Explained: Why the US Bangladesh deal is a problem for India, what it means, its impact

Bangladesh woke up to good news on Tuesday as the US tariffs on Bangladeshi goods were reduced to 19 per cent as part of a trade agreement. The US-Bangladesh trade agreement can act as a double-edged sword for India. 

The zero tariffs would apply to textiles and apparel made with US cotton/fibres, leading to the growth of Bangladesh’s garment sector. Since the deal took place with Trump in the White House, it is not a one-way street.

While Bangladesh gets market access, the US gets preferential market access for industrial agriculture products, including chemicals, medical devices, machinery, motor vehicles and parts, soy products, dairy goods, beef, poultry, tree nuts, and fruits. 

What does it mean?

The agreement reads, “The United States commits to establish a mechanism that will allow for certain textile and apparel goods from Bangladesh to receive a zero reciprocal tariff rate”.

Besides this, it also included provisions for Dhaka to lower tariffs on several US farm and food products to zero when the agreement comes into force. These include poultry, pork, seafood, rice, corn and cereal grains. 

So, how does it work? For example, Bangladesh’s garment exports into the United States are tariffed at 0 per cent if Dhaka purchases US-made cotton and man-made fibre textile inputs.

How does this impact India?

Bangladesh’s base reciprocal tariff will stand at 19 per cent, slightly higher than India’s 18 per cent, but that is not easing the stress in India’s policy circles. This is because the fine print of the agreement between Washington and Dhaka features a ‘zero-duty’ clause, whereas India does not have that. 

It is also likely to force Dhaka to cut imports of Indian cotton, which stand at around $3 billion per year. Historically, Dhaka has also been a massive buyer of Indian yarn. If it moves to the US due to zero tariffs, it will get a dual advantage in terms of raw material and entry into the US at 0 per cent. 

Indian textile hubs such as Tiruppur and Surat, as well as companies, could face tougher competition from Dhaka, given its lower labor costs and large scale. The price gap between the two would be humongous in the international market following today’s announcement. 

The deal requires Bangladesh to commit to international labor rights and environmental standards, putting the Indian exporters’ argument of ‘we’re more ethical/quality-focused’ on the back burner. 

Opposition reactions

Priyanka Chaturvedi, the Rajya Sabha MP from Shiv Sena (UBT), took a swipe at the government over the recently announced India-US interim trade pact. 

Chaturvedi wrote on X (formerly Twitter), “Textile goods from 3% tariff pre-Trump is higher than 18% tariff post the deal, as per the logic of India’s Commerce Minister. We were told to clap for this genius deal. Now the US has signed a trade deal with Bangladesh in which the US has committed to establishing a mechanism for textile and apparel goods using US cotton or man-made fibre from Bangladesh at zero reciprocal tariff in the US market. India’s Commerce Minister will now tell us the benefit Indian textile exporters will get with 18% tariff over Bangladesh’s 0%.”

She added that India imports US cotton worth $200 million, whereas Bangladesh’s imports stand at $250 million.