Trade war fallout risks lurk over Bangladesh economy

Staff Correspondent | Published at 10:38pm on July 07, 2018

The ongoing trade war between US and China, the two largest economies of the world, will affect Bangladesh’s global trade in the long run along with some immediate negative impacts on its economy, economists say.
They observe that the benefits, if any, for Bangladesh’s economy, particularly export, would be temporary.
The impact will become unbearable if the trade war that formally began on Friday lingers and spreads among other countries, they warn.
A possible prolonged trade war may also lead to slowdown in global economy, ultimately affecting Bangladesh’s export, which is concentrated on single sector —readymade garment items.
The United States and China on Friday slapped tit-for-tat duties at the rate of 25 per cent respectively on $34 billion worth of the other’s imports as part of ongoing trade war.
US president Donald Trump also warned that he might ultimately target over $500 billion worth of Chinese goods, including apparel products, based on China’s reaction on US decision on duty imposition.
Apart from China, Trump has also locked into trade battles with US allies Canada, Mexico, EU and Japan and as well as with Russia and India.
Trump has slapped tariffs on steel and aluminum imports from these countries while a number of them also slapped retaliatory tariffs on US products, including steel and agricultural products, jeans and motorcycle.
In an analysis, international news agency Reuters found that the trade war might largely affect the countries having larger global exposure in value chains.
The prediction might not true for Bangladesh despite its very little exposure to global value chains as its export was concentrated on RMG, with US as the single largest importer, economists said.
Policy Research Institute executive director Ahsan H Mansur on Saturday told New Age that there would be some immediate impacts of global trade war on Bangladesh’s economy along with short-term impacts.
In short term, Bangladeshi importers, particularly RMG exporters, might have to procure cotton, the main raw material for apparel products, at higher price as cotton in Indian market was already costlier due to the trade war, he explained.
Bangladesh mainly sourced cotton from India in which the price of the product started to rise as Chinese importers were buying the item from the market after the China government slapped tariffs on the US cotton, he said.
Though cotton price in US market would drop, the price of the product would still remain higher and import of the product from the country would be time consuming, he added.
Bangladesh may also face increased competitiveness in global market on RMG sector as China might put emphasis on RMG in other markets after losing it in US market.
On the other hand, Bangladesh market may also be flooded with cheap Chinese products affecting local industry as China will try to retain its market elsewhere.
Bangladesh’s import from China stands at more than $11 billion a year
In the long run, growth in global economy would slow down due to feared fall in demand which would not be good for Bangladesh economy, Mansur said.
South Asian Network on Economic Modeling executive director Selim Raihan echoed him saying that the ongoing trade war might create uncertainty and depression in global economy.
Instability and uncertainty in global trade regime would not be good in any way for Bangladesh economy, he said.
Bangladesh might lose its export in US market if the trade war changed the spending habit of US consumers due to increased price of products, he pointed out.
Bangladesh’s export to US market reached nearly $6 billion, out of which more than $5 billion is from RMG products.
It might also affect Bangladesh’s remittance earnings if the trade war would prolong and caused global economic slowdown, he added.