Bangladesh sensed the beneficial effect of Trump Government on the third day of his presidency.
The Chinese fate of trade is swinging because of Donald Trump’s decision of imposing 25% tariff on Chinese products on September 17, 2018 and banning Chinese most famous technology Huawei and in relation to that China is imposing retaliatory tariffs on the import from USA. The result is a trade war between USA and China. The decision of US President Donald Trump is threatening the international trade causing the consequences very difficult to predict. The increased tariff would cut the GDP of US by 0.3% and that of China by 0.8% in 2020 (Source: The Daily Star). Moreover, US wants to change the policies of China overnight and without a tight pressure from US on a bilateral and multilateral basis, Chinese policies will be delayed to change which will have an adverse impact on US.
Bangladesh sensed the beneficial effect of Trump Government on the third day of his presidency. On that day, Trump dropped the Trans-Pacific Partnership agreement with Vietnam- one of the foremost trade rivals of Bangladesh and this time the trade war between US and China exposes major advantages for Bangladesh. Though, the final consequences cannot be concluded right now, it is expected that South Asia especially Bangladesh would be benefited highly from this war. According to the Asian Development Bank (ADB), the four countries benefiting most from the trade war are Vietnam, Cambodia, Bangladesh and Thailand. Trump wants to reduce the trade surplus of China with the US from $350 billion to $200 billion and the former chief economist of Goldman Sachs Group ponders that this surplus would be reallocated to the countries like Bangladesh (Source: The Daily Star).
China is the top importer of Bangladesh and US is the second largest exporter of Bangladesh. The trade war between these most significant trading partners will affect the economy of Bangladesh in many aspects. The ready-made garments (RMG) sector is to achieve the most advantages. China is in the first position to export RMG in the world market whereas Bangladesh possesses the second position. Around 80% of the total exports of Bangladesh contain RMG products (Source: The Diplomat). The growing trade war will shift the American orders to Bangladesh to offset increasing tariffs. The declining exports of Chinese RMG will open the door of opportunities for Bangladesh in the world market. US Office of Textile and Apparel (OTEXA) states that Bangladesh experienced 6.46% increase in the US market share from January to September in 2018 (Source: The Daily Star). The imposition of high tariffs causing the factories of China to shift somewhere in the Asia and because of the cheap labor, Bangladesh is in the prospective investment opportunity for them. In Cambodia, 16 million populations are too low compared to that of 160 million of Bangladesh. Also, the sturdy unions make founding the factories in other countries of Asia very tough. The lowest monthly wage in Bangladesh right now is $95 while that of the Vietnam is $182 and Cambodia is $180 (Source: The Diplomat). That is the reason why Bangladesh is having competitive advantage in cheap labor.
As USA was the largest supplier of soya bean to China, the tariff now will reduce soya bean export of US. Bangladesh can take the advantage of this situation by importing soya bean from US. Bangladesh purchases 98% of 600,000 tons of soya bean from Argentina and this is the golden opportunity to take advantage of the decreased price of soya bean in US (Source: The Daily Star). As long as this trade continues, the trade deficit of Bangladesh with US will go on decreasing.
The imposition of tariffs on US imports by China has caused to reduce tariffs on Asian countries will result in decreasing trade deficit of Bangladesh. According to Yasuyuki Sawada, Chief Economist of ADB, if the trade war of US and China escalates, it is expected that the GDP of Bangladesh will increase by 0.19% by nearly 2021 resulting an increase in exports by $400 million (Source: The Daily Star). However, the effect on economic growth rate is not so straightforward to predict right now.
The consequences of trade war are not an unmixed blessing for Bangladesh. Some challenges are facing by Bangladesh because the price of the products of US has also been increased. USA- the largest steel exporter of the world exports steel in Bangladesh. The side effects of tariffs have also hit the steel industry of Bangladesh by increasing the price of rod in the local market.
The attention of Bangladesh can be the RMG, leather, IT products as the Chinese exports will decline in the coming years. According to The Financial Express, lacking of infrastructural issues, distribution issues and security issues of employees can generate hurdles in shifting Chinese businesses in Bangladesh. Lack of knowledge in technology can cause another major issue in this situation. Though the low wage of employees is a prospect, the safety issue of the companies needs to be improved. The availability of the factors of production will help to improve the situation for Bangladesh. The service providing system required by the foreign investors must be improved and effective with the help of the Government of Bangladesh (Source: The Financial Express). The ‘Rana Plaza’ image of Bangladesh must be removed in any ways for responding in the current trade potentials. Employees must be treated fairly for improving the quality of the production and removing the defame of Bangladesh in this regard.
The world is moving forward from the era of- Made in China. Neither US nor China is being benefited from this severe trade war. The benefit receiving countries like Bangladesh must be prepared to receive such a boon for moving forward its economy. Bangladesh is just a few steps behind from a vast economic boom and this situation can be easily tackled with the intense willingness of Bangladesh government. A win-win situation of Bangladesh can be caused only if the proper steps are taken.