Bracing for a tariff storm

There are mornings when the news feels like a personal blow. As I sat at my desk, the headline about the United States imposing a 37 percent tariff on Bangladeshi exports—particularly garments—struck me with a strange mix of disbelief and dread. Not just as a banker who supports businesses involved in international trade, but as a Bangladeshi who has watched our country rise from the margins of global commerce to become the second-largest exporter of RMG in the world.

I thought of the thousands of women working under fluorescent lights in Narayanganj and Gazipur, of exporters who've built empires stitch by stitch, and of factory owners who have staked their futures on long-term US orders. In trade, as in life, one decision from far away can unravel years of careful effort. Seneca said: "A gem cannot be polished without friction, nor a man perfected without trials." We are being tested here.

Now let us try to understand what this tariff truly means for us.

UNDERSTANDING TARIFFS

A tariff is a tax imposed on goods entering a country. When the US levies a 37 percent tariff on Bangladeshi garments, American importers must pay that extra amount, often passing the cost along the chain. In simple terms, tariffs make foreign products more expensive, protecting domestic industries but hurting foreign sellers.

The move is part of a broader strategy by the Trump administration to target countries it believes impose higher duties on US products. While the logic may appear sound, its implementation risks disrupting economies like ours that are heavily export-dependent.

WHY BANGLADESH IS PARTICULARLY VULNERABLE

Bangladesh's economy is uniquely exposed to such a shock. The RMG sector accounts for over 80 percent of export earnings, contributes around 10 percent of GDP, and employs more than four million workers—most of them women.

In 2024, Bangladesh exported over $8.4 billion to the US, with $7.3 billion from garments. Some factories depend almost entirely on American orders.

With a 37 percent tariff, many US retailers may shift to sourcing from countries like India or Mexico, which face lower duties. Even a 10 percent cost difference can sway buyers in a price-sensitive industry.

RIPPLE EFFECTS ON THE ECONOMY

A drop in US orders would hit export revenue and reduce dollar inflows, potentially leading to a foreign exchange crunch. Our economy relies on these dollars to pay for essential imports and maintain currency reserves. A sustained decline in exports could weaken the taka and widen the trade deficit.

Job losses are another concern. Just last year, over half a million, mostly female garment workers, lost jobs during global disruptions. A shock like this could worsen that trend.

The garment industry supports a wide network: textile mills, suppliers, packaging firms, and transport providers. Shrinking orders will hurt them too. The investment climate is also at risk. Investors may pause or redirect funds to "safer" countries.

WHY THIS TARIFF HITS US SO HARD

While China, Vietnam, Cambodia, and Sri Lanka face even higher rates, Bangladesh's 37 percent tariff is among the steepest in South Asia. What makes it especially damaging is our reliance on garment exports. Losing a large share of this trade would be a major economic blow.

India faces a lower US tariff of 27 percent, making it more attractive to buyers. In this industry, small cost differences shift major orders.

There's also a diplomatic dimension. The US removed Bangladesh from the GSP in 2013 over labor concerns. Apparel was never part of GSP, but its loss still hurt. Now, instead of progress, we face a "super-tariff". Bangladesh is not an industrial giant like China. We are still navigating political and economic transformation. Punishing a country that employs millions of low-income workers – especially women – risks harming the very communities global development efforts aim to empower.

WHAT BANGLADESHI EXPORTERS CAN DO

Exporters are working on ways to adapt. One step is renegotiating contracts with US buyers to share the cost burden. This is a time for win-win compromises.

Another strategy is accelerating market diversification. Over-reliance on the US has long been a vulnerability. Europe, Canada, Japan, and emerging markets like China and Latin America offer potential. Diversifying doesn't mean abandoning the US.

Upgrading the value chain is also key. Competing solely on low cost is no longer enough. Some firms are using advanced technology and producing complex items like sportswear. Sustainable production can attract buyers who value more than just price.

Industry unity is critical. As a banker working closely with exporters, I expect groups like BGMEA and BKMEA to collaborate intensely. These bodies may also reach out to US counterparts, such as the American Apparel and Footwear Association, to build a case against the tariff. We've overcome crises before – from Rana Plaza to the pandemic – and we can do so again.

WHAT THE GOVERNMENT SHOULD DO

While businesses adjust, strong government action is crucial. Bangladesh must open formal talks with US counterparts to seek relief or exemptions. Trade officials should make the case that this tariff hurts a key ally and a developing country that imports US goods like cotton duty-free.

Bangladesh can also coordinate with countries like Vietnam and Sri Lanka to raise concerns at the WTO. A united front adds weight.

Longer term, we should seek trade agreements – such as a Free Trade Agreement or inclusion in a revived GSP. To support this, Bangladesh must address US concerns, especially around labour rights and factory conditions.

Some suggest retaliatory tariffs, but this carries risks. We depend on US imports like cotton and machinery. Such leverage should be used only as a last resort.

Domestically, the government should provide relief – tax breaks, credit support, or temporary financial aid – to help factories weather the shock.

Finally, we must reduce over-dependence on garments. Within RMG, incentives for higher-value products and local textile production are vital. Beyond that, boosting sectors like pharmaceuticals, IT, leather, and agro-products will help cushion future shocks.

MOVING FORWARD

As I write this, both as a banker and a concerned Bangladeshi, I feel the weight of the 37 percent US tariff – a jarring reminder of how exposed we are to global forces. Our best insurance now is to be prepared. Like what we do in banking, we must spread our risk – finding new buyers, moving up the value chain, and future-proofing our economy. This tariff is a setback, but not the end of our story.

The author is the managing director and CEO of City Bank.