Rising US Tariffs and the Road Ahead for Bangladesh’s Export Earnings

Md. Joynal Abdin

Founder & CEO, Trade & Investment Bangladesh (T&IB)

Executive Director, Online Training Academy (OTA)

Secretary General, Brazil Bangladesh Chamber of Commerce & Industry (BBCCI)

The U.S. government significantly increased tariffs on Bangladesh’s exports during 2025, imposing a 37% reciprocal duty in April, later revised down to 20% effective August 1, 2025, after intense negotiations. The baseline U.S. tariff stands at 10%, making Bangladesh’s total duty on apparel around 30–36% depending on product categories much higher than previously anticipated.

This tariff hike matters deeply for Bangladesh because over 80% of its export earnings equivalent to $8 billion annually come from ready-made garments (RMG), of which more than $6 billion go to the U.S. market. The sector employs roughly 4 million workers, about 60% women, and contributes around 10% of GDP so any disruption threatens both economic output and progress in female participation and social mobility.

The purpose of this article is to analyze what these rising U.S. tariffs mean for Bangladesh’s export earnings, examining the immediate challenges, long-term risks, and most importantly the strategies and opportunities the country can pursue to maintain export competitiveness and support economic resilience.

2. Overview of Bangladesh-US Trade Relations

Bangladesh and the United States have maintained strong trade relations for decades, with the U.S. consistently ranking among Bangladesh’s top export destinations. Formal trade engagement gained momentum after Bangladesh’s independence in 1971, and the relationship deepened in the 1980s and 1990s as the country’s ready-made garments (RMG) industry expanded rapidly. The U.S. provided a major market for Bangladesh’s low-cost apparel, enabling the sector to become the backbone of the national economy.

Today, Bangladesh enjoys a substantial trade surplus with the United States. In 2024, Bangladesh exported goods worth around $10–11 billion to the U.S., while importing only about $2 billion in American products. This surplus is driven overwhelmingly by RMG exports, which make up more than 80–85% of total exports to the U.S.

Key Export Items

• Ready-Made Garments (RMG): The dominant export category, covering knitwear, woven garments, denim, activewear, jackets, sweaters, and workwear.

• Leather and Leather Goods: Shoes, handbags, and accessories have a niche but high-value presence in the U.S. market.

• Home Textiles: Bed sheets, towels, curtains, and decorative fabrics.

• Jute and Jute Goods: Eco-friendly bags, ropes, and mats.

• Emerging Sectors: Pharmaceuticals, IT-enabled services, and bicycles, though still small in volume, are gaining recognition.

Importance of the U.S. Market

The U.S. is Bangladesh’s single largest export destination, accounting for roughly 20% of total exports and over $6 billion in apparel shipments annually. For comparison, the European Union is collectively larger but is counted as a bloc; no single EU country matches the U.S. as a market for Bangladeshi goods.

This heavy dependence means that policy shifts in Washington such as tariff hikes can have a direct and immediate impact on Bangladesh’s export earnings, industrial growth, and employment stability. The RMG sector alone supports nearly 4 million jobs, the majority of them held by women, making U.S. trade policy a critical determinant of Bangladesh’s socio-economic trajectory.

3. Understanding the US Tariff Hike

In early April 2025, the U.S. unveiled a sweeping tariff regime that included:

• A universal 10% baseline tariff on most imports starting April 5.
• On April 9, country-specific “reciprocal tariffs” kicked in, with Bangladesh initially hit by a 37% levy, citing what the U.S. termed unfair trade practices.

Following negotiations, that rate was lowered:

• On July 9, the announced rate for Bangladesh dropped to 35% (effective August 1).
• Then on August 1, a reduction brought the rate down further to 20% reciprocal duty, making the combined tariff approximately 35–36% when added to existing average tariffs (~5‑6%) on key garment items.

U.S. Rationale for Imposing Higher Tariffs

• The U.S. administration cited the need to correct a growing trade deficit, describing the tariffs as part of a drive for “economic independence” under national emergency powers invoked through IEEPA.
• Specifically, Bangladesh was targeted despite having a much smaller trade deficit ($5 billion) with the U.S. compared to Vietnam ($125 billion), raising criticism about the fairness of the differential treatment.
• Critics argue the move serves domestic political aims, framing protectionism to support U.S. manufacturing at the expense of developing-country exports, even when those economies support women’s empowerment and industrial growth.

Industries and Products Most Affected

• Ready-Made Garments (RMG) are bearing the brunt accounting for over 80% of Bangladesh’s exports to the U.S., employing some 4 million workers, and contributing around 10% of GDP.
• Tariffs on key items such as shirts, trousers, sweaters, and activewear climbed from average duties of ~5–6% to 26–36%, severely eroding price competitiveness.
• Other export categories like leather goods, home textiles, and jute products are also affected, especially those sold to U.S. buyers as part of apparel supply chains or lifestyle products.
• Meanwhile, international competitors such as Vietnam secured a 20% reciprocal tariff, and India landed 25%, making Bangladeshi goods relatively more expensive than those from competing countries.

Export Support Services of T&IB

4. Potential Impact on Bangladesh’s Export Earnings

1. Short‑Term Consequences

• Order cancellations and delays: U.S. buyers have begun deferring or canceling garment orders in response to the announced 35% tariff, signaling lower immediate demand for Bangladeshi apparel and prompting brands to adopt a “wait‑and‑see” approach. This trend has already rippled across factories in Ashulia and Greater Dhaka .

• Reduced competitiveness: Tariffs push Bangladeshi exports above those from competitors like Vietnam (20%) and India (25%), eroding Bangladesh’s price advantage and prompting buyers to explore alternative sourcing options.

2. Long‑Term Implications

• Market share loss: Exporters face an estimated 3.6% to 12.6% decline in U.S. garment demand, depending on tariff levels and margin compression, according to models from Yale Budget Lab.

• Slowed export growth: Industry growth could stagnate if buyers permanently shift orders to lower‑tariff countries. This could impede export earnings growth from the end‑2020s upward trajectory (noting that RMG exports reached around $50 billion in 2024, up 8% year‑on‑year) .

3. Impact on Employment and Foreign Exchange

• Job losses: The garment industry employs approximately 4 million workers, 55–60% of whom are women. Analysts warn that widespread factory closures or downsizing could lead to mass layoffs and social disruption.

• Foreign exchange pressure: A projected decline in export earnings could reduce foreign currency inflows. One estimate suggests that high tariffs and related trade policies including possible remittance disruption might shrink forex inflows by $2 to $2.5 billion annually.

5. Sector-Wise Analysis

5.1 Ready‑Made Garments (RMG)

As Bangladesh’s largest export sector, RMG accounts for over 85% of total exports and contributes around 8–10% of GDP, while employing 4 million workers, mostly women. U.S. garment exports from Bangladesh totaled roughly $7.34 billion in 2024. Buyers anticipate a 20–30% reduction in orders for key seasons (spring and winter 2026–27) due to tariff uncertainty and cost pressures. Bloomberg forecasts a $2 billion drop in apparel export value amid tariff hikes and shipping disruptions. Firms face a significant competitive gap compared to countries like India and Vietnam Bangladesh has limited ability to absorb tariff differences larger than 5 pp, and a 15-pp gap could be “fatal” to market positioning.

5.2 Leather and Footwear

Exports of leather footwear to the U.S. surged by over 60%, reaching around $406 million in 2022 alone, supporting growth in both leather and non-leather suede/substitute segments. The U.S. tariff increase (up to 35%) threatens to reduce margins and redirect demand to competitors with lower tariffs such as Vietnam or India undermining this growing niche.

5.3 Jute and Home Textiles

Jute remains a legacy export, contributing approximately $1 billion in annual export revenue. Home textiles (bed linen, towels, decorative fabrics) also rank among Bangladesh’s next-largest export categories to the U.S. These product categories face tariff exposure similar to RMG. While demand for sustainable, eco-friendly jute products is rising globally, the U.S. tariff spike may curtail growth momentum and reduce export volumes unless buyers are willing to absorb higher costs.

5.4 Emerging Sectors (IT, Pharmaceuticals, etc.)

The U.S. is Bangladesh’s largest destination for ICT exports, comprising around 34% of Bangladesh’s IT exports to the world. The pharmaceutical sector remains almost self‑sufficient domestically, with export ambitions approaching $1 billion currently, and a target of $5 billion within 3–5 years. These sectors are less directly impacted by U.S. tariffs, making them key pillars for export diversification. They offer opportunities for high-value expansion while traditional sectors face tariff-induced headwinds.

6. Competitive Landscape

1. Competitors Gaining Ground

• India benefits from a relatively lower U.S. reciprocal tariff of ~26–27%, versus Bangladesh’s ~37% (before discount), making its garments, leather, and pharmaceuticals comparatively more affordable for U.S. buyers.
• Vietnam, despite facing a steep ~46% tariff, also hosts major electronics and footwear exports, giving it broader trade depth and alternative value to buyers.
• Cambodia is subject to a ~49% tariff on U.S. imports (reflecting its own high tariffs on U.S. goods), yet remains an emerging apparel hub drawing attention as brands diversify.

As brands rebalance sourcing, India stands out as the most viable low-tariff alternative, while Cambodia and Indonesia are rising as strategic diversification nodes alongside Vietnam.

2. Eroding Bangladesh’s Cost Advantage

Bangladesh was long prized for ultra-low production costs. But with a tariff gap of 10–11 pp versus India, its competitiveness for U.S. orders has diminished sharply. Combined with high logistics, compliance, and infrastructure costs, Bangladesh may lose bids on price-sensitive basic apparel contracts, pushing buyers toward India, Indonesia, or Cambodia.

3. Global Sourcing Trends Favor Diversification

Brands are increasingly migrating away from “China +1” to a multi-polar sourcing map that includes India, Indonesia, Malaysia, and Turkey with Bangladesh no longer being the sole low-cost alternative. Recent surveys show 60% of U.S. fashion executives plan to increase sourcing from India, Cambodia, and Indonesia over the next two years a trend that may displace Bangladesh in even high-volume orders. High shipping costs (+165% Asia–U.S. in early 2024), rising environmental compliance demands, and the end of de minimis exemptions are pushing brands to seek near-shore or regionally diversified suppliers

Brazil Bangladesh Chamber of Commerce & Industry (BBCCI)

7. Strategies for Bangladesh to Mitigate Risks

1. Market Diversification

Bangladesh’s heavy reliance on the U.S. (about 20% of exports) leaves it vulnerable to tariff shocks. Expanding exports to the European Union (EU), Canada, Asia-Pacific, and Middle East markets can reduce dependence and spread risk. The EU remains a major buyer under GSP+ preferences, and emerging markets like Japan, South Korea, UAE, and Saudi Arabia are rapidly growing export destinations. Efforts should focus on boosting trade promotion, market intelligence, and tailored product offerings for these regions. For example, exports to the Middle East grew by over 15% in 2024, showing strong potential (Bangladesh Export Promotion Bureau, 2024 Report).

2. Value Addition & Product Diversification

Bangladesh’s exports have been dominated by low- to mid-value apparel, which are most affected by tariffs. Moving up the value chain by developing technical textiles, performance wear, sustainable/eco-friendly fabrics, and fashion-forward designs can capture new market segments less sensitive to tariffs. Product diversification into leather goods, pharmaceuticals, IT services, and agro-products can create new revenue streams and reduce sectoral concentration risk. Investing in R&D, design capabilities, and certification (e.g., OEKO-TEX, GOTS) can improve market access and command premium pricing.

3. Negotiating Trade Deals

Bangladesh should aggressively pursue Free Trade Agreements (FTAs) and Generalized System of Preferences (GSP) renewals or expansions with the U.S. and other major markets. Strengthening trade diplomacy to regain or enhance duty-free access, quota relaxations, or preferential tariffs is critical. Negotiations for a bilateral or regional trade agreement with the U.S., or participation in larger trade blocs like the Indo-Pacific Economic Framework, can help mitigate tariff impacts. Leveraging South Asia Free Trade Area (SAFTA) and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) platforms may also expand regional trade.

4. Improving Productivity & Compliance

Enhancing factory productivity through automation, worker training, and modern management systems will reduce costs and offset tariff-related price hikes. Strict adherence to labor standards, environmental regulations, and quality control can prevent reputational risks and build buyer confidence. Investment in digital supply chain management and traceability can increase operational efficiency and transparency. Exporters must also adopt sustainable practices to meet growing global demand for ethically produced goods.

8. Government & Industry Role

1. Policy Measures Needed

• Tax Incentives & Export Subsidies: The government should introduce or enhance tax breaks, duty drawbacks, and cash incentives specifically targeted at export-oriented industries most affected by the tariffs, such as RMG, leather, and home textiles.

• Export Financing Support: Low-interest loans, export credit guarantees, and working capital assistance can help exporters maintain liquidity during demand fluctuations.

• Trade Diplomacy & Negotiations: Active engagement at diplomatic and trade forums to advocate for tariff reductions, negotiate preferential agreements, and ensure Bangladesh remains on favorable trade terms.

• Infrastructure Investment: Improving ports, transport, energy reliability, and industrial parks to lower production costs and enhance supply chain efficiency.

• Regulatory Reforms: Simplify export procedures, reduce red tape, and promote ease of doing business to help exporters compete globally.

2. Collaboration Between Government, BGMEA, and Exporters

• Joint Task Force: Establish a high-level task force comprising government officials, BGMEA leaders, and export sector representatives to coordinate responses, share market intelligence, and develop rapid mitigation plans.

• Stakeholder Consultation: Regular dialogue forums to assess tariff impacts, discuss challenges, and shape responsive policy measures.

• Capacity Building: Collaborative efforts to upgrade skills in quality control, compliance, and sustainability to meet evolving buyer demands.

• Public-Private Partnerships (PPP): Encourage PPPs for innovation, technology adoption, and infrastructure development supporting export sectors.

3. Strengthening Trade Promotion Bodies

• Expand the Export Promotion Bureau (EPB): Boost budget, staff expertise, and global outreach capabilities to assist exporters in market diversification and compliance with foreign trade standards.

• Trade Missions & Buyer-Seller Meets: Organize frequent trade delegations, virtual fairs, and B2B matchmaking events in priority markets such as the EU, Canada, and Asia-Pacific.

• Market Research & Intelligence: Invest in data analytics to track global trade trends, competitor moves, and tariff policies, providing exporters with actionable insights.

• Digital Platforms: Develop e-commerce and digital marketing tools enabling exporters, especially SMEs, to access international buyers directly.

9. Opportunities Amid Challenges

1. Leveraging Shifting Supply Chains

The global trade landscape is rapidly evolving, with brands seeking to diversify away from traditional suppliers to reduce risk. Bangladesh can capitalize on this trend by positioning itself as a reliable, flexible, and compliant sourcing partner for buyers looking beyond China and other tariff-hit countries. With targeted improvements in lead times, quality assurance, and digital integration, Bangladesh can attract new business from brands seeking to diversify supply chains in the U.S., EU, and Asia-Pacific markets. Developing regional value chains within South Asia can also help reduce logistics costs and enhance competitiveness.

2. Moving Towards Sustainable and Ethical Manufacturing

Increasingly, global buyers demand products that meet environmental, social, and governance (ESG) standards. Bangladesh’s garment sector, already advancing in areas such as green factories, water and energy efficiency, and worker welfare programs, can further differentiate itself by becoming a global leader in sustainable manufacturing. Investments in certifications like OEKO-TEX, GOTS, and Fair Trade can open access to premium markets and improve brand reputation. Emphasizing female workforce empowerment and social compliance adds additional ethical appeal for international buyers.

3. Attracting Investment for High-Value Manufacturing

To move beyond commodity apparel exports, Bangladesh must attract foreign direct investment (FDI) and local capital for high-value manufacturing, such as technical textiles, performance wear, pharmaceuticals, and IT-enabled services. Creating special economic zones (SEZs) focused on innovation, R&D, and export-oriented manufacturing can incentivize investors and promote technological upgrades. Enhanced infrastructure, streamlined regulations, and investor-friendly policies will further encourage capital inflows and knowledge transfer. This shift toward upgraded product portfolios can help Bangladesh weather tariff pressures while securing more stable, higher-margin export streams.

Online Training Academy

10. Conclusion

The recent hikes in U.S. tariffs pose significant risks to Bangladesh’s export-driven economy, threatening order cancellations, reduced competitiveness, and potential job losses in critical sectors like ready-made garments and leather goods. The increased cost burden undermines Bangladesh’s long-standing cost advantage and creates an urgent need for strategic adaptation.

To safeguard its export earnings and protect millions of livelihoods, Bangladesh must act swiftly to diversify markets, add value to its products, negotiate favorable trade agreements, and enhance productivity and compliance. Strong collaboration between government, industry bodies, and exporters will be essential to navigate this challenging environment.

By embracing innovation, sustainability, and new investment opportunities, Bangladesh can turn these challenges into pathways for growth, ensuring a resilient and prosperous future in the global trade arena.