On July 8, the US imposed a revised 35 percent tariff on Bangladeshi goods. “Please understand that the 35 percent tariff is far less than what is needed to eliminate the Trade Deficit disparity we have with your Country,” Trump wrote in a letter to Muhammad Yunus, chief advisor of Bangladesh’s interim government.

“Earlier in April, the US had imposed a 37 percent tariff, increasing it from 15 percent. To understand the implications and politics of tariffs, a comparative look at Bangladesh’s business competitors is essential,” writes Shafi Md Mostofa, a post-doctoral research fellow of the Democracy Institute at the Central European University, Hungary.

The Washington-based Diplomat magazine has mentioned that Bangladesh exports around $8 billion worth of goods to the United States — the highest volume to a single country.

Over $6 billion of that consists of garments, meaning the industry would be heavily impacted. Vietnam is Bangladesh’s key competitor, and the United States has offered them a reduced tariff rate of 20 percent.

Finance Advisor Salehuddin Ahmed noted that Bangladesh’s trade deficit with the U.S. is only about $5 billion, while that of Vietnam’s with the U.S. stands at $125 billion. “Even so, the U.S. has agreed to offer Vietnam some concessions,” he said. Bangladesh has a “much smaller deficit,” he pointed out, adding that “there is no justification for imposing such a high tariff on us. We will continue to negotiate.”

Clearly, politics are at play. This is evident from the statement of Power and Energy Adviser Fouzul Kabir Khan. “Not just tariffs, there have been discussions on non-tariff barriers as well. They [the U.S.] are prioritising their national security… A framework is being worked out in this regard, and the matter is under discussion”, he said.

According to business leaders and economists in Dhaka, Bangladesh’s China dependency and U.S. strategic interests in Bangladesh drove Washington’s tariff decision regarding Bangladesh.

With the rise of China, the Indo-Pacific has become a center of global conflict. This prompted the US and other major regional powers to reform the Quad in 2017.

During his visit to Bangladesh in 2020, Deputy Secretary of State Stephen E. Biegun formally invited Bangladesh to join the grouping. “The U.S. sees Bangladesh as a key partner in the Indo-Pacific region,” he said.

The Burma Act of 2021, which authorizes the “Department of State and U.S. Agency for International Development activities in Burma and the surrounding region to support democracy activists, humanitarian assistance, and reconciliation efforts,” also reflects the strategic interest of the U.S. in Bangladesh.

The US is keen on sending humanitarian assistance to Arakan in Myanmar. In April, the United Nations requested Bangladesh to facilitate a ‘humanitarian corridor’ to the conflict-ridden Rakhine State in Myanmar.

Although the Bangladeshi government initially agreed to support the initiative, it was ultimately unable to proceed due to divergent opinions among political parties and the military.

US also has long been pushing Bangladesh to sign two agreements — General Security of Military Information Agreement (GSOMIA) and Acquisition Cross-Servicing Agreement (ACSA).

American officials describe these agreements as “foundational agreements” to modernize the Bangladesh military by 2030. In the run-up to the 2024 general elections in Bangladesh, the then Foreign Minister A K Abdul Momen ruled out the possibility of signing these agreements. In 2024, Prime Minister Hasina said that the U.S. wanted to establish an airbase in Bangladesh.

Bangladesh’s repeated refusal to sign these agreements and democratic backsliding under the former Hasina regime seemed to have prompted the U.S. to take a series of actions against Bangladesh. These included imposition of sanctions on its Rapid Action Battalion in 2021, exclusion from the 2020 Democracy Summit, and the announcement of a visa policy targeting individuals in the Hasina government, who were deemed to be undermining the democratic process. Although the 2024 election was widely perceived as rigged, the US ultimately refrained from enforcing the visa policy, reportedly due to diplomatic intervention by India.

China, which has been pushing Bangladesh to join its Global Development Initiative and the Global Security Initiative for some years now, has stepped up engagement with the Yunus government. It has accelerated people-to-people connections by allowing Bangladeshis to avail health services in China, providing scholarships to Bangladeshis, and inviting politicians and educationists to China. Beijing is also eager to fund the Teesta river project, which India has opposed. China’s expanding footprint in Bangladesh is of concern to the United States.

Thus, it appears that the United States is using the tariff issue to pressure Bangladesh against embracing China too closely. But Bangladesh remains heavily dependent on China, which is its largest trading partner. In the fiscal year 2022-23, Bangladesh imported nearly $23 billion worth of goods from China, accounting for over 33 percent of its total imports and firmly establishing China as its primary source of imports.

These imports include refined fuel, capital machinery, electrical equipment, cotton, synthetic fibers used in garment production, fabrics, raw materials for plastics, iron and steel, fertilizers, chemicals, and other essential inputs for various industrial sectors.

Bangladesh is caught between two competing powers. The country’s economy is deeply intertwined with both the United States and China. Besides, its export basket is heavily dependent on a single commodity—readymade garments. This overreliance leaves Bangladesh vulnerable to external pressures and shifting geopolitical dynamics.

To navigate this complex landscape, Bangladesh will need to make some hard strategic choices to diversify its export markets and expand exports beyond the garment industry into other value-added sectors. Importantly, it will need to pursue balanced and proactive diplomatic negotiations to safeguard its economic interests.