Chinmay Prasun Biswas :
In mid-February of this year President Donald Trump has declared his plan to impose reciprocal tariff on the entire world. He wants to launch it from the first day of the new fiscal year 2025-26. The US Department of Commerce has already started working on it.
Financial analysts claim that if this plan is finally implemented, a big change will occur in international trade. It will push the world economy back by about 100 years because it will be imposed selectively on friendly or enemy countries.
There is a strong risk that all the rules framed by the World Trade Organization will be dismantled. It will affect his country’s international trade also.
In financial terms, the tax that a country levies on imported goods is called tariff. For instance, we can talk about our readymade garments.
When this product enters the US market, producers companies in Bangladesh have to pay tax or duty to the US government. If the tariff increases, price of the imported goods also increases.
The main obstacle but unavoidable element in international trade is tariff. It makes goods costly. Moreover, tariffs can slow down the pace of business. After the end of World War II in 1945, the world has been gradually moving towards free trade because industrially developed countries consider tariff-less trade as mutually beneficial.
But developing countries have problems accepting free trade. It is not possible for these countries to compete with the products of industrialised countries. If there is free and unfettered trade, the market will be completely grabbed by a handful of countries. Keeping this in mind, the rules of world trade were framed later.
The General Agreement on Tariffs and Trade (GATT) was signed in 1947. GATT was succeeded by the World Trade Organization (WTO) in 1995. It plays a major role in shaping the tariff policy of international trade.
While drafting the law, the GATT and WTO officials agreed on one point that developing countries would get some special privileges in international trade. The WTO introduced this rule to survive in a competitive market stating that developed countries (say. the United States) will impose lower tariffs on goods imported from developing countries (such as Bangladesh).
However, this provision is not mandatory. Developed countries may not follow this rule if they think so.
Till now, international trade has been carried on assuming this as a constant fact. Under this rule, developing countries can impose high tariffs on goods imported from America and Europe.
As a result, foreign goods are always sold at high prices in their domestic market and locally produced goods are available at cheap price. But Trump wants to change this rule.
If his intended reciprocal tariff policy is implemented, the US government will also collect an equal amount of import duty from products of the countries that impose the same tax on American products.
Trump has termed it as a great system that if implemented, there will be justice in tariff issues. We shall be free of worry about who pays more and who pays less tariff.
However, he did not clarify how it would be calculated. As reported, the US Department of Commerce is preparing an outline on it. There are multiple reasons behind this initiative. During the election campaign he promised to initiate a tariff war.
According to information published on 6th February by the US Commerce Department, the United Stated had a trade deficit of 98.4 billion dollars on goods and services in December, 2024 with 43 countries including Bangladesh.
At present, Bangladesh does not enjoy duty-free access to the US market due to the suspension of its GSP status in 2013 following the Rana Plaza incident.
But Bangladesh may face greater risk as it moves towards graduation from least developed country status in 2026. If a new tariff is imposed, it may have a harmful impact on Bangladesh’s exports, particularly ready-made garments, the main export item of Bangladesh.
More than 80% of Bangladesh’s total export earnings come from the ready-made garment sector. The United States is the single largest market of ready-made garments from Bangladesh.
Due to different reasons Bangladesh’s ready-made garment export to the United State has been declining in the last two years.
Countries like India, Pakistan, Indonesia and Vietnam are taking the advantage. These countries are capitalising the political unrest in Bangladesh, severe workers’ dissatisfaction, vandalisation and closure of factories, disruption of production, transportation and shipment in Bangladesh in the last few months.
This happened because some orders were transferred from Bangladesh after the uprising. Shipment could not be done in time and new orders were not available.
China, the world’s number 1 apparel exporter, also fell into this situation. From January to November, 2024, China’s apparel exports to the US fell by 0.30 % to $15.22 billion. But China is not dependent mainly on apparel. It has many other export items worldwide.
Bangladesh is not in that position. However, Bangladeshi garment exporters expect that garment exports to the United States will rebound after the Trump administration announced high tariff on Chinese and Mexican products. But if Bangladesh is included in new US tariff policy, the situation will reverse.
So, it is necessary for government policymakers to work closely with business organisations, industry owners and stakeholders of export-oriented sectors to maintain competitiveness and find new export markets.
Bangladesh’s trade advantages need to be preserved through policy reforms and diplomatic efforts. In particular,strengthening bilateral and multilateral trade negotiations are necessary to overcome the negative impacts of the proposed US tariff policy.
If the new tariff policy is implemented, the cost of Bangladeshi ready-made garments will increase for US buyers. As a result, purchase orders may decrease and they may turn to alternative suppliers. Bangladesh will also have to look for alternative markets which is not instantly possible. It will take time but it is an emergency for our economy.
(The writer is a former Commissioner of Taxes)
