US-Bangladesh Trade Agreement Raises Alarms for Indian Textile Exporters
The recent trade deal between the United States and Bangladesh has sent ripples of concern through India's textile sector. Under the Donald Trump administration, the US has reduced tariffs on Bangladesh to 19%, but a critical clause granting zero tariffs on textile exports could pose a threat to Indian industry. This development has prompted exporters to question the potential impact on India's competitive edge in the global market.
Analyzing the Impact on Indian Textile Exports
According to a detailed report by the Global Trade Research Initiative (GTRI), the concession of zero tariffs to Bangladesh is unlikely to trigger a massive surge in the country's exports. The joint statement specifies that the US will offer zero reciprocal tariffs on garments manufactured using US-origin cotton and man-made fibres. In practical terms, this means a Bangladeshi garment that typically faces a 12% US Most Favored Nation (MFN) tariff would normally incur a total duty of 31% (12% MFN plus 19% reciprocal). For India, the comparable total duty stands at approximately 30% (12% MFN plus 18% reciprocal). However, Bangladeshi garments made with US fibres would bypass the reciprocal duty, paying only the 12% MFN tariff.
Ajay Srivastava, founder of GTRI, explains, "While this appears to be a significant concession, Bangladesh's export structure and its heavy dependence on non-US textile inputs mean the arrangement is likely to result in only a limited increase in garment exports to the U.S." In 2024, Bangladesh's global garment exports reached $50.9 billion, significantly higher than India's $16.3 billion. More than 63% of Bangladesh's exports were directed to the European Union, where shipments enjoy duty-free access. Exports to the United States amounted to $7.4 billion, with Bangladeshi garments continuing to face an average MFN tariff of about 12% after the withdrawal of US Generalized System of Preferences (GSP) benefits in 2019.
Bangladesh's Supply Chain Dependencies and Market Dynamics
The structure of Bangladesh's garment industry reveals a strong reliance on imported raw materials. In 2024, the country imported fibres, yarns, and fabrics worth $16.1 billion. Key suppliers included China with approximately $9 billion, India with $3.1 billion, and the United States with only $274 million. A closer look at specific categories highlights this imbalance:
- Cotton fibre imports totalled $2.5 billion, with India supplying $655 million, Brazil $604 million, and the United States $255 million.
- Cotton yarn imports reached $1.8 billion, of which India alone accounted for $1.6 billion.
- For fabrics, particularly woven synthetic filament fabrics essential for garment production, China dominated with $1.1 billion out of total imports valued at $1.4 billion, compared to just $88 million from the United States.
- Woven cotton fabric imports were valued at $1.3 billion, with China contributing $601 million and India $194 million.
- Synthetic filament yarn imports saw China provide $329 million out of a total of $442 million, while India supplied $53 million.
The significant share of yarn and fabric imports relative to fibre imports indicates that less than one-third of Bangladesh's garments are produced starting from raw fibre. Most apparel manufacturing depends on imported yarns and fabrics rather than basic fibre inputs. The United States primarily supplies raw cotton to Bangladesh in relatively small quantities, whereas India and China provide the yarns and fabrics that form the backbone of Bangladesh's garment production.
Limited Incentives for Supply Chain Reorganization
To benefit from zero-tariff access, Bangladesh would need to replace long-standing suppliers and make substantial investments in spinning and fabric-processing infrastructure, which is currently limited. Since the European Union accounts for nearly two-thirds of Bangladesh's garment exports and already offers unconditional duty-free access, the incentive to reorganize supply chains primarily to serve the US market remains minimal. GTRI notes that Bangladesh's production and supply chains have largely evolved to cater to European demand and are unlikely to undergo rapid changes to meet conditional US sourcing requirements.
In summary, while the US-Bangladesh trade deal introduces new competitive dynamics, the entrenched supply chain dependencies and market priorities suggest that the impact on India's textile sector may be contained. Exporters should monitor developments closely, but initial analysis points to a manageable scenario.
