According to a New York Times report, despite COVID-19, political turmoil, and economic crises, Sri Lanka and Bangladesh had been pinning their hopes for prosperity on one industry: ready-made garments, with the United States as their primary market. However, following these challenges, US President Donald Trump's new tariff announcement has now emerged.
Trump has imposed a 44% tariff on Sri Lanka and a 37% tariff on Bangladesh. This significant increase in tariffs has caused alarm among business leaders in both countries. Officials from both nations are trying to mitigate the impact. Business leaders from both countries fear they may no longer be able to compete with larger manufacturing powers. They worry that their orders will be shifted to countries with lower tariffs and greater industrial strength.
Bangladesh exports ready-made garments worth over $7 billion annually to the United States. Nearly 80% of the country's total export earnings come from the ready-made garment sector. This sector employs more than 4 million people, mostly women. Bangladesh is one of the countries in the region with the highest number of female workers. This high level of female participation in the workforce has helped lift a significant portion of the country's population out of poverty.
Last year, the autocratic ruler of Bangladesh was overthrown amidst widespread protests and violence. Since then, the country has been trying to stabilize its economy. In this context, the ready-made garment industry is crucial for the country.
Mohiuddin Rubel, former director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said, "Just as the global economy was starting to recover and we were seeing our sales in the US increase, such a decision, a trade war or tariff war, has created new challenges and uncertainties."
The business leader further stated that many garment factories in Bangladesh work exclusively to supply products to the US market. Some factories export 80% of their products, and some 100%, to the United States. These factories have invested heavily to secure US orders. This (tariff imposition) decision will jeopardize these businesses."
The ready-made garment industry in Sri Lanka employs more than 350,000 people. They produce garments for world-renowned brands like Nike and Victoria's Secret. Nearly half of the country's total export earnings come from the ready-made garment sector. A significant portion of their garments are exported to the United States.
In 2022, the country's economy collapsed. It has gradually recovered through incentives from the International Monetary Fund (IMF).
Thuli Cooray, a consultant at the Joint Apparel Association Forum of Sri Lanka, said, "We will have to write our obituary. 44% is no small matter."
The Trump administration's tariff shock is significant for countries known as the heart of the global garment industry. An analysis by equity firm William Blair shows that an average tariff of 32% has been imposed on countries that produce about 85% of the ready-made garments imported by the US.
Analysts have warned that targeting garment-producing countries will not only harm those countries' economies but also put pressure on US companies. According to William Blair, product costs could increase by up to 30%, which could ultimately cause problems for US consumers.
Anil Jayanth Fernando, Sri Lanka's Deputy Minister for Economic Development, said, "We are trying to see if there is an opportunity for reduction through discussions before the [tariff] implementation begins on April 9. This is being done especially considering the difficult situation we are in."
