Tariff on Indian goods: New export prospects for Bangladesh

Just two weeks ago, Indian traders were strategising to capture a greater share of the US market for readymade garments by leveraging the advantage of reciprocal tariffs.

They had assumed that Bangladesh, Cambodia, and Indonesia would face comparatively higher reciprocal tariff, while Indian products would be subject to lower rates.

However, the situation has completely reversed. On 31 July, while the US administration imposed reciprocal tariff of 19 per cent on goods from Cambodia and Indonesia and 20 per cent on Bangladeshi products, it slapped a 25 per cent duty on Indian goods.

As a “penalty” for purchasing crude oil from Russia, President Trump announced an additional 25 per cent duty on Indian products last Wednesday.

This will raise the total reciprocal duty on Indian goods entering the US market to 50 per cent. Although the reciprocal duty took effect yesterday, Thursday, the additional 25 per cent tariff on Indian goods will be implemented after 21 days.

As a result of the higher tariffs on Indian products, Bangladesh now has an opportunity to increase exports of certain goods.

Exporters say that once the higher tariffs take effect, Indian exporters will lose competitiveness in several categories, including ready-made garments, home textiles, processed agricultural foods, leather goods, frozen fish and shrimp, and furniture.

These are among Bangladesh’s top export items. Consequently, Bangladeshi exporters may receive US orders that shift away from India.

According to India’s Ministry of Commerce, the country exported goods worth USD 80.77 billion to the US market in 2024. This included USD 12.58 billion in electrical machinery and parts, USD 9.30 billion in jewellery, USD 8.87 billion in pharmaceuticals, USD 5.18 billion in ready-made garments, USD 3.70 billion in processed agricultural products, USD 1.97 billion in frozen fish and shrimp, USD 750 million in leather goods, and USD 1.15 billion in furniture.

According to a report by NDTV, in the outgoing fiscal 2024–25, India exported ready-made garments worth USD 5.4 billion to the US. For these imports, US importers paid an average tariff of 13.9 per cent on knitwear and 10.3 per cent on woven garments. Once the new reciprocal tariff take effect, the average tariff on ready-made garments from India will exceed 60 per cent.

Bangladesh is currently the third-largest exporter of readymade garments to the US Until now, the average tariff on Bangladeshi garments was 16.5 per cent. With the reciprocal duty in place, this will rise to 36.5 per cent.

Fazlee Shamim Ehsan, Executive President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said, “If the high tariffs remain in place, orders for ready-made garments will shift away from India. Part of those orders will come to Bangladesh. This could happen within the next six months.”

Home textile manufacturers also see potential for US orders to shift from India to Bangladesh. Last year, India exported USD 2.93 billion worth of home textiles to the US, while Bangladesh’s exports in this category totalled USD 150 million in the outgoing fiscal year.

Former chairman of the Bangladesh Terry Towel and Linen Manufacturers and Exporters Association, Shahadat Hossain, said, “Because of the tariffs, orders for high-priced home textile products will shift away from India. There are several large companies in Bangladesh capable of taking those orders. Therefore, we have significant potential for export growth.”

The higher tariffs on Indian goods are also expected to divert some US furniture orders to Bangladesh. Last year, India exported USD 1.15 billion worth of furniture to the US, while Bangladesh exported USD 19.7 million in the outgoing fiscal year.

Selim H Rahman, Chairman of furniture brand Hatil, said, “A few companies here have the capacity to take more furniture orders from the US. However, to improve competitiveness, duty-free import facilities for raw materials will be necessary.”

Khandaker Golam Moazzem, Research Director of the Centre for Policy Dialogue (CPD), cautioned that Bangladesh is not entirely immune to such threats, given its own trade relations with Russia. Moreover, goods manufactured using raw materials imported from other countries could face tariffs of up to 40 per cent upon export.