Why is US-Bangladesh trade deal unlikely to erode India’s textile advantage? SBI Research explains

The recent trade agreement between the United States and Bangladesh is unlikely to materially dent India’s export competitiveness or dilute the gains from New Delhi’s own interim trade pact with Washington, according to a report by SBI Research.

Dispelling concerns around a potential loss of market share, the report said the US-Bangladesh deal “is not a major event for India”, noting that cost dynamics and product composition continue to favour Indian exporters.

While the US has cut reciprocal tariffs on Bangladeshi goods to 19% from 20% earlier, India secured a sharper reduction to 18% under its interim agreement with Washington.

SBI Research pointed out that although the US imports nearly $7.5 billion worth of textiles each from India and Bangladesh, the product mix is different.

The US buys more non-knitted apparel from Bangladesh, whereas India dominates in other made-up textiles.

A special clause in the US-Bangladesh deal, allowing zero-tariff access for certain textile and apparel products made using US cotton and man-made fibres, has raised apprehensions that Bangladeshi exports could become more competitive in the American market.

However, the report said the higher cost of sourcing raw materials from the US compared to India would limit any meaningful shift.

“The cost of importing from the US would be much higher than importing from India, thus it may not dilute India’s competitive advantage,” SBI Research said.

The report also examined the possible indirect impact on India through cotton and fibre exports to Bangladesh.

Currently, Bangladesh sources about $2.7 billion worth of cotton from India, accounting for around 31% of its total cotton imports, while man-made fibre imports from India stand at about $119 million, or roughly 6% of Bangladesh’s total.

Even under a pessimistic scenario, India would lose only about $1 billion, SBI Research estimated.

“If the US cotton replaces 10% of our cotton exports and 2% of our man-made fibres exports to Bangladesh, then India would lose a miniscule $1 bn,” the report said.

SBI Research also highlighted that India’s recently concluded free trade agreement with the European Union has opened up a textile market worth about $260 billion with zero duty access, which could more than offset any marginal impact from Bangladesh gaining preferential terms in the US.

The report added that India’s interim trade agreement with Washington places the country among the lowest-tariff Asian exporters to the US, restoring competitiveness across key sectors such as textiles, leather, chemicals, gems and jewellery, engineering goods and seafood.

SBI Research expects India’s goods exports to the US to potentially cross $100 billion annually post-deal, with the bilateral trade surplus likely rising to over $90 billion, delivering a net GDP boost of around 1.1%.