Scholarly Paper

“US-China trade conflict and its impact on Bangladesh foreign trade”

Topic Name: “US-China Trade Conflict and its Impact on Bangladesh
Foreign Trade”

FIN 608: International Finance

Section: 01

Prepared for:

Dr. Salehuddin Ahmed

Professor, BRAC Business School

BRAC University

Prepared by:

Kazi Thasmia Kabir

ID: 19164056

MBA Program, Fall 2020

Date of Submission: 6th December, 2020

 Introduction:

Donald Trump administration took many steps for made America great again and US-China trade
conflict was a good outcome of those steps. Trump took some steps those have paved the way to
trade conflict against China from the very beginning of 2018. Generally, Trade conflicts is that
the one buzzword today’s global affairs and conditioning tomorrow’s impacts starting from the
market system to the distant households all round the world. ‘When trade stops, conflict starts, so
trade is the way to stop conflicts. It has imposed a tariff on solar array imports in January 2018.
The foremost of the solar panel manufactured in China. In 2018, United States decided to set three
rounds of tariffs on Chinese products, about $250 billion cost of products. The first step was, US
has imposed 25 percent tariffs on $50 billion cost of imports from China. Another step of tariffs
happened which time on Chinese goods worth $200 billion. This Tit-for-tat tariff escalation is
hurting other nations’ economics and results in rising political tensions in regions. The
International Monetary Fund indicated the cost of long-lasting conflict effects about $430 billion,
which was 0.81% of world GDP. US and China are two largest major economics in the world and
have been stable trade partners to Bangladesh. China is the first largest import partner for
Bangladesh. In 2017, the country had imported Chinese products over US$15 billion. US is that
the second largest export partner for Bangladesh and had taken additional US$ 5.8 billion in
2017.The geopolitical changes relationship had frightened many countries, which have trade
shakes within US-China. Because of this conflict Bangladesh had faced some new challenges and
a few opportunities also. In keeping with Asia Development Bank, “Trade conflict to get additional
US$ 400 million exports for Bangladesh and GDP by 0.23%”.
 Major Issues:

➢ China is technologically strong and do well in innovation of product development then

America. This creates a trade conflict with the US.
➢ China military uses various advanced technologies and have more efficiency in Asia. So,
the US become worried and wanted to prevent this military power from growing.
➢ Trade conflict impact on especially in Bangladesh RMG industry and textile.
➢ TPPA deal had canceled which could give a substantial advantage for Vietnam,
Bangladesh’s major trade competitor within the US market.
➢ Bangladesh apparel manufacturers hadn’t been able to derive any benefit from this trade
conflict.
➢ Bangladesh imports raw material for scraps, steel from the US. Even then US steel worker
reserved these raw materials anticipating more protectionist measures.
➢ The conflict provides enabling situation for more foreign direct investment while avoiding
unintentional risks and outcomes.
 Trade Conflicts impact on Bangladesh

There are some negative and positive impacts on Bangladesh:

Textile and RMG sector: Textile sector are suitable for our export growth. Bangladesh is low-
cost production hub and a possible source of import to distinguished numerous countries within
the entire world. Along with the trade conflict had created risk on generate few opportunities to
attract new relocation which are maintaining bland and political relation with United States to
sustain reasonable export business within the US.

TPPA: Trans-Pacific Partnership Agreement signed by the trade ministers of 12 Asia-Pacific

countries in February, 2016. Bangladesh had given its heavy dependence on the export of RMG
sector. And Vietnam was enjoying tariff preferences and technology transfers following the Trans-
Pacific Partnership Agreement. This advantage will perhaps to overreach Bangladesh. As
Bangladesh will be the second largest destination for RMG exporter in global trade market within
2024. This deal was about how to always knot the US to East Asia and make an economic
embankment against a growing China.

Apparel Sector: Apparel manufacturers in Bangladesh hadn’t been able to derive any benefit of
trade conflict. Bangladesh had lost competitiveness within the apparel market for a few reasons.
The explanations include lot of investments focused on only five parts, a lack of proficiency in
product improvement and marketing. and US dollar being weak against taka.

[Figure 1 Shows: Bangladesh Losing Competitiveness in global apparel market due to Trade
Conflict]
Apparel makers were becoming small number of orders and they had pressured to lower product
prices. Small and medium companies had faced a tricky time under the new salary structure while
big companies had fought for development in producing basic items. Vietnam, Cambodia,
Myanmar and Indonesia had huge Chinese investments were becoming an enormous order for
woven items that switched from China. A few cotton-based products had shifted in India and
Pakistan, compared to Bangladesh. As Pakistan and India has strong backward linkage industries
for those items. In Accordance with the Export Promotion Bureau of Bangladesh, apparel exporters
noticed 1.64% negative growth by annually, and reached US$8.05 billion in 2019. And Bangladesh
denim makers had lost market share in US.

Steel and Iron sectors: Bangladesh imports scrap iron for fulfilling the majority of steel demands
from US. In 2018, US charged a 25% tariff on all steel imports, in try to regenerate its downturn
industry. As a result, this act guided US suppliers to store their scrap iron in hope for upper tariffs.
Therefore, Bangladesh’s majority of infrastructure projects required crucial product, and the price
of rods became rise.

Investment Sectors: Due to trade conflict, China’s some business sectors go down. So, China had
increased investment in those business sectors in Bangladesh. China and Bangladesh were signed
27 agreements for investments and loans. Net FDI from China into Bangladesh increased to $506
million (2017-18) from $68.5 million (2016-17). It appears that the trade conflict opened for
Bangladesh a window of Opportunity. China’s involvement result’s growing export processing
zones. However, whether the country is facing weak rules, fighting declining infrastructure, and
impoverished business environment. It might be feared for the Bangladeshi government because
of additional and riskless browning from China and worry that the country will be put in a long-
term debt pitfall.

Increasing exports by US: In Accordance with the US Farm Bureau, China’s tariffs on US
soybeans came into effect so that soybean exports declined by 97% in China. US exports two
million tons of raw vegetable oil, of which six lakh tons for 30% is soybeans to Bangladesh.
Bangladesh can gain by getting products at a less expensive and lower the deficit by importing
soybeans. In South Asia, Bangladesh and other low-income countries faced 15.2% of the full
advantage of exports from US duties. In keeping with Export Promotion Bureau, Bangladesh
earned 34.10% ($207.13 million) from exporting leather and leather goods like footwear. Within
this tariff tensions, the existing importers increased orders and new brands were willing to origin
leather shoes from Apex footwear ltd.

Labor-intensive benefit: The accelerating labor cost and tariff in China and other Asian countries
have stretched them to sustain their foreign trade market. However, Bangladesh can be safe and
secure with regard to take control of leather goods, RMG, and other possibility local export market
positions. Some factories were relocating from China to Asian country to avoid higher tariffs. And
Bangladesh is highly competitive in labor- intensive industries than other countries.
 Data Analysis:

➢ Bangladesh may be a possible source of import and an affordable production center to

supply many countries in the globe market. The US is a single largest RMG export
destination for Bangladesh. Due to the trade conflict, this sector attracts new relocation
business from some countries instead of Bangladesh. To compete with the relocation
countries, Bangladesh must start to build its distribution strength and plans for fitting in
supply chain center. So, logistic and storehouse should be viewed into as a priority and
reduce lead-time for key industries, import, and export products.

[Figure 2 Shows: In 2019, Apparel exporters of Bangladesh earned US$ 6.13bn from the
US market than US$5.35bn in 2018. Bangladesh’s overall exports to United States rose by
US$6.88bn than US$5.98bn in 2017.]
➢ To make the apparel industry more competitive, currency devaluation would be an answer.
Bangladesh is getting fewer order because it’s produced less items that China habituated
while produce for the US market. And Bangladesh has lacked the capacity to provide
diversified products. So, Bangladesh needs more creativity in production, design,
marketing and tendency to export more within many countries.
 [Figure 3 Shows: Bangladesh’s apparel exports to United States have increased in 11.53%
to US$3.57bn. In Accordance with the US Office of Textile and Apparel, now Bangladesh
is the 6th largest apparel and textile exporter to United States.]
➢ Production costs in China rose with a higher tariff. So, Bangladesh received lots of
investment from Chinese sunset industries. Bangladesh government must put strategic
plans during the negotiation with Chinese sunset industries. Because there’ll be chances
that China cuts the production cost in Bangladesh.
➢ Bangladesh scrapped 25% of the steel supply ships dismantled worldwide. Because the
price of steel products suddenly increased in our country. For growing development
projects, the country might follow an industrial policy to develop its shipbreaking yards,
hoping to domestically produce a huge amount of cheaper steel. That is already providing
over half of the total country’s steel supply.
 Major Observations:

As trade conflict escalated, the RMG sector of Bangladesh is anticipated to derive the foremost
benefits, and it accounts for 80% of total exports. Bangladesh RMG observed significant growth
as US retailers are giving more work orders to Bangladesh because of increasing tariffs in US. In
keeping with the US Office of Textile and Apparel, Bangladesh enjoyed 6.46% growth within US
market share in 2018. Due to conflict, China garments industry become decline and Bangladesh
will be the following destination for textile manufacturing.

If Bangladesh government gives an additional cash incentive on domestic fiber export products,
this’ll be a decent beginning for product diversification. To achieve utmost advantages from
conflict, Bangladesh should mobilize their trade and investment politics with China and other rich
countries affected by this conflict. In a bid, China decided to sustain their global export market
and lower or cancel tariff on thousands of products from Bangladesh, India and other three
countries. If country’s export soars then the balance of trade may shift upward.
 Conclusion:

The continuation of trade conflict damages the globe trade balance and developing countries in
Asia as well as in Bangladesh. Therein situation, while Bangladesh was functioning hardest to
sustain our foreign trade continuity, trade conflict becomes a shock to our sustainable trade
progress and add troubles to our future trade. However, ‘within every loss lies opportunity to win’
an unparalleled truth. So, the Bangladesh get some opportunities provided by trade conflict
requires rising economic benefits in export, possible export sectors and supply of efficient human
resources together with an adaptation of new technology.
 References
Anwar, A. (2019).
https://www.researchgate.net/publication/333673734_How_Bangladesh_is_winning_fro
m_USA-China_Trade_War.

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https://www.academia.edu/39958636/Positioning_Bangladesh_in_the_trade_war
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https://www.dhakatribune.com/business/economy/2019/07/13/bangladesh-looking-to-
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21665
 Appendix:

Figure 1:

Bangladesh losing competitiveness in global market due to trade conflict and exports growth to
the US in first two months of FY20.

Figure 2:

In 2019, Apparel exporters of Bangladesh earned US$ 6.13bn from the US market than US$5.35bn
in 2018. Bangladesh’s overall exports to United States rose by US$6.88bn than US$5.98bn in
2017.
Figure 3:

Bangladesh’s apparel exports to United States have increased in 11.53% to US$3.57bn. In

Accordance with the US Office of Textile and Apparel, now Bangladesh is the 6 th largest apparel
and textile exporter to United States.

Abbreviation:

TPPA= Trans-Pacific Partnership Agreement

US= United States

RMG= Ready-Made Garments

GDP= Gross Domestic Product