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US-China trade war: RMG exports to help Bangladesh GDP to grow by 0.20%

The ongoing trade war between the US and China has been an opportunity for Bangladesh in enlarging export earnings from the United States of America.

Since the apparel sector contributes 84.20% to the total export earnings, the opportunity to capitalize on the conflict was driven by the RMG sector.

RMG exports help Bangladesh GDP
Figure 1: Bangladesh should give importance on product development and diversification to grab more market share.

The sector has already seen a sharp rise in export earnings from the US market and more opportunities are in the offing.

According to Asian Development Bank Outlook 2019, the escalation of ongoing US-China trade conflicts will contribute 0.23% to Bangladesh’s Gross Domestic Products (GDP) growth by next one to two years riding on exports especially apparel and leather goods.

“Of the 0.23% contribution to GDP, 90% or over 0.20% would come from the apparel sector.”

“Trade redirection is already evident in H1 2019 and will continue if the trade conflicts persist or escalate. Vietnam will reap the highest benefits and its GDP is expected to gain by 2.31%, while Bangladesh to gain by 0.23%,” said Soon Chan Hong, Senior Economist (South Asia department) at the ADB Dhaka office.

Bangladesh and Vietnam would gain through garment and leather trade. 90% or 0.20% of Bangladesh’s gain in GDP will come from the apparel sector, said Soon Chan Hong.

During the January- July period of 2019, Bangladesh’s apparel exports to the US have seen an 11.53% rise to $3.57 billion, while Vietnam registered a gain of 13.05% to $7.8 billion.

In a prolonged and intensified trade conflict, the scope for trade and production redirection—and hence potential gain for other economies in developing Asia—increases, particularly in electronics, garments, and related activities, said the ADB.

 

BD apparel gain trade war
Figure 2: Bangladesh’s apparel gain from the trade war.

In 2018, when the trade conflict began, the maximum tariff rate considered by the US government was 25%. Now, the US is levying 30% tariffs on some products on 15 October.

How to gain more from the war

In reaping the most benefits from the trade tension, the ADB has put emphasis on trade liberalization, attracting FDI and product diversification especially apparel as the lion share of Bangladesh exports comes from here.

“From the trade conflict, Vietnam has gained the most as it has a diversified product basket, while they have landed a huge amount of FDI relocated from China,” Manmohan Parkash.

In capitalizing the opportunity, Bangladesh has to attract FDI in the manufacturing and labor incentive sector such as apparel sector, which would adsorb the labor force, said Parkash.

Trade redirection is already evident in H1 2019 and will continue if the trade conflicts persist or escalate. Vietnam will reap the highest benefits and its GDP is expected to gain by 2.31%, while Bangladesh to gain by 0.23%.

Soon Chan Hong, Senior Economist (South Asia department) at the ADB Dhaka office

On top of that, as the retailers are searching for alternative sources, said Parkash.

To this end, Bangladesh has to offer an incentive to attract FDI, improve infrastructure and trained workers to utilize the demographic dividend, he added.

Meanwhile, the economist also urged the Bangladeshi apparel makers to be more centric to develop specific goods, which the US retailers used to buy from China.

“As the coned largest exporter of RMG goods, Bangladesh is in the top chart of buyers in alternation to China. So, importance should be given on product development and diversification,” South Asian Network on Economic Modeling (SANEM) executive director professor Selim Raihan told Textile Today.

In making the growth sustainable and to retain the buyer’s concentration to Bangladesh for sourcing goods from here, there is no alternative of diversifier goods, said the economist.

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