This article takes an overview of the developments in the garment sector and the impact on the Bangladesh economy. The single most important point is the uncertainty that is generated by the various actions that are underway throughout the world with respect to the production of wearing apparel. The President of the United States, Donald Trump, is a major proponent of the use of tariffs to reshape the American economy. In doing so, he has discovered that threats of tariff changes are powerful instruments in causing other countries to adjust their policies. He has learned that threats over tariffs will cause most countries to take actions that he desires. Obviously, there are limits to this, but in Trump’s hands it has become a powerful instrument of influence. President Trump seems to relish his ability to use his power as president to force other countries to bend to his will.
Reviewing the situation in the world, we see that there are three important countries where significant changes in tariff rates, as imposed by the United States, are likely to emerge. The simplest case is Switzerland, which runs a large and increasing trade surplus with the United States that triggers, in Trump’s view, the need for action to reduce this surplus. With a reciprocal tariff rate of 39%, it is most likely that there will eventually be a significant reduction as Switzerland and the United States find the path that satisfies Trump’s analysis of the trade situation with Switzerland.
The other two countries where I believe there is currently no final tariff level are China and India. It is very difficult to know where this will finally settle, but certainly the current levels of reciprocal tariffs will not be sustained. Both of these large economies run a significant surplus in their trade with the United States, and Trump is anxious to reduce this trade position. Due to the complex political and national security aspects of relations, the final direction at the level of tariffs is not transparent.
Furthermore, with respect to China, Trump is not a member of the school that believes the United States and China are in a struggle to the death. Such an abstract idea violates the way Trump sees the world as a sequence of short-run conflicts which are resolved by deals. The Chinese viewpoint is, I think, rather similar, so that we can expect a surprisingly simple resolution of the trade relations between China and the United States.
India, on the other hand, is more complicated. As a democratic nation, Indian leadership must be responsive to the attitudes of its citizens; nevertheless, India desires good relations with the United States for national security reasons, and eventually, I expect that the two countries will reach a tariff level plus side deals that will be acceptable to both countries.
But for Bangladesh, this situation is remarkably dangerous. Bangladesh benefits from conflict between India and China. An improved relationship of China with the United States and a disgruntled Indian population put Bangladesh in a very difficult position. In this situation, tariffs are just the accidental instrument by which different views are expressed.
One of the most important things to keep in mind is that there is a serious threat to the Trump government that the United States Supreme Court will find that the imposition of these reciprocal tariffs is illegal. This issue will probably be resolved within the next month.
It is essential to remember that the basic principle of a democratic system is that taxes are established by the lower house. The British House of Parliament arose in conflict with the king and attempted to limit the taxing powers of the monarch. Similarly, the formation of the United States was heavily shaped by rejection of the British monarch’s levying of taxes without the consent of the people of America. Setting taxes in the United States is a task that is very much left to the Congress. The executive department can make suggestions, but the legislature is responsible for the tax laws.
The most knowledgeable tax analysts in the United States are not found in the executive department but in the Ways and Means Committee of the House of Representatives. Mr. Trump established his reciprocal tariffs without approval of Congress, hence violating the fundamental principle that taxation arises from the will of the people and not from the king or president. Mr. Trump’s justification for his actions is the argument that the United States runs large trade deficits with most countries of the world, and certainly with the world as a whole, and that this was in effect an attack on the United States.
Therefore, Trump argues, he has the right under the law to protect the United States from foreign attacks, and in this case, this is achieved by raising tariffs. Most thoughtful people find this a weird and unlikely idea. But if you know any lawyers, you will understand that they are able to argue such positions at length.
Cases have been brought against President Trump which aim to force him to cancel the tariffs that he has unilaterally established. Experts on the United States Supreme Court are busy speculating as to what the court’s judgment is likely to be.
As I have a very disgusted view of the findings of the Roberts court, I fear that Mr. Trump’s unilateral taxation will be found legitimate action. Where this will lead in terms of the president’s right to impose taxes without the approval of the parliament, who can tell, but Trump has always been prepared to push his advantages when he had them.
Once the Roberts court accepts the Trump government’s argument as to the legitimacy of the taxes imposed by the executive, this will expand in many different ways, with all kinds of taxation channels. These will all be regressive taxes, falling more heavily on the poor than the rich, enabling Mr. Trump to reduce the income taxes which fall heavily upon the wealthier Americans.
What is at stake here is not only the destruction of the international trade system but also increasing the unfair income and wealth distribution in the United States.
In the event that the Roberts court finds the imposition of the reciprocal tariffs illegal, foreseeing their cancellation and the repayment of more than $100 billion of tax collections to those who paid the import duties, we will nevertheless face a situation where Mr. Trump will use other channels to impose the high tariffs.
His belief in high tariffs is a central part of his political philosophy and his wish to use such tariffs to increase manufacturing investment in the United States and overcome the loss of manufacturing that has taken place in the past 40 years as production has moved outside the United States to other countries.
There are other channels that may require going to Congress, but the Republicans have a majority in Congress and, although it would be difficult, can probably ultimately sustain legislative approval of high tariff levels.
All of this, of course, will take time, and during this period, foreign trade will be confused. In particular, in the wearing apparel world, the ultimate outcome will be mysterious, and it may take several years before the sector stabilizes.
No matter what happens, there is one fundamental idea: that Bangladesh is a highly competitive producer of wearing apparel and should succeed in retaining and perhaps improving its important position as a world leader.
What is the impact of the Trump tariff strategy? First, the higher tariffs should reduce imports. What happened is that the first quarter of 2025 showed a large increase in imports as importers tried to build up stocks before the tariffs became effective. With all the changes in rates announced by Trump, imports in the first quarter built up as importers anticipated the high tariffs that were to be imposed.
The second quarter of 2025 was about the same as the second quarter of 2024, with probably a slight continuation of the buildup of imported goods. The negative effect on imports of the higher tariffs has not yet been seen in the data. Trump also expected an increase in revenue from the higher taxes, and this has begun to emerge from the data.
The time since the tariffs have been imposed is too short to grasp their impact on the American economy. There is evidence that prices grew by almost 2% faster and that most of the tariffs were paid by importers and represented a pass-through of the cost to the American consumer. Mr. Trump’s frequent proclamation that the foreigners would pay the tariffs has not come to pass. These tariffs are a tax on the American people. Clothing prices have been stable and have not shown any sign of increase.
There is widespread belief that there will be a redistribution of production within the RMG sector. The Indian and Chinese RMG manufacturers are working hard to penetrate the EU market. At the moment, both countries are effectively blocked from the US market — the Chinese due to the rising level of restrictions on Chinese products, and the Indians due to the high tariff rate that Trump has imposed.
There are great uncertainties as to how the RMG market will redistribute itself as the American tariffs rise. This is another example of the considerable uncertainty that the markets face.
In the end, there is too much speculation about the way the world markets for clothing will evolve. It is really too complicated to understand how this will play out. It is much more important to think about the development of the domestic RMG market in Bangladesh.
There are many difficulties facing this market, most of which are well known, but once again I will review these, for it is in raising the productivity of the Bangladesh factories that success will be achieved. It will not be achieved by subsidies from the Bangladesh government, nor will it prove feasible to negotiate special deals in world trade that will provide Bangladesh with a special position.
The only thing that really matters is raising the productivity of the RMG factories, enabling them to lower their prices to the buyers and remain competitive against other companies around the world. Almost all of the factors that I will briefly note are well known, but I will take a rather ruthless view of what has been going on.
We begin with a brief discussion of labor. There is no doubt that the industry has been built on the low wages that have been provided to the workers. Demands from the workers for better wages and demands from the ILO and the international community for living wages are growing, and the shift away from the repressive past government will result in demands for higher wages and benefits.
This will turn into a grave problem for the next government. Pressure from the international community to establish labor unions and, through the unions, a collective bargaining agent, will make the setting of wages and benefits much more complicated. In order to have an effective instrument for labor to participate in collective bargaining, there must be room for strikes.
The second aspect of the labor problem is the emergence of artificial intelligence. During the past decade, we have seen a substantial increase in automation in the sweater industry, resulting in a greatly reduced labor input into a sweater. We’ve seen much less of this reduction of labor inputs into the sewing lines.
But sewing lines linked to artificial intelligence are here, and it will solve in less than a decade the problems that the sewing line faces in automation; a decade is, in fact, a rather optimistic estimate. The implication is that factories will change to the use of artificial intelligence and new kinds of machinery and greatly reduce the labor force involved.
This is the only way to stay competitive. The use of machines driven by artificial intelligence will improve the quality of the sewing, and such garments will be preferred and earn a higher price than ones that are sewn in the traditional way.
In order to achieve this will require a major effort by the government, the universities, and the factories to develop, train, and utilize artificial intelligence programs and associated sewing machinery. Mark my words: without such steps, the RMG industry will shrink within the decade.
Next, we turn to the question of financing the industry. Today, the garment and textile industries have been financed by bank loans. These factories have remarkably little equity. They may start off with some equity, but as they increase their borrowing from the banks and do not increase their equity—which they take off as profits for the owners—the debt-equity ratio rises and rises. Now it is frighteningly high.
Furthermore, we have a situation where maybe 25% of the loans made to the textile and garment sector are in default. This is a situation which means that bank lending in the future will be very difficult.
The meaning of this level of non-performing loans is that the interest rate charged must be sufficient to cover the 25% loss of the banks and the, let us say, 7 to 8% cost of money and operating the bank. This means the industry is going to operate at interest rates of 32%. Every garment manufacturer will tell you that’s ridiculous—impossible to do that. You cannot charge prices that will cover that cost of capital.
How this is going to be solved is uncertain. What we do know is that in the past, the industry was built upon low wages to the workers and stealing the depositors’ money. Those two ways to finance the industry are probably not feasible in the future.
There are two obvious solutions: raising productivity, which is the point of the section herein, and finding a new way to finance the industry. The new way to finance the industry is very clear: one must go to the capital market and present a factory that will be run properly and that investors will take their chances on the ability of that factory to produce returns.
This means shifting away from the loan-financed climate to where equity investment through the share market is substantial. This is the only path that will provide a financially sound future for the industry.
Of course, owners hate this because they do not want to dilute the distribution of the earnings. But the way things are now, these earnings are not going to be very great. One is not going to be able to steal the depositors’ money anymore—at least we all hope not—and the pressure to pay workers something resembling a living wage will grow constantly from the side of the buyers, who will be driven by the political systems in their countries. This is particularly true, in my opinion, in the EU and the UK, possibly Japan.
The third area of concern is the electricity and gas situation. Everyone understands that the electricity delivered to the garment sector and the textile plants is of poor quality, and there are significant outages disrupting production and sewing lines. Factories deal with this using standby diesel plants, which result in significant increases in cost.
This is not a new phenomenon. The authorities responsible for gas and electricity provision to the industry have failed over the past decade to reach a reasonable standard of performance for a modern manufacturing sector. There are a lot of reasons for this failure, and most of them rest with the political interference and corruption that shaped the energy sector as it is today.
But correction is slow, and it is unrealistic not to grasp the fundamental fact that, as much as possible, the power and gas sectors should be privatized and run by professional people, not by government bureaucrats. Everyone knows what is needed in the gas and power sectors, but nobody is ready to do it.
The corruption and vested interests have overwhelmed any attempts at efficiency and low-cost operation. The interim government has made great progress in trying to correct this, but to a certain extent, they are too pure in their efforts, resulting in very slow change.
Next, we come to the old problem of port facilities. This is an area where the troubles are self-inflicted. It is not a matter of spending more money; it is a matter of proper organization, reduction of corruption, and more systematic effort to run the port.
In the early 90s, American foreign investors made a proposal to set up and run a container port to deal with the expected great flow of containers as the garment sector expanded. The government refused this offer, and the port was notoriously inefficient. When 1/11 came, the army took over the port and doubled its efficiency for essentially zero cost.
The same opportunity exists today when all are screaming and shouting for spending billions on the ports. If one were to concentrate on the actual operation of the port, one would find that you could greatly improve its efficiency. This seems to be of no interest to anyone, with a much greater preference for spending a lot of money, which is absolutely not necessary.
Closely associated with the port is the inefficiency of the customs service. This inefficiency arises from the corruption of the system and the unwillingness of the government for the last 30 years to do anything about it. You get the country you want, and if you’re prepared to have a customs service do damage to the key garment and textile sectors, then gradually the competitiveness of the sector falls—which is what is happening now.
The simplest way to improve the customs service is to introduce a pre-shipment inspection service that clears the imports for the garment and textile sectors at the country of origin and allows free, no-inspection passage into Bangladesh and to the using factories.
I now turn to three brief points related to productivity.
First is the inability of the government to organize an investment in one or more man-made fiber factories. This is a simple task to achieve, but nothing has happened. This would greatly reduce the imported inputs into the garment sector and lower costs and time delays.
My second point is the necessity of air conditioning the garment and textile factories to ensure increased productivity from better working conditions. The need for this cooling action will grow every year as heat waves become longer and hotter. A systematic way to approach this, by good engineering and manufacturing, will pay great dividends in terms of worker productivity.
The third is the most frustrating of the many things that have reduced the productivity of the garment sector, as it is so simple. The authorities have systematically been unwilling to take the obvious steps that are needed to improve air cargo management.
Management of air cargo in Bangladesh is a disgrace. Why is it a disgrace? Because the government has insisted upon handing this job over to Biman, which has no ability to do it properly and does not have the finance to make the necessary investments.
The country faces the ridiculous situation that it is unable to run the number of scanners to clear the outgoing air cargo goods. Instead, we often have to use dogs to sniff to ensure that there are no explosives in the outgoing containers. We are talking about a small sum of money and hiring a number of people who are able to repair these scanners and make them operate properly.
Years go by and this problem remains unsolved. It slows down the use of air cargo, which is very bad news for the garment sector, which has to ship back and forth samples all the time.
Of all the things that are mentioned here, the one thing that I simply cannot understand is that the government is so weak and so spineless that it is unable to correct the corruption and folly that is connected with the management of air cargo.
If one is not able to manage such issues, then one can say bye-bye to the garment sector in a few years.
Conclusion:
The garment and textile industries are at the heart of the manufacturing sector of Bangladesh and are also the most important sources of export earnings. The world’s wearing apparel industry is entering a period of chaos. There are more countries entering into production, there are more demanding environmental and labor standards, and there is rapidly changing technology that will drive the industry in the future.
The fabrics that are used are changing, and we can expect interest in new designs for new markets. In summary, there are five actions that seem to me difficult and urgent:
- The garment and textile factories must be air-conditioned to permit increased productivity.
- The logistical chains required to deal with the shipment of components must be improved through good management rather than by spending large amounts of unnecessary money.
- The financing of the textile and RMG sectors must shift to greater use of the capital market and reduced bank lending. The existing situation is challenging, to say the least, and the best way forward is to require that more financing is done through the capital market.
- A means of establishing wages and benefits through collective bargaining, with the government as a neutral bystander. The past coalition of government and owner against worker must come to an end.
- The universities and TV research laboratories must undertake a serious effort to stay up with the changes around the world in technology connected to wearing apparel. All of this is changing, and Bangladesh must change with it.
