While a breakthrough from the US-China trade talks in Switzerland will be a relief for the world economy, tariff walls look set to stay still high for China, prompting Chinese firms to relocate to countries with lower tariffs. Economists and exporters talk about what advantages Bangladesh has and what it needs to do to get some of those firms before they rush to Vietnam and other Southeast Asian countries.
80% US tariff on China would still give us comparative advantage
Zahid Hussain
Former lead economist, World Bank Dhaka office
We will have to see how much the tariffs are reduced. After the first day of negotiations, Trump said that 80% sounds right to him. So, even if we do not get any good results from the negotiations, we will still get a 28% tariff advantage compared to China. However, we need to figure out in which sectors we can use that advantage.
In fact, we need to look at the US negotiations with India too, because how advantageous our comparative advantage would be will depend on what deal is made with India. Originally, reciprocal tariffs from India were less than ours, but we do not know what will happen now. That’s why it is difficult to say definitively whether the negotiations in Switzerland will be in our favour or not.
Right now, Bangladesh has not clearly said what their strategy is. I have heard that they have asked for more time beyond the 90 days. But this will be a problem. China has warned that any deals with the US that harms China will see retaliation. So, all these different areas that need to be balanced is not something we are clear on.
This is not just about tariffs, there are non-tariff barriers, issues with public procurement, and intellectual property laws. There have been no clarifications on any of these issues. The government went to Washington but we have no idea what they discussed there regarding all these interrelated issues. We need more clarity in the decision-making process and negotiations.
TBS’ Shadique Mahbub Islam spoke to Zahid Hussain over the phone.
US negotiations with other countries also a factor
Mustafizur Rahman
Distinguished Fellow, Centre for Policy Dialogue
The US is negotiating bilaterally with other countries, so we have to see what bilateral discussions are held with Bangladesh ultimately. It also depends on the 10% additional tariff and what compromises we have had to make and their economic implications.
Depending on how much tariff is put on China, we have to see what advantage we can get from that, which will depend on our situation. We have greater cotton-based exports, for example. In the markets we compete with China on, we may get an advantage because of tariff differentials. It’s all very unpredictable.
If we can get investments targeting US markets, we could get some benefits. There are also talks of cotton warehouses for the US, so if we can export cotton, that would be good. In the medium term, the US had said earlier that we are not ready for Free Trade Agreements (FTA) negotiations due to labour standards, intellectual property and other regulatory concerns, which is partially true. If we can address these concerns, we could do FTA negotiations too.
So, we have to see this from a multidimensional perspective. The US and China are just one part of the puzzle. We have to see how negotiations with other countries like Vietnam goes. If they put an additional 5% on Vietnam and 10% on us, it will be a different scenario. So, there are a lot of factors involved, and as for the concerns they have raised about us, this is not just their concern. It is a concern for anyone who wants to invest in our country. So, we must address these.
TBS’ Shadique Mahbub Islam spoke to Mustafizur Rahman over the phone.
Shams Mahmud, Managing Director, Shasha Denims Ltd and former president of DCCI. Illustration: TBS
Competing on value-added RMG products difficult for Bangladesh
Shams Mahmud
Managing Director, Shasha Denims
If the US and China can reach an agreement, then Bangladesh will be the loser. The 10% tariff on us will stay intact, so if China and the US reduce tariffs on each other, our competitive advantage will be hindered.
We already know that Indonesia, Cambodia and Vietnam are having conversations with the US Department of Commerce. We are seeing reports of these in-depth conversations in the news. But from Bangladesh’s side, we have not seen any discussions or proposals since the first letter.
Even today, I saw on the news that the US has asked for a proposal from us, which means we have not had discussions with them yet. So, we are falling behind. This is even more important for us, because even India has come to an agreement. So, except for Bangladesh, most other countries are moving forward. This is unfortunate, because we are still dependent on the RMG sector.
The other thing is, even if there is a 10% additional tariff, in areas where we do not have competitive advantages, we will be hit very hard. Our main advantage was lower wages, but if we have to compete with other countries in value-added products which require more investment and skills, such as outerwear jackets and sweaters, we cannot survive.
TBS’ Shadique Mahbub Islam spoke to Shams Mahmud over the phone.
China ahead of us in terms of productivity, logistics and backward linkage
Mehdi Mahbub
President, RMG Centre
If China has high tariffs on apparels, then American buyers will certainly try to ship from other countries. So, Bangladesh is hoping to get increased orders from that angle, which is a positive for us.
On the negative side, we were expecting some investments, such as relocation of some industries and businesses, but we may not see that anymore if Trump reduces tariffs on China. China is ahead of us in terms of productivity, logistics and backward linkage. Even though Bangladesh is the second-largest global RMG exporter, we are still far behind China in a lot of ways.
My personal observation is that China has the upper hand in the talks because they wanted an independent, neutral place to have these discussions. The US under Trump wants to do things their own way, and they are not giving importance to neutral bodies like the UN and others unfortunately.
But if you have noticed, President Trump has started softening his stance on the tariffs already because US consumers have been suffering a lot due to the tariff war. So, I think it is inevitable that we will see a softer tariff regime for both countries because they have to accept that neither country is gaining anything from this.
TBS’ Alhan Arsal spoke to Mehdi Mahbub over the phone.
