The lower US import tariffs on textiles and apparel exports from Bangladesh could mean more competition for Indian exporters though the impact may be limited as Bangladesh has capacity constraints. The US-Bangladesh trade pact lowers the effective tariff to 19%, compared with 18% for Indian exports.
“The tariff differential between India and Bangladesh has narrowed from 2% to 1%, which is a concern in a sector with thin margins,” the Confederation of Indian Textile Industry, said.
What did Abhijit Das say?
Economist and former trade negotiator, Abhijit Das, pointed out that the India-US trade pact, by which reciprocal tariffs are down to 18%, would have enabled Indian exporters to increase shipments to the US whereas some competing nations such as Bangladesh, would face 19% and others, such as Vietnam, would face 20%.
However, the US –Bangladesh pact, will bring down the reciprocal tariffs to zero, for a certain quota. “The size of the quota is not known, but what is quite likely to happen is that the perceived tariff advantage, which we imagined we would have over Bangladesh by about one percentage point, gets reversed into a tariff disadvantage of 18% compared to Bangladesh,” he said.
US-Bangladesh trade framework
The U.S. and Bangladesh on Tuesday agreed on a reciprocal trade framework under which Washington will allow a specified volume of textile and apparel exports from Bangladesh to enter the US at a zero reciprocal tariff rate.
CITI warned of short-term pressure on Indian spinning mills and cotton shipments, as Bangladesh—India’s largest export market for cotton and yarn—may be prompted to step up purchases of US cotton and spin domestically.
India exported $1.47 billion worth of cotton yarn (about 570 million kg) to Bangladesh in 2024–25. About 20% of Bangladesh’s garment exports and about 26% of India’s cotton apparel exports are destined for the US. Bangladesh is among the world’s leading exporters of textiles and apparel to the United States.
India and the U.S. signed an interim trade agreement last week, under which tariffs on Indian textile and apparel exports were reduced from 50% to 18%, making India relatively more competitive than Indonesia (19%), Vietnam (20%), Bangladesh (20%) and China (40%).
Prabhu Dhamodharan, Convenor of the Coimbatore-based Indian Texpreneurs Federation, however, said Bangladesh has capacity constraints. Bangladesh exports about $44 billion worth of garments annually, nearly 80% of which are cotton-based, implying yarn and fabric demand of around $17–18 billion. “Its domestic spinning and fabric capacity can support only $3–4 billion, leaving a structural gap,” he said.
Bangladesh’s spinning sector also cannot fully pivot to US cotton due to its entrenched exposure to Europe and the UK. “At best, only 20–25% of yarn and fabric demand can be met domestically. The rest will have to be sourced from India and Vietnam, subject to rules. In such a scenario, Indian yarn and fabric exports stand to benefit,” Dhamodharan added.
Industry experts also pointed to operational and compliance challenges. Siddhartha Rajagopal, executive director of the Cotton Textiles Export Promotion Council (TEXPROCIL), said there is currently a system under which, if up to 20% of the cotton or inputs used in an apparel product are of U.S. origin, that portion is deducted from the value for duty calculation, with tariffs applied to the remaining 80%.
“Now, the proposal is that if exporters can prove that the apparel is made from US cotton, they could receive a duty waiver. This is clearly an incentive to promote US cotton exports,” Rajagopal said, adding that details on documentation and verification mechanisms are still awaited. “Cotton is often blended. Ensuring traceability will increase compliance costs.”
K. Venkatachalam, chief advisor to the Tamil Nadu Spinning Mills Association, said the development could even present an opportunity for Indian spinners. “Around 60 lakh bales are missing this season due to crop failure in India. We are already struggling to source raw cotton domestically,” he said, adding that the gap could be bridged through imports of US cotton.
“If Indian mills import U.S. cotton, spin yarn here, and supply it to Bangladesh for further value addition, the final garment could still qualify for zero duty in the U.S. How else will spinning mills operate without cotton?” he asked.
India currently has an 11% import duty on cotton. It relies on the US for contamination-free cotton and variants like extra-long staple (34MM+) cotton that are largely used in fabrics used for exports.