to the Supreme Court of the United States, Bangladesh continued negotiations with the United States for a reciprocal trade agreement for five months.

First, it should have been clear that signing a new trade agreement with the United States under those circumstances would expose any country to an uncertain and risky legal environment. Expecting that the lower court ruling would be overturned in the Supreme Court was unrealistic.

Second, in practice these tariffs were essentially a tax on American consumers and businesses. While they generated large revenues for the US treasury, they also harmed many small businesses. If the tariffs were ultimately ruled illegal, complicated administrative questions would arise over how the collected duties should be refunded.

Third, there were concerns that the United States’ executive branch could easily reinterpret emergency laws and turn tariffs into a political tool—citing one law today and another tomorrow—thereby eroding confidence in the trade commitments and stability offered by the United States.

Considering all this, it would have been prudent to stay away from new trade agreements until the legal status of the tariffs became clear and Congress reasserted control.

Yet Bangladesh completed the agreement with the United States on 9 February—just three days before the election. Only ten days later, on 20 February, the US Supreme Court declared the reciprocal tariffs illegal.

While other South Asian countries were moving cautiously—reviewing the terms of potential deals and observing the steps taken by others—why did Bangladesh rush to sign the agreement?

Ignoring these questions, the then chief adviser Muhammad Yunus described the deal as a success.

Questions have arisen as to why he considers it a success when the terms reportedly restrict Bangladesh’s policy independence and appear discriminatory. What exactly is the benchmark of that success?

3.

Since the fall of the Sheikh Hasina government on 5 August 2024 and her flight to India, anti-India rhetoric has intensified in Bangladesh’s political arena.

In such circumstances, the interim government appears to have failed to objectively assess Bangladesh’s economic interests. The decision to sign the agreement quickly may have stemmed from a perceived need to choose between “Indian dominance” and “American dominance”.

Another factor cited by the interim government was pressure from the country’s ready-made garment sector, which accounts for a large share of Bangladesh’s exports.

Trump’s strategy behind imposing high reciprocal tariffs was to gain leverage in bilateral bargaining with individual countries. Bangladesh initially faced a tariff of 37 per cent, which was gradually reduced to 20 per cent and finally to 19 per cent.

However, when setting the final 19 per cent rate, the United States reportedly imposed several conditions in the trade agreement in exchange for removing reciprocal tariffs on ready-made garments.

These conditions included requirements to use US cotton and allowing the United States to determine export volumes. Even business leaders themselves have questioned whether these conditions are realistically implementable.

Ironically, the interests of the garment exporters—whose concerns were cited to justify the agreement—now appear uncertain. The interim government had claimed success by pointing out that India faced a 50 per cent tariff while Bangladesh faced only 19 per cent. But the US Supreme Court ruling effectively nullified that claim. A universal 10 per cent reciprocal tariff is now in effect for all countries.

This episode illustrates how decisions driven by populist rhetoric or the interests of particular business groups can ultimately harm national interests.

Rather than framing the issue as being for or against India or the United States, the interim government should have prioritised Bangladesh’s own interests. Opposing Indian dominance does not mean accepting American dominance.

Notably, India has still not signed such a deal. Even after the Supreme Court decision, India has refrained from negotiations with the United States, citing uncertainty.

So what about Bangladesh? The United States is now urging Bangladesh to honour the agreement, amid uncertainty over implementing a temporary 10 per cent tariff for 150 days under another law. Because Bangladesh knowingly signed the deal, the United States is reportedly attempting to exert diplomatic and psychological pressure for compliance.

4.

The agreement reportedly states that Bangladesh can withdraw from it within 60 days of signing. As the deal has not yet been approved by parliament, the current government could request time for parliamentary review. If so, the agreement would not take immediate effect.

However, even before that process begins, a special envoy of Trump—Paul Kapur—visited Dhaka on 3 March to hold discussions with various stakeholders.

Significantly, besides the trade agreement, the United States also wants Bangladesh to sign two specialised defence agreements—General Security of Military Information Agreement and Acquisition and Cross‑Servicing Agreement.

One major risk of such defence agreements is that they could compel Bangladesh to purchase expensive military equipment and restrict its ability to maintain relations with other countries.

Bangladesh is geopolitically sensitive and must maintain diplomatic balance with multiple countries to protect its interests. Such agreements could therefore create long-term strategic complications.

The key question now is what the current government will do with this unequal trade deal.

It is already known that budget allocations have been made in line with the agreement. Bangladesh has begun purchasing wheat from the United States at higher prices. In other words, the interim government had already progressed considerably in implementing the deal’s conditions.

An interesting development is that the interim government’s national security adviser Khalilur Rahman has now been appointed foreign minister in the elected government. His role in the negotiations with the United States has been widely discussed. Under these circumstances, the decision the current government takes regarding the agreement will be closely watched.

5.

Recently, alongside Israel, the United States has also attacked Iran. Such actions create a form of psychological pressure on other countries.

In this context, Trump’s special envoy visited Bangladesh with proposals for additional defence agreements even before the start of the parliamentary session.

Meanwhile, Iran’s restrictions on the use of the Strait of Hormuz have pushed oil prices higher. Alongside managing this crisis, the new government’s responsibility is to build a sustainable economic structure for the long term.

A key task now is to objectively assess how the trade agreement with the United States might harm Bangladesh’s economy.

For several reasons, the agreement appears discriminatory against Bangladesh. It raises the overall tariff burden on Bangladeshi exports to around 34.5 per cent. In effect, instead of gaining advantages for garment exports, Bangladesh may face a heavier tariff burden.

In exchange, Bangladesh is offering tariff concessions on 6,710 US products while receiving limited reciprocal concessions on only 1,638 products. This creates risks for domestic agriculture and reduces government revenue.

The agreement would also require Bangladesh to purchase US-made Boeing aircraft as well as large quantities of LNG and agricultural products each year. This could reduce the country’s ability to import cheaper goods from nearby markets and increase subsidy pressure and geopolitical risks.

Granting greater advantages to US companies in sectors such as electricity, telecommunications, infrastructure, oil, gas and insurance could weaken domestic industries and strategic sectors.

Under the agreement, Bangladesh may also have to align with US export restrictions and trade controls, which could harm trade with third countries. Moreover, if Bangladesh signs any trade deal that conflicts with US interests, the United States could cancel the agreement and reimpose punitive tariffs.

In such a situation, Bangladesh should not be shaken by the psychological and diplomatic pressure currently being exerted by the United States. The interim government made a mistake; if the elected government repeats the same mistake, Bangladesh may lose another opportunity in haste.

Instead, Bangladesh should request time for review, monitor the ongoing legal uncertainties, highlight the limitations of its economic capacity, and most importantly inform the United States that the agreement will be reassessed and revised through the national parliament.

Moshahida Sultana is an associate professor in the Accounting Department at the University of Dhaka. She can be reached at moshahida@du.ac.bd

*The views expressed are the author’s own.