Tariff Debate Continues

More partners press Dhaka for tariff concession, Reserve accumulation employed to rescue ally from awkward situation.

Both the European Union and Japan have asked for similar concessions that Bangladesh pledged to give the USA. If [everything] is OK, Bangladesh and the USA are likely to have a deal by December this year. But the USA stressed that Bangladesh would not give similar concession to other countries (for instance, reduced tariff on US originated goods and services and purchase of 25 Boeng aircrafts in next 20 years). Recently, the EU countries held a press conference and emphasized that the EU would expect similar purchase commitment from Bangladesh. Bangladesh is scheduled to be graduated from LDC countries by 2026, which Bangladesh wants to be delayed. Once graduated from the LDC countries ,Bangladesh may lose duty free access to EU countries ,where 49% of its export goes.

Tariff reduction and import from the USA witnessed a revenue shortfall of Tk 88.99 billion against a target of Tk 990.05 billion. It is too early to tell whether tariff debate or moribund business activity hit by tight monetary policy contributed to the decline of tariff shortfall. Because reduced tariff came into effect from early August and we still have three quarters to go. And there will be widespread optimism in the economy if there is a participatory election by February next year.

Tariff commitments to EU and Japan [mean] we have to increase import from the countries. Bangladesh is thinking to sign an FTA with the EU and PTA with the Japan, which even sent a letter to Bangladesh to expedite the negotiation to conclude the deal.

Increasing import from these countries means we have to downsize our import from somewhere else. Currently India and China are the largest sources of import. Both countries account for around $40 billion of import. We mostly import intermediate goods from these countries. From China, we heavily import defense equipments. Since Japan and the EU are unlikely to be major sources of intermediate goods in one decade, the most plausible conclusion is Bangladesh may end up procuring more Western originated defense articles. Bangladesh has special agreement with the Turkey,France,Italy,Japan and the UK.

Since the EU and Japan may not provide the raw materials at competitive price, it is highly likely we may share part of import spending in defense with the two partners to secure the export market there.

Yuan is still cheaper than USD. But whether it [will remain] so in the future is not certain. In October, we saw the USA announced a currency swap line worth $20 billion to rescue the Argentine peso ,halting depletion of forex reserve of the Argentine central bank. The US treasury secretary urged US banks and investment funds to invest more in Argentina. This is the first time,[reserve accumulation] is employed in tariff debate. This time it is used to rescue an ally Argentina to curb influence of China,which has also given a $18 billion currency swap line with the Argentina. Earlier, Argentina had chosen refurbished F-16 over JF-17 and J-10C offered by China for its Air Force. Here security is being projected as public good and currency is used to aid ally through security umbrella. Now think there comes a moment when this same [reserve accumulation] is being used to punish/ stall behavior of a rival. In fact, Federal Reserve governor Stephen Miran depicted such scenario in his influential paper on tariff titled "A User's Guide To Restructuring Global Trading System" where the US govt requests the Fed to print $1 trillion in a bid to purchase Yuan so that it appreciates in the international market.(See "Reshaping Global Trading System:What Lies Ahead" published here on April 4,2025)

The step may weaken the US dollar,which the US administration wants in the long run, and hurt communist party related corporations and Chinese billionaires who denominated their assets in USD across the globe. Weakening USD downsizes /shrinks their wealth. Point is [reserve accumulation] may be employed by any big trading partner for harmful purposes,not only for rescuing ally.

Ultimately we are heading towards a clustered trading blocs. Despite risk of import revenue shortfall, import diversification appears to be new reality in this new trading system. Despite challenges, export registered a 2% growth in the first 4 months of this year. If the growth of revenue collection for the remaining period surpasses the shortfall and optimism prevails then there will be good news from this tariff debate. And we have to be cautious about intentional use of major currencies to influence other currencies [through reserve accumulation].

[Update: this piece is updated by me on November 06,2025 at 9:13 AM Bangladesh Standard Time; update includes replacing words like "currency tool", "currency weapon" with "reserve accumulation".]