Like much of the world, Bangladesh had a hard time in early April when it woke up to the news of a new reciprocal tariff imposed by the Donald Trump administration. The country’s interim government, which is led by noted economist and Nobel laureate Muhammad Yunus, swung into action immediately with a contingency plan to mitigate the impact of a tariff war.
With a population of 170 million and a GDP per capita of around $2,550, Bangladesh’s economy heavily depends on ready-made garment (RMG) exports – and the United States is the largest market for that sector.
Bangladesh, which used to pay a 15 percent export duty to access the U.S. market, was slapped with a 37 percent tariff on its exports to the U.S., nearly all of which consist of garments, valued at around $9 billion.
Days after he announced the “Liberation Day” tariffs, Trump reversed course and announced a 90-day suspension of the tariffs on all countries except China. Bangladesh welcomed the move but pledged to continue working on a plan to sidestep higher U.S. tariffs.
Thanking the U.S. president “for responding positively to our request for 90-day pause on tariffs,” Yunus said that his administration would “continue to work with” Trump’s administration in support of its trade agenda.
Prospects of tariff barriers from the U.S. — Bangladesh’s largest export market — sparked significant concern in Dhaka, especially in the context of the political and economic situation in the country.
Under 15 years of autocratic rule by Prime Minister Sheikh Hasina, the Bangladeshi economy had been scarred by corruption and money laundering. A white paper by a respected group of economists revealed that over $16 billion was being laundered out of Bangladesh each year during Hasina’s rule by cronies and beneficiaries of her party, the Awami League.
Then on August 5, 2024, Hasina resigned under pressure from mass protests. When her government collapsed, Bangladesh’s foreign reserves were a mere $18 billion — barely enough to cover three months of Bangladesh’s import payments.
Under Yunus’s leadership, the country’s reserves have rebounded to $25.44 billion, bolstered by a record-high $3.29 billion in inward remittances. Despite political unrest, Bangladesh’s economy seems to be on the right track, with the economy recently enjoying its best month yet. The interim government managed to keep essential prices at historically low levels during Ramadan, a time when prices typically surge.
It was at this point that the new U.S. tariffs hit Bangladesh.
In response to the tariff announcement, Yunus convened a meeting with top officials and devised a strategy that would likely appeal to the U.S. president. He proposed increasing imports from the United States, thereby narrowing the trade gap between the two countries.
At the core of Trump’s much-discussed and debated tariff policy is the concept of the trade deficit — the gap between imports and exports between the U.S. and its trading partners. The administration’s tariff formula is designed to “reduce trade imbalances and level the international playing field.”
In a letter to Trump, Yunus offered to boost Bangladesh’s U.S. imports. This includes purchasing various U.S. farm products, such as cotton, duty-free, in an effort to sidestep reciprocal tariffs.
Yunus also announced that Bangladesh is pursuing a 50 percent tariff reduction on key U.S. export items, including gas turbines, semiconductors, and medical equipment. Additionally, the country plans to eliminate a range of non-tariff barriers to U.S. exports, such as removing specific testing requirements, streamlining packaging, and simplifying labeling processes.
In the meantime, the 90-day suspension of the reciprocal tariff offers a welcome reprieve — particularly for textile exporters — and provides the Yunus administration with a valuable opportunity to pursue more targeted diplomatic and trade negotiations with the United States, including through private sector engagement.
According to government insiders, officials are exploring cost-effective strategies to increase cotton imports from the U.S., aiming to remain competitive despite the higher logistical costs compared to sourcing from geographically closer suppliers like China and India.
Industry stakeholders suggest that the potential shift of investments and manufacturing of textile products of U.S.-originated brands from China to Bangladesh could help offset these additional costs. They also point out that the higher U.S. tariff on Chinese RMG creates a chance for Bangladeshi exporters to expand their market share in this segment.
Overall, these initiatives by the Yunus government appear to be well-calibrated under the current circumstances. They carry limited fiscal burden while offering significant diplomatic leverage, and could be framed as the kind of “good deals” that might appeal to the Trump administration.
Perhaps the greatest advantage of having an economist at the helm is that Yunus grasps these global dynamics and ground realities faster than most.