Bangladesh Faces Garment Jobs Test as US Tariff Falls to 20%

A Lower Tariff Still Leaves Factories Under Pressure

Bangladesh has secured a reduction in the proposed US tariff on its goods from 35% to 20%, easing one threat to a garment industry that supports more than four million workers. Yet the agreement leaves clothing exporters facing a much higher tax burden than before, pressure from American buyers to lower prices and fierce competition for orders.

As of August 9, 2025, the central question is whether Bangladesh can turn its position relative to India and China into more business while protecting factory jobs. The country is the world's second largest garment exporter after China. Its ready-made garment sector, commonly called RMG, generates more than 80% of export earnings and roughly 10% of gross domestic product, the value of goods and services produced in the economy.

Mahmud Hasan Khan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), puts the effective tariff rate on Bangladeshi garments at 36.5%. That combines the new 20% tariff with a pre-existing US import duty of 16.5%. For factories working with thin profit margins, the reduction from the proposed rate offers relief without restoring the trading conditions they had before.

Interim Prime Minister Muhammad Yunus called the outcome a "decisive diplomatic victory" because Bangladesh avoided a tariff of 35% or more. Workers and manufacturers have more immediate concerns: whether orders will arrive, how much buyers will pay and whether factories can keep their production lines running.

Bangladesh's prospects also depend on conditions at home. A persistent gas shortage, port inefficiencies, political instability and problems in the banking sector could restrict production just as some American buyers consider shifting orders away from more heavily taxed competitors.

How the Rate Fell From 37% to 20%

President Donald Trump's administration has been reshaping US trade relationships through reciprocal tariffs on dozens of countries. A tariff is a tax charged when a product enters a country. Although the charge is collected on the importing side, buyers can seek lower prices from suppliers to recover some of the added expense.

Bangladesh's negotiations unfolded through several changes in the proposed US rate:

• April 2025: The United States initially imposed a 37% tariff on Bangladesh.
• After the April announcement: The proposed rate was reduced to 35%.
• Following further negotiations: The rate settled at 20%, broadly aligned with those imposed on Sri Lanka, Pakistan and Vietnam.
• By August 9, 2025: Garment manufacturers were assessing a combined effective rate of 36.5%, including the existing 16.5% import duty.

National Security Adviser Khalilur Rahman said the government had given the apparel industry priority during negotiations. Bangladesh agreed to increase purchases of US agricultural products and open its market further to American goods in exchange for tariff relief.

The US administration's wider strategy seeks to address trade imbalances, encourage economic reforms in partner countries and respond to geopolitical developments while protecting American industries and jobs. India faced a 50% tariff after failing to reach a trade agreement and continuing to import energy from Russia. China faced a 30% tariff, with further increases possible.

Bangladesh's 20% rate was still higher than many manufacturers had hoped for. Their concern is the combined cost: a lower new tariff can still leave a garment much more expensive to import once the older duty is added.

Orders Slow as Workers Fear Job Cuts

Factories in Dhaka and surrounding garment hubs reported a sharp fall in new orders as American buyers waited for greater certainty. Manufacturers faced difficulty planning production while customers assessed how the changing tariffs would affect their purchasing costs.

Raimoni Bala, a sewing machine operator in Ashulia, described the anxiety behind those business decisions in an account of garment workers' job fears:

For the past few months, everyone is talking about cuts. Whenever anyone visits the factory, my chest aches. I feel like they've come to tell me I've lost my job.

Bangladesh's net exports fell by 15% during the April to June quarter of 2025, largely because of tariff uncertainty and disruption caused by a strike at the National Board of Revenue (NBR). Total garment export earnings dropped nearly 12% from the previous quarter, although they remained slightly above the same period a year earlier.

The two comparisons capture different pressures. Garment earnings were still higher than a year before, but factories had experienced a sharp decline from the preceding quarter. That left manufacturers facing a weaker recent flow of business while negotiating prices under the new tariff regime.

Selim Raihan, an economics professor at the University of Dhaka, warned that the cost would reach beyond factory accounts:

The burden of this tariff hike will fall heavily on garment manufacturers and the millions of workers they employ, a majority of whom are women, raising the risks of slower growth, job losses and a rise in poverty.

Why Women and Girls Face Particular Risks

Women make up more than 60% of Bangladesh's garment workforce. The sector has helped more women enter paid employment and has been associated with later marriage and better educational attainment for girls.

Studies show that girls living in communities near garment factories stay in school longer and marry later, supported by the economic opportunities the industry provides. A factory job can therefore affect decisions across a household, including whether a girl continues her education.

The COVID-19 pandemic showed how quickly those gains could come under pressure. Factory closures were followed by a surge in child marriage and school dropouts. A prolonged garment downturn now carries the risk of similar consequences, threatening progress in women's economic participation and social welfare.

For workers, the tariff dispute is consequently about more than the price of a shirt entering the United States. A reduction in factory employment can weaken the income that helps families meet daily expenses and keep children in school.

How Bangladesh Compares With Its Rivals

Higher US tariffs on India and China could make Bangladesh a more attractive supplier, even while its own exporters face greater costs. Industry calculations set Bangladesh's effective garment tariff at 36.5%, compared with 66.5% for India and 55% for China.

The comparison leaves Bangladesh 30 percentage points below India and 18.5 percentage points below China. Indonesia has a slight advantage over Bangladesh, with an effective rate of 35.5%, a gap of one percentage point. These figures combine the new tariff burden with existing duties, rather than describing the new reciprocal tariffs alone.

Vietnam, Pakistan and Indonesia face similar or slightly lower new tariffs than Bangladesh. The country therefore has a stronger position against some major suppliers, while remaining in close competition with others for the same American orders.

Bangladesh's concentration on cotton garments also offers a potential advantage because those products receive more lenient treatment under US rules. The effective tariff comparison also points to a possible reduction in the burden when garments contain at least 20% US origin content, such as American grown cotton.

Bangladesh is already increasing imports of US cotton and building new warehouses to support that approach. For manufacturers, the choice of raw material could affect both production costs and the tariff applied to the finished garment.

A Chance to Win Business in a Smaller Market

Mahmudul Hasan Babu, identified as BGMEA president, said Bangladesh could attract more export orders and foreign investment if the current tariffs on India and China persist. His assessment rests on buyers seeking alternatives to suppliers facing higher US charges.

Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association, said the tariffs were creating a supply gap in the American market that Bangladesh and Vietnam were well placed to fill.

Winning a larger share, however, means competing in a market that has contracted. The US apparel market fell from $105 billion to $85 billion in 2024, a decline of $20 billion, or about 19%. Bangladesh could gain business from rivals while still facing weaker demand across the market as a whole.

American buyers are also pressing Bangladeshi manufacturers to absorb part of the tariff cost. In practice, that means asking factories to accept lower selling prices so that the buyer carries less of the added expense.

Factory owners are resisting those demands, warning that further price reductions could make operations unsustainable. A larger order book would offer limited comfort if each order left too little money to cover production costs and wages.

Gas, Ports and Finance Limit the Response

Bangladesh's textile and yarn producers face a persistent gas crisis that limits production capacity. These businesses form part of the garment sector's backward linkages, the local suppliers that provide materials before fabric is cut and sewn into clothing.

When those suppliers cannot produce enough, the wider industry has less room to respond quickly to new demand. The opportunity to receive orders diverted from India or China therefore depends partly on whether factories can obtain the materials and energy needed to complete them.

Port inefficiencies create another constraint, alongside political instability and banking sector challenges. Manufacturers need dependable production, shipping and finance to turn a buyer's interest into a completed export order.

Commerce Adviser Sk Bashir Uddin said competitiveness would require improvements in energy supply, port operations and the wider investment climate, as well as favorable tariffs. Policy transparency, easier business procedures and expansion of Export Processing Zones are also priorities for attracting production and investment.

Product quality, production efficiency and workforce skills are part of the same task. Bangladesh's relative tariff advantage creates an opening, but manufacturers still need to deliver the products buyers want at prices that keep factories viable.

Manufacturers Seek More Valuable Products and New Markets

Bangladeshi manufacturers are pursuing several responses to the new trading conditions. Negotiations with American customers are one part of that effort, with factory owners seeking to protect prices rather than accept the full pressure of higher import taxes.

Market diversification is another priority. Exporters want to expand sales beyond the United States into Europe, Canada and emerging markets in Asia and Africa. A wider customer base would reduce dependence on decisions made in any single export destination.

Industry leaders are also calling for a move beyond basic garments with low profit margins toward more valuable and complex products, including designer apparel and technical textiles. Technical textiles are made for particular functions, rather than simply for appearance, and require different production capabilities.

Bangladesh is investing in green factories and ethical production practices to attract buyers concerned about environmental and labor standards. These efforts are intended to help its manufacturers compete on more than price.

Higher quality, more efficient production and better workforce skills support those ambitions. For a factory facing pressure to cut prices, earning more from a product or reducing the resources needed to make it offers another way to protect its business.

Government Negotiations Extend Beyond Clothing

Bangladesh is continuing discussions with the US Trade Representative to seek further tariff relief and address barriers to trade other than tariffs. Those barriers can include rules and procedures that make goods harder to sell even when the tax rate is reduced.

The government's wider commitments include increased purchases of American goods, including agricultural products, and greater access for US dairy and meat. Other elements include reducing reliance on Chinese imports, simplifying tariffs and taxes, and ratifying international agreements.

Emergency cash transfers and retraining programs are being considered for displaced workers, especially women. No implementation date or detailed terms for those measures were given. Such support would address the immediate loss of earnings while helping affected workers prepare for other employment.

Bangladesh's leather and information technology industries could also benefit from the changing US trade policies, provided they meet international standards and certification requirements. The prospect of leather and IT opportunities broadens the trade discussion beyond clothing.

The country's young workforce, familiarity with technology and strategic location make it an attractive alternative for global production networks. Converting that appeal into lasting business will require the same practical improvements facing garment exporters: reliable energy, workable infrastructure, clear policies and the ability to meet customer requirements.

Key Points

• The US tariff on Bangladesh fell from an initial 37% in April 2025 to 35%, then to 20% after negotiations.
• BGMEA's effective garment tariff calculation is 36.5%, including the existing 16.5% US import duty.
• The garment industry supports more than four million workers, generates more than 80% of export earnings and accounts for roughly 10% of GDP.
• Garment export earnings fell nearly 12% from the previous quarter in April to June 2025, while remaining slightly higher than a year earlier.
• Women represent more than 60% of garment workers, making employment losses a particular threat to household income and social progress.
• Higher effective tariffs on India and China could redirect orders to Bangladesh, while Indonesia retains a slight tariff advantage.
• Gas shortages, port inefficiencies, banking problems and buyer demands for lower prices constrain the industry's response.
• Manufacturers are pursuing new markets, more valuable products and greener production, while the government continues trade negotiations and considers worker support.