US–Bangladesh Reciprocal Tariff Agreement: A Strategic Warning Bell for the Indian Textile Industry

 

The US–Bangladesh Reciprocal Tariff Agreement, signed on February 9 after nine months of negotiations, has significantly altered the South Asian trade landscape. Under this agreement, the United States reduced the 37 percent tariff previously imposed on Bangladesh—first to 20 percent and now to 19 percent. However, the real transformation lies not in this marginal one-percent reduction, but in the provision that allows certain Bangladeshi textiles and apparel manufactured using US cotton and synthetic fibers to enter the American market at zero duty.

This clause is not merely a trade facilitation measure; it has the potential to become a game-changer for the regional supply chain. The sharp decline in the share prices of Indian textile and yarn companies within hours of the agreement’s announcement indicates that the market perceives this development as a serious competitive challenge.

At first glance, the US tariff rates for India and Bangladesh appear roughly similar—18 to 19 percent. However, a closer examination reveals a critical distinction. Bangladesh now enjoys a special zero-tariff exemption, conditional upon the use of US-origin raw materials. This conditional advantage fundamentally alters the competitive equation.

Industry experts note that even a cost difference of a few percentage points can be decisive in the low-margin textile sector. If Bangladesh leverages zero tariffs by utilizing US cotton, competition for Indian exporters in the American market will intensify considerably. Over time, this price differential could prompt a structural shift in global sourcing patterns, leading to a reallocation of orders away from Indian manufacturers.

Another significant area of concern involves India’s cotton farmers and yarn industry. In 2024–25, India exported approximately $1.47 billion worth of cotton yarn to Bangladesh, making it the largest buyer of Indian yarn. Additionally, millions of bales of Indian cotton are shipped annually to Bangladesh, forming the backbone of its garment manufacturing ecosystem.

Experts warn that if Bangladesh increasingly pivots toward US cotton and synthetic inputs, the captive market for India’s yarn industry could weaken. Bangladesh now has the option to import American cotton, produce yarn domestically, and export finished garments to the United States under zero-duty benefits. This strategic flexibility could gradually reduce its reliance on Indian raw materials.

Such a shift would place added pressure on India’s cotton farmers and textile manufacturers. It introduces new uncertainties into a sector already grappling with fluctuating global demand, rising domestic production costs, and logistical challenges. Therefore, this agreement must be understood not merely as a bilateral trade arrangement but as a component of a broader US trade strategy.

According to trade analysts, the United States appears to be pursuing a policy of maximizing national advantage by negotiating individually with different countries and recalibrating tariffs on a case-by-case basis. The sequence of agreements—first with India, followed by Bangladesh—suggests that Washington is strategically rebalancing its trade relationships.

Observers argue that the US often begins negotiations with high tariff barriers, then offers partial concessions that are projected as diplomatic successes. In reality, however, the overall direction of US trade policy remains increasingly protectionist. Encouraging exports of American industries and raw materials is clearly a priority. The zero-tariff provision linked to the use of US cotton and synthetic fibers strongly indicates an effort to promote American agricultural and textile exports. This creates a strategic advantage for US cotton growers and synthetic fiber producers.

Experts also believe that this agreement could trigger a domino effect across South Asia. Both India and Bangladesh command significant shares of the US textile market. Approximately 20 percent of Bangladesh’s total textile exports and about 26 percent of India’s cotton apparel exports are destined for the United States. If Bangladesh fully capitalizes on zero-tariff benefits, it could expand rapidly into higher-value segments, thereby strengthening its competitive position.

This development could erode India’s advantage, particularly in price-sensitive product categories such as basic garments and mass-market apparel. However, analysts caution against drawing overly pessimistic conclusions. India retains several structural strengths, including a diversified industrial base, abundant raw material availability, skilled manpower, and a large domestic consumer market. Therefore, while short-term concerns are valid, it would be premature to assume that India will be completely marginalized.

The timing of this agreement is also noteworthy. Political relations between India and Bangladesh are currently less stable than in previous years. When political trust is fragile, economic disruptions tend to have deeper and more prolonged consequences.

Historically, trade interdependence between India and Bangladesh has been substantial. Indian cotton and yarn have been integral to Bangladesh’s garment export success. If the trade structure increasingly aligns with US sourcing conditions, the balance of bilateral economic dependence could shift. Over time, Bangladesh may diversify its supply chains away from India.

Nevertheless, experts argue that if political relations stabilize in the future, both countries could offset potential losses through alternative mechanisms. These might include supply chain collaboration, joint ventures, regional textile hubs, or broader trade agreements within South Asia. However, under current geopolitical conditions, such cooperation appears challenging.

This development also underscores the limitations of bilateral trade agreements in an era of strategic competition. Multilateral negotiations within the framework of the World Trade Organization (WTO) traditionally aim to create a more level playing field by involving multiple countries simultaneously. Such arrangements restrict the scope for “divide and rule” strategies. However, when major powers negotiate separate agreements with individual countries, competitive imbalances can intensify. Developing economies often find themselves competing directly against one another, while larger markets secure more favorable terms.

Many analysts view current US trade policy through this lens. By structuring agreements individually, the US maximizes its leverage and ensures strategic and economic gains for itself.

Are the Concerns Exaggerated?

Some experts believe that the immediate reaction from Indian markets may be somewhat emotional. The Indian textile industry has historically faced stiff competition from countries such as Vietnam, Bangladesh, and China, yet it has continued to adapt and evolve. India’s strengths extend beyond cotton and yarn; they include design capabilities, branding potential, technical textiles, integrated manufacturing ecosystems, and a robust domestic market.

If India accelerates its transition toward value-added products, technical textiles, sustainable production methods, and premium branding, the competitive balance could shift in its favor. Moving up the value chain would reduce vulnerability to price-based competition.

However, it is equally true that Bangladesh already enjoys a cost advantage in low-margin, basic garment segments. When zero-tariff access is added to its existing cost competitiveness, the challenge for Indian exporters intensifies significantly.

Strategic Options for India

In this evolving scenario, several strategic pathways emerge for India:

First, renegotiation with the United States. India could review its trade engagement with Washington and seek comparable concessions in specific textile segments to neutralize competitive disadvantages.

Second, supply chain integration. Rather than viewing Bangladesh solely as a competitor, India could explore deeper regional collaboration. A South Asian textile hub model—where raw materials are supplied from India and finished goods are exported from Bangladesh—could preserve mutual economic interests.

Third, value addition and branding. India must position itself not merely as a yarn supplier but as a high-value apparel and technical textile powerhouse. Investment in innovation, sustainability, and global brand building will be critical.

Fourth, domestic reforms. Reducing logistics costs, rationalizing labor laws, modernizing infrastructure, and strengthening export promotion schemes are essential to enhancing long-term competitiveness.

Experts emphasize that if India adopts a purely reactive approach, it risks incremental losses. However, if policymakers and industry leaders treat this development as a catalyst for reform and strategic repositioning, the sector could emerge stronger over time.

Warning Bell or Opportunity?

The US–Bangladesh Reciprocal Tariff Agreement is not simply a trade document; it is a reflection of shifting global trade politics. It signals a return to protectionism, strategic bilateralism, and competitive bargaining. For India, the message is clear: global competition is no longer defined solely by production efficiency. It increasingly depends on diplomatic agility, trade negotiation strategy, and long-term industrial vision.

In the short term, pressure on India’s textile and cotton sectors is likely to increase. Exporters may face tighter margins, heightened competition, and order realignments. Yet the long-term outcome will depend entirely on how India responds.

If India can balance regional cooperation with global competitiveness—strengthening ties with neighbors while proactively negotiating with major markets—it may convert this challenge into an opportunity. Conversely, if it remains confined to reactive politics and incremental adjustments, it risks losing ground in one of its most significant export sectors.

Ultimately, competition between two major garment-exporting nations in South Asia must be managed strategically. If mishandled, external players will benefit at their expense. But if approached with foresight, innovation, and cooperation, this moment could become a turning point—transforming the Indian textile industry into a more resilient, diversified, and globally competitive force.

Indian Textile Industry Growth 2030: GDP Contribution, Exports, Government Schemes and Future Opportunities

The Indian textile industry remains one of the strongest pillars of the country’s economy, contributing nearly 2 percent to India’s GDP, around 13 percent to total industrial production, and approximately 12 percent to overall exports, thereby playing a critical role in sustaining growth, employment, and foreign exchange earnings. As the world’s second-largest producer of textiles and garments and the sixth-largest exporter globally, India has built a diversified and resilient textile ecosystem that directly employs over 45 million people, making it one of the largest sources of employment after agriculture. 

The sector is projected to reach a valuation of around US$350 billion by 2030, reflecting its long-term growth potential and expanding global footprint. In terms of production strength, India holds a dominant position as the largest producer of cotton and jute in the world, while also ranking as the second-largest producer of silk and man-made fibers (MMF), which gives it a strong raw material base and competitive advantage across multiple segments. Structurally, the industry is highly diverse, comprising a vast decentralized network of power looms, hosiery units, and knitting clusters, alongside traditional handloom enterprises and capital-intensive modern textile mills, thereby combining heritage craftsmanship with industrial-scale production.

 India’s textile exports are primarily directed toward major global markets such as the United States and the European Union, with key export items including cotton yarn, fabrics, and ready-made garments, reinforcing its position as a reliable sourcing destination. Geographically, the industry is concentrated in several major hubs, including Maharashtra and Gujarat in western India, Tamil Nadu—particularly Tirupur and Coimbatore—in the south, Punjab’s Ludhiana cluster in the north, and the National Capital Region (NCR), each specializing in different segments ranging from spinning and weaving to knitwear and apparel manufacturing. To further strengthen this sector, the Government of India has introduced several initiatives, including the PM Mega Integrated Textile Region and Apparel (PM MITRA) Parks across seven states to create world-class infrastructure, allowing 100 percent Foreign Direct Investment (FDI) under the automatic route to attract global capital, and launching Production Linked Incentive (PLI) schemes to encourage scale and competitiveness, particularly in MMF and technical textiles. 

Additionally, the industry is witnessing a structural shift toward green textiles, sustainable fashion, circular production models, and technical textiles, aligning with evolving global consumer preferences and environmental standards. Although the sector continues to face challenges such as fragmented supply chains, high logistics and energy costs, and intense global competition, it remains central to the “Make in India” vision and is poised for expansion through modernization, policy support, and innovation-driven growth.