US-India Near Trade Deal to Reduce Tariff on Indian Goods; Bangladesh Faces Minor Impact

India and the United States are on the verge of signing a trade agreement that will reduce tariffs on Indian goods from 50% to around 15-16%. This rate will be lower than the 20% tariff currently imposed on Bangladeshi products in the US market.

According to a report by Indian news outlet Mint, the formal announcement of this deal is expected to be made at the upcoming ASEAN summit at the end of this month.

After a series of discussions with Washington, Bangladesh managed to reduce its tariff from 35% to 20% in August. The country is now lobbying to bring this rate further down to 15%. However, there are no indications yet that Bangladesh will reach this goal before India.

Despite the tariff difference, experts believe that Bangladesh's exports to the US will not be significantly affected in the short term, as the gap between the Indian and Bangladeshi tariff rates will remain within 5%.

Moreover, if India increases its exports to the US, it could potentially reduce competition in the European market, benefiting Bangladesh by making exports to Europe easier.

However, exporters have expressed concerns that if this tariff difference remains long-term, it may lead to increased investment in India's backward and forward linkages, which could pose a challenge for Bangladesh's competitiveness in the future.

In the short term, despite the tariff disparity, exporters believe the limited 5% gap will not have a major negative impact on Bangladesh’s exports.

Inamul Haque Khan Bablu, Senior Vice President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), stated that even if India’s tariff rate is 5% lower than Bangladesh’s, the impact will not be significant. He explained that India is not a major competitor for Bangladesh in the ready-made garment sector, as the product types are mostly different. While there is some competition in knitwear, India lags far behind Bangladesh in woven products.

Inamul further noted that if India increases its exports to the US, Bangladesh might benefit from reduced competition in the European market, as Indian products, facing higher tariffs in the US, have been trying to enter Europe at lower prices.

Shams Mahmud, Managing Director of Shasha Denims Limited, echoed this view, stating that a 15% tariff for India would not pose a significant challenge for Bangladesh in the short term. However, he cautioned that in the long run, it could become problematic. He explained that India’s major exports to the US consist of home textiles, a sector where Bangladesh is not as strong. If the tariff disparity persists, India could increase investments in backward and forward linkages, weakening Bangladesh's competitive edge.

Mohammad Hatem, President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), also shared the view that, while there may be some challenges, the India-US trade deal is unlikely to create major obstacles for Bangladesh's apparel exports to the US in the short term.