Zero-Tariff Twist: How The US-Bangladesh Deal Challenges India’s Textile Edge

The US-Bangladesh trade deal’s zero-tariff clause may reshape textile competition, raising concerns for India’s cotton exports and apparel industry.

US-Bangladesh Deal Reshapes Textile Trade, Puts India On Guard

Source : ABPLIVE AI

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The recent U.S.-Bangladesh trade agreement has altered the dynamics of South Asia’s textile trade, raising fresh concerns in India’s apparel and cotton sectors. While the U.S. reduced tariffs on Indian exports to 18%, down from a steep 50% earlier, Bangladesh secured a different kind of advantage. Under its deal, garments made using American cotton or man-made fibre can enter the U.S. market at zero duty.

At first glance, India appears well placed with one of the lowest tariff rates among major exporters. But the fine print tells a more complex story. Bangladeshi apparel produced with U.S. inputs could now be priced lower than Indian goods facing an 18% tariff, potentially narrowing or even reversing India’s competitive edge.

Why The Cotton Clause Matters

Textiles form the backbone of Bangladesh’s exports, accounting for over 80% of its outbound shipments. The country is also the world’s largest cotton importer and historically one of the biggest buyers of Indian cotton. As recently as a few years ago, nearly 70% of India’s cotton exports were destined for Bangladesh.

However, relations between the two neighbours have cooled since 2024, prompting Bangladesh to diversify its cotton sourcing to countries such as Brazil and in West Africa. The new U.S. deal is expected to accelerate this shift. If Bangladeshi manufacturers increasingly switch to American cotton to qualify for zero tariffs, Indian cotton traders could face further pressure.

Impact On India’s Textile Sector

The stakes are high. The U.S. absorbs nearly 30% of India’s textile and apparel exports, valued at about $10.5 billion annually. The sector contributes 2.3% to India’s GDP and employs millions. When 50% tariffs were imposed earlier, exports to the U.S. dropped sharply, with shipments in November 2025 falling more than 31% year-on-year.

Although the tariff cut to 18% offered relief, the U.S.-Bangladesh arrangement complicates the outlook. Indian textile stocks have already reacted, with export-focused firms and spinning companies witnessing pressure in the markets.

A Double Challenge

For India, the implications are twofold. Cotton exports to Bangladesh may decline further if Dhaka pivots decisively toward American suppliers. At the same time, Indian garments could struggle to match the pricing of Bangladeshi products enjoying zero-duty access to the U.S.