Is the US-Bangladesh Trade Deal the Best We Can Do?

Let us start at the start.

The reciprocal tariffs (RTs) that the US imposed on imports from Bangladesh and almost all other countries on April 2, 2025 was, by any consideration, a gross violation of the rules-based multilateral trading system (MTS) embedded in various WTO Agreements. 

WTO Agreements stipulate that member countries are not to impose country-specific tariffs, and duties on imports of the same item are to be the same for all countries (WTO’s most favoured nation (MFN) principle: favour one, favour all).

Indeed, the logic of the RTs may be contested on many grounds.

Firstly, as noted above, the RTs were imposed by the US administration as additional import duties over and above the prevailing US MFN import duties, which goes against WTO-MFN principles.

Secondly, the way the RTs were calculated meant that the additional duties would be different for different countries for the same imported item, which was also a violation of WTO’s favour one favour all principle.

Thirdly, the formula deployed to calculate the RTs (US imports minus US exports, divided by US imports, expressed as a percentage) defies logic and economic reasoning.

Fourthly, the idea that bilateral trade deficits are in themselves bad for an economy is not proven either by theory or by the evidence on the ground.

On the contrary, to recall, US had traditionally been a key proponent of global free trade and trade liberalization, and was a major driver of the establishment of the WTO in 1995 (US was also a key participant of the GATT negotiations prior to this).

There is a broad consensus that trade is not about just surplus or deficits, but has many multiplier implications. Indeed, US has benefitted significantly from pursuing trade liberalization. For example, US per capita income which was 50% lower than that of Japan in 1995 (when the two WTO was established), rose to be about 150% higher than Japan in 2025.

Fifthly, in imposing the RTs US administration considered only trade in goods (where US indeed has a deficit with most trading partners) but not trade in services where US enjoys significant surplus with many countries (as a matter of fact, US surplus in services trade rose from USD 77 billion in 2000 to USD 295 billion in 2024).

There is no denying that US may have concerns as regards policies and practices pursued by some of its trading partners.

The USTR’s annual publication titled National Trade Estimate Report on Foreign Trade Barriers provides information on these on a regular basis. The point is whether measures such as RTs that violate WTO rules and regulations are the appropriate tools to deal with the attendant concerns.

Most importantly, as the verdict of the US Supreme Court (US-SC) of February 21, 2026 indicates, in imposing the RTs the US President had exceeded the powers vested in him as per the International Emergency Economic Power Act of 1977 which was invoked to impose the RTs in the first place.

For all practical purposes, the RTs were scrapped by this verdict.

The Bangladesh Deal

As may be recalled, the BD-US Agreement on Reciprocal Trade (ART) was signed in Washington DC on February 9. The timing is interesting. This was just three days before the national elections were held Bangladesh, and a week before the democratically elected new government took over the helm of power in Bangladesh.

Since it will be the newly-elected government which will have to implement the ART, there is a strong feeling among many concerned stakeholders that it would have been only proper to wait for a few days, allow the newly-elected government to review the agreement and undertake consultations with the country’s major stakeholders and relevant experts, and continue the negotiation with the USTR to finalize the ART. Involvement of the parliament members in the discussion was also felt to be necessary.

True, Article 6.6 of the ART states that the agreement shall enter into force 60 days after the date on which the parties have exchanged written notifications certifying completion of their applicable legal procedures or on any such other date as the parties may decide. This should allow the government to undertake a serious review of the ART.

To recall, initially an RT of 37% was imposed on Bangladesh (on April 2, 2025) following the general formula mentioned above. Following this, the RTs have gone through several changes; for Bangladesh, the RT was brought down to 20% in the course of subsequent discussion.

The Bangladesh-US ART now stipulates that the RT would be fixed at 19% subject to implementation of the various provisions of the agreement.

The average import-weighted tariff on items imported from Bangladesh, at US customs, barring items which have been exempted from RTs, would now stand at about 34% (average import-weight) MFN of 15%+RT of 19%). As against this, import tariffs on US commodities at Bangladesh customs would be brought down from the current 6.2% to near about 0%.

Indeed, if tax rebates enjoyed by Bangladesh’s importers are taken into cognizance, import-weighted average duties in Bangladesh on US imports currently stands at about 2.2%.

Thus, MFN import duties at the US-end was much higher than those at the Bangladesh-end even before the RTs were fixed (15% vs 2.2%). Now an additional 19% duty is to be imposed on imports from Bangladesh (total duty to 34%), while import duties at the Bangladesh-end on items of import from the US will be near about zero.

The ART is very specific in its language as to what Bangladesh will need to do. The words ‘Bangladesh shall’ (a mandatory term in international trade agreement parlance) appears 131 times in the 32 page main text of the ART, while the words ‘US shall’ appears only 6 times. On the other hand, the word ‘may’ appears 5 times in case of Bangladesh, and 8 times in case of the US.

Bangladesh has offered MFN duty-free entry to 7,132 tariff lines of import from the US over the next 10 years of which 4,922 items are to be accorded duty-free entry immediately after the ART enters into force, and an additional 2,210 items over a period of 5-10 years.

To note, the preferential access offered to the US, that are to be implemented over the next 5-10 years, is front-loaded: 50% tariffs are to be reduced immediately after entry into force of the ART; the rest over the subsequent years.

Accordingly, the revenue loss to be incurred by Bangladesh on account of import of these items from the US will also be front-loaded. Only 326 items of import from the US remained outside of the duty-free list; however, Bangladesh’s imports of these items from the US at present are rather negligible.

Apparels made from US cotton and man-made fibres (MMF) have been offered entry without RT. However, it needs to be reminded that the applicable MFN duties at US customs points on apparels items made from US cotton and MMF (the import-weighted US average customs duty on apparels currently stands at about 16%) will continue to be imposed by the US.

Also, the language here is rather limiting; additional tariffs will not be imposed on ‘certain textile and apparels goods imported from Bangladesh’ to the extent of a ‘to be specified volume’ (Article 5.3 of the ART).

US has offered to keep 1,638 tariff lines of imports from Bangladesh out of the RT list (MFN duties will still apply).

On all other items to be imported from Bangladesh, the 19% RT will be imposed along with the MFN duties. Indeed, the items in this list have very limited commercial value for Bangladesh as far as Bangladesh’s current exports to the US market was concerned.

Of the aforesaid exempted tariff lines, Bangladesh at present actually exports only about 10-15 items, and that also in very small amount. No item of any mentionable export from Bangladesh has been included in this list. The all important apparels, and almost all other items of Bangladesh’s (current) export interest in the US market, are not included among the aforesaid 1,638 tariff lines.

While Bangladesh will offer duty-free market to almost all items of import from the US (some immediately and some to be reduced gradually), there is nothing in the ART about reducing the RTs on imports from Bangladesh in future (not to speak of the high MFN rates on apparels, as also other items, which remain in force).

As a result, for all practical purposes, the tariff differentials between the two countries will remain significantly high than these were before the RTs were imposed. The difference between average tariffs of Bangladesh and the US would rise from about 13% in the pre-RT period (2% vs 15%) to about 32% now, and to almost 34% (0% vs 34%) when the full force of the ART takes hold (in 10 years).

To note, total import duty collected at the US-end on Bangladesh’s exports, in FY 2024-25, about USD 1.24 billion before RT, was about six times higher than those collected by Bangladesh from imports from the US (about USD 180 million). If the duty rebates in Bangladesh are taken into cognizance, this amount would be about 16.8 times higher.

When the ART is implemented, the amount of import duties collected at US customs on imports from Bangladesh would rise from USD 1.24 billion (at 15% MFN duty) to USD 2.85 billion. (at 34% import duty when the 19% RT is added), while duties collected by Bangladesh on imports from the US would come down from about USD 180 million to almost zero (if the prevailing trade trends are considered).

True, the customs duties collected at the US-end may come down somewhat depending on the extent of use of the US offer concerning cotton and MMF imported from the US by Bangladesh (that would be exempted of RTs).

According to the ART, Bangladesh is also required to endeavour (‘shall endeavour’ as in Annex Section 6 of the ART) to purchase various commodities and items from the US. In agriculture, these include purchase of 700,000 tons of wheat per year (for next five years) and soyabean products worth $1.25 billion annually (or 2.6 million tons).

These imports would be worth about USD 3.5 billion per year.

At present, Bangladesh’s imports of these items from the US tend to be worth less than USD 1 billion per annum. Imports of LPG (with estimated value of USD 15 billion over 15 year period), and procurement of 14 Boeing aircrafts (costing about USD 2.5-3.0 billion in total) have also been mentioned in this Section.

The ART also mentions that ‘Bangladesh shall endeavour to increase purchase of US military equipment and limit military equipment purchases from certain countries.’

At present, Bangladesh purchases a major part of the items mentioned in Section 6 of the ART (wheat, soyabean, LPG and related items, cotton, MMF etc) from other countries since this is advantageous cost-wise and  there is also the issue of lead time (importing from US generally entails more transport cost and higher lead time compared to most other current sourcing countries).

Also, to note, the overwhelming part of the procurement (imports) are made by the private sector of Bangladesh. Government may choose to go for purchasing from the US even if the cost (e.g. government procurement of wheat) is higher in US compared to, for example, Russia, Kazakhstan or Ukraine. The taxpayers in Bangladesh will have to bear the burden of the additional cost.

On the other hand, when the private sector is involved in imports (which is the case in most cases), it can only be induced to go for US sources if there is support from the government to incentivize such imports (if the import costs and lead time from US is higher in a way that is not cost-effective). They will ask the government to underwrite the difference i.e, demand subsidies if they were to import from the USA. This will create additional fiscal burden for the government.

Purchasing USD 3.5 billion worth of agri-products, and USD 15 billion worth of energy products (over the course of several years), could entail significant fiscal burden on Bangladesh in the form of higher prices and subsidies. Besides, this is also contradictory to some of the other provisions of the ART. The agreement penalizes countries that are competitive because their competitive edge is built on state support and subsidies.

However, the provisions may end up requiring Bangladesh to provide incentives and subsidies to importers to make US commodities competitive in the Bangladesh market. All will depend on prices offered by the exporters. If there was a provision that US exporters would match the minimum available market price, the risks of loss on account of purchase from US at higher prices would have been significantly reduced.

The Agreement stipulates that the US can raise the RTs if it finds that Bangladesh is not ‘complying’ with ART provisions (article 6.4 of the ART). And the definition of ‘compliance’ is indeed very broad. There are provisions in the Agreement that binds Bangladesh to various US policies that go well beyond mere trade.

US can raise the RT (and also reimpose RT on imported items from Bangladesh that are in the RT-free list) if Bangladesh signs a trade agreement with a ‘non-market economy’ (read: China, Russia), makes a digital economy deal with a country that is not endorsed by the US, or goes for certain procurement (e.g. nuclear reactors) or fails to ‘resolve concerns’ as defined by the US, on virtually all ART-related matters (Article 3.2).

For example, buying atomic reactors from Russia, or trading with China could potentially come under US scrutiny and sanctions. If Bangladesh enters into a FTA or PTA with any ‘non-market economy’ that ‘undermine the Agreement,’ US can terminate the agreement if its concerns are not satisfactorily resolved. These are obligations that could potentially limit Bangladesh’s sovereign decision-making in trade-related areas significantly.

As is known, Bangladesh has built its nuclear power plant with Russian support. It may decide to buy Russian reactors if it decides to go for expansion of the plant in future. But this will come under US scrutiny as part of the ART. The language of Article 4.3 of the ART is rather prohibitive in this case.

China is Bangladesh’s single most important source of imports. It is mainly the private sector of Bangladesh that imports from China because it is cost-effective and competitive, and the lead time is also relatively short.

Is it the concern of Bangladesh that China provides subsidy to its SoEs and producers, and hence is able to keep its prices low and competitive? Why should Bangladesh be constrained on those grounds unless these subsidized imports compete with Bangladesh’s import-substituting industries which they don’t in most cases?

Interestingly, the ART stipulates that Bangladesh ‘shall endeavour’ to ‘facilitate the purchase by Bangladeshi companies’ of US products. Meaning perhaps that the Bangladesh government should consider supporting the private sector of the country to induce them to buy from the US. But Bangladesh is discouraged from buying subsidized products from China even though Bangladesh stands to benefit from those subsidized cheap imports. This is contradictory.

While the RTs go against the rules-based MTS embodied in the WTO, the agreement requires Bangladesh to support US stance in the WTO itself when it suits the US interest. For example, one provision of the ART stipulates that Bangladesh ‘shall support multilateral adoption of a permanent moratorium on customs duties on electronic transmission at the WTO’ (Article 3.3) although this is not in Bangladesh’s interest as a net e-commerce importing country.

Bangladesh is also required to implement WTO Agreement on Fisheries Subsidies and WTO Trade Facilitation Agreement. The wordings here are rather vague. Bangladesh as an LDC, and also as a future developing country, is eligible to enjoy flexibilities under the SDT (special and differential treatment) provisions embedded in these agreements.

Bangladesh should be free to enjoy the flexibilities, provided in various WTO agreements, as a member of the WTO of which US is also a members. In any case, to recall, since no agreement could be reached at the recently held MC14, the moratorium on e-commerce taxation is no longer valid as of April 1.

There are provisions in the agreement which has economy-wide implications for Bangladesh. For example, enforcement of IPR, compliance with labour rights and SPS-TBT standards, environment-requirements, removal of NTBs, signing of various international accords, and others. It would be fair to mention here that it will be prudent for Bangladesh to comply with, and implement these on its own. Bangladesh must strengthen its capacities in the aforesaid areas because it is in Bangladesh’s own interests.

This would enable Bangladesh to meet its international obligations and address the increasingly stringent demands of many of its partner countries as preconditions for market access. These are also important for attracting FDI to Bangladesh.

However, now a cost has been added for non-compliance: The threat of imposition of higher RTs if compliance is not ensured. There is also no time frame in the ART for compliance assurance. It is apprehended that this interpretative ambiguity would allow the US an upper hand in deciding if and when any additional RTs would come into force.

Not  an FTA

As was mentioned, a key concern for Bangladesh relates to alignment of the treaty with WTO agreements. It needs to be pointed out that the ART is not a Free Trade Agreement (FTA) as defined by Article 24 of GATT-WTO. Bangladesh is providing duty-free access for virtually all US products, but US is not providing similar preferential market access to Bangladesh.

On the contrary, for substantially all products, not only MFN duties would continue to remain in place, but also an additional duty of 19% would now be imposed on imports from Bangladesh by the US. An FTA has to cover ‘substantially all tradeable items’ in a WTO Plus manner, from the perspective of trade liberalization.

The ART will not fall under Article 24 as it is not a two-sided trade and tariff liberalization agreement. The Bangladesh-US ART is not being an FTA, Bangladesh may now be asked by other trading partners to provide similar preferential market access for the same products for which US has been offered duty-free market access by Bangladesh i.e.virtually for all tariff lines.

What will then happen to Bangladesh’s revenue earnings from customs duties on imports? Will Bangladesh be dragged to WTO’s Dispute Settlement Body if its doesn’t extend similar treatment to other countries, on grounds of violation of the WTO’s MFN principle?

Revenue Loss Implications

In FY 2024-25, total amount of imports to Bangladesh from the US was worth about USD 2.49 billion. From these imports the amount of CD collected was about BDT 647 crore, RD collected was BDT 36.6 crore and SD was BDT 77.8 crore.

In total, the amount was BDT 762 crore (an additional 1,220 crore was collected from VAT and advance AIT, but this should not come under ART provisions).  This amount would be the likely revenue loss for Bangladesh on account of providing preferential market access to the USA.

To note, as per the ART, duties may be imposed on only on 326 specific items of import from the US. During the first six months of FY 2026 duties collected by Bangladesh customs on these items was only BDT 10.4 crore. Indeed, the potential revenue loss is expected to be higher since Bangladesh is asked to significantly increase its imports from the USA under the ART.

Also, what will happen if other countries start to follow the US example of imposing RTs on imports from Bangladesh on grounds of their bilateral trade deficit with Bangladesh? As a matter of fact, the EU has a much larger bilateral trade deficit with Bangladesh than that of the US: USD 19.1 billion (in case of the EU) vs. USD 6.2 billion (in case of US).

If the EU decides to impose RTs on Bangladesh (by following the US formula) this would be to the tune of an additional import of duty of 44.3%  On the other hand, Bangladesh has huge bilateral trade deficit with China (USD 17.5 billion.) and India (USD 7.8 billion).

If Bangladesh similarly imposes RTs on China and India because of its bilateral trade deficit with these countries, the respective RT figures would be 48.1% and 40.8%.

If the above be the case and all countries start to impose RTs based on their respective bilateral trade deficit, there will not be any rules-based global trading system.  Where will this tit for tat take us? What will be the future of the multilateral trading system if this be the case? What will be the future of the WTO?

History shows, that this type of protectionist barriers harm all countries. Almost all analysts agree that the Smoot-Hawley protectionist duties of the 1930s brought enormous harm to the US economy, as also to the global economy.  The Smoot-Hawley Act is widely considered to be one of the reasons driving the prolonged global trade and economic depression of the 1930s.

If one compares the BD-US ART with the US-Cambodia and US-Malaysia ARTs signed in October 2025, which also stipulates negotiated RT of 19%, one can not but observe that in terms of give-aways and obligations, the one with Bangladesh is much more stringent.

The provisions in the ARTs negotiated with those two countries, to a large extent, (a) are based on mutuality of understanding and obligations, (b) of framework style, (c) rules-based nature and (d) promotes the cause of mutual trade expansion.

While in case of Bangladesh, (a) these are conditional, compliance-driven and instruction- laden, (b) include rigorous clauses, (c) requires significant amount of imposed buying, (d) calls for undertaking highly asymmetric obligations and (e) entails significant revenue losses for Bangladesh.

Supreme Court Verdict

To repeat, on February 20, the US Supreme Court struck down most of the US RTs, ruling that the President had exceeded his authority when imposing tariffs across the world using a law reserved for national emergency. The divided 6-3 opinion stated that the 1977 law (International Emergency Economic Powers Act – IEEPA) did not give the President such powers.

However, the ruling invalidates many, but not all, the RTs that were put in place.

The US President announced immediate imposition of 10% punitive tariff by using Section 122 of the1974 Trade Act.

This was imposed on all countries on the same day. This was followed by raising the RT to 15% on February 21. However, these can be in place for 150 days following which this has to go to the Congress. 

To note, the US President has many other instruments at his disposal. One will have to monitor the developments in this connection very carefully to assess possible implications.

It is pertinent to recall here that the Malaysian Minister for Investment, Trade and Industry stated a few weeks back that the ART signed between Malaysia and US stood null and void in view of the US-SC verdict (Malaysia signed the deal in October 2025). Malaysia’s Parliament members have urged the government to suspend all steps and processes to ratify the ART.

Bangladesh should monitor the unfolding situation closely.

It is reckoned that the Supreme Court verdict has opened a window of opportunity for Bangladesh to initiate discussion with US counterparts. The rationale driving Bangladesh to go for the negotiations was the threat of the 37% RT.

The objective of the ART was to reduce this (to 19%).

Now that the RT has been fixed at 10% and 15%, those objective and justifications are no longer the same.

As was noted, the ART is to come into force after 60 days following necessary preparatory works and exchange of notifications. The government should review the treaty and take advantage of this interim period to thrash out the details and discuss Bangladesh’s concerns with its counterpart, the USTR.

True there is an exit clause in the ART (allowing any of the two parties to exit from the ART by following due process). However, invoking this, after signing the ART with the US could have many adverse implications for Bangladesh.

US remains Bangladesh’s singlemost important export market, major source of FDI, and a key development partner. US is also a market with substantive export potentials as far as Bangladesh was concerned. Remaining engaged with the US should be the way to go forward.

Signing an FTA with US at some point in time should be seriously considered by Bangladesh’s policymakers.

To recall, US has bilateral FTA with many developing countries including Chile, Jordan, Peru, and Oman.

Bangladesh would potentially gain from a mutually rewarding FTA. However, this will call for adequate preparation on the part of Bangladesh and call for strengthening of compliance in many areas.

The bilateral Bangladesh-US TICFA platform provides a good opportunity for undertaking such discussion. Bangladesh should take advantage of this platform and secure its trade and economic interests in view of the emergent concerns.

Mustafizur Rahman is Distinguished Fellow at the Centre for Policy Dialogue (CPD).