India's US Tariff Advantage Over Bangladesh Vanishes Overnight
Trade deals signed by Bangladesh and India have taken on heightened significance as relations between New Delhi and Dhaka have deteriorated in recent months. This development comes amid shifting global trade dynamics that are reshaping competitive landscapes in key sectors like textiles.
Market Reaction to US-Bangladesh Agreement
Stocks of Indian textile exporters, including prominent firms such as Gokaldas Exports, KPR Mill, and Arvind Pearl Global Industries, declined by up to 5% on Tuesday. This market downturn followed the announcement of a new trade agreement between Bangladesh and the United States, which has effectively erased India's recent tariff advantage.
Details of the Bangladesh-US Trade Deal
On February 10, 2026, Bangladesh agreed to a series of significant American demands in a trade pact. The agreement includes commitments to purchase $3.5 billion worth of US agricultural products, such as wheat, soy, cotton, and corn, along with $15 billion in energy products over 15 years, and procurement of aircraft. In return, the United States has committed to establishing a mechanism that allows certain textile and apparel goods from Bangladesh to enter the US market at a zero reciprocal tariff rate, subject to a quota system.
The joint statement clarified: "This mechanism will provide that a to-be-specified volume of apparel and textile imports from Bangladesh can enter the United States at this reduced tariff rate, but this volume shall be determined in relation to the quantity of exports of textiles, e.g., U.S.-produced cotton and man-made fibre textile inputs, from the United States."
Impact on India's Textile Sector
This deal is particularly concerning for India, as it reverses a perceived tariff advantage. Previously, India faced an 18% reciprocal tariff from the US, while Bangladesh faced 19%, giving India a slight edge. With the new agreement, Bangladesh now enjoys a zero tariff on textiles, creating an 18% disadvantage for India compared to its neighbor.
International trade expert and former trade negotiator Abhijit Das commented on the sudden shift: "Till late last night, we were under the impression that we would be able to expand our exports of textiles and clothing to the United States because we would be facing a reciprocal tariff of 18% whereas some of our competitors, such as Bangladesh, would face 19%. Today, we see an announcement from the White House which says that Bangladesh and the US have reached a deal whereby, in respect of textiles, the US will bring down reciprocal tariffs to zero, subject to quota. The perceived tariff advantage, which we imagined we would have over Bangladesh by about one percentage point, gets reversed into a tariff disadvantage of 18% compared to Bangladesh."
Why Textiles Matter to Bangladesh
Bangladesh, the world's second-largest textile exporter after China, relies heavily on this sector as a key foreign exchange earner. The country sprang into action following a series of Indian trade deals with the UK, US, and EU that benefit labor-intensive sectors like textiles and footwear. This move is part of Dhaka's strategy to maintain its competitive position in global markets.
Broader Trade Implications and Bangladesh's Push for More Deals
Bangladesh is also actively pursuing a Free Trade Agreement (FTA) with the European Union, as India has gained a competitive edge in the textile sector through its own trade agreements with the EU and UK. In 2024, India accounted for approximately 5% of the EU's textile and apparel imports, trailing behind leaders like China (28%), Bangladesh (22%), Turkey (11%), and Vietnam (6%).
Bangladesh Chief Adviser Professor Muhammad Yunus has called for an early start to FTA negotiations with the European Union, especially as the country graduates from Least Developed Country (LDC) status, which will result in the loss of certain trade concessions.
Strained India-Bangladesh Relations
The significance of these trade deals is amplified by the recent souring of ties between India and Bangladesh. In April of the previous year, New Delhi terminated the transhipment facility for Bangladesh's export cargo, a facility that had been in place since 2020 to enable smooth trade flows to third countries like Bhutan, Nepal, and Myanmar.
This decision followed remarks by Yunus, who stated that with Northeast India being "landlocked," Dhaka was the "only guardian of the ocean for all this region." This was widely interpreted as an attempt by Bangladesh to assert leverage over access to the Northeast, a sensitive issue for India. Yunus further complicated relations by portraying Beijing as a new strategic partner, adding tension to the bilateral relationship.
Yunus elaborated: "The seven states of eastern India, known as the Seven Sisters, are a landlocked region. They have no direct access to the ocean. We are the only guardians of the ocean for this entire region. This opens up a huge opportunity. It could become an extension of the Chinese economy — build things, produce things, market things, bring goods to China and export them to the rest of the world."
The Northeastern states of India share extensive borders with Bangladesh and other countries but are connected to the rest of India primarily through the narrow 'Chicken Neck' corridor. Over the past decade and a half, India had engaged with the previous Sheikh Hasina government in Dhaka to open pathways to the Northeast via Bangladesh. However, with Hasina's ouster and the installation of an interim government led by Yunus, these plans have stalled, further straining diplomatic and economic ties.
In summary, the new US-Bangladesh trade agreement has swiftly overturned India's tariff advantage, impacting textile stocks and highlighting the complex interplay of trade policies and bilateral relations in South Asia.
