On 9 February 2026, US trade representative Jamieson Greer and Bangladesh commerce advisor Sheikh Bashir Uddin signed an agreement on reciprocal trade in Dhaka — a deal that cuts the headline tariff on Bangladeshi goods entering the US to 19%, down from a previous rate of 20%. It is a steep fall from the 37% baseline that had hung over Bangladesh’s export sector since the Trump administration launched its reciprocal tariff framework.
The headline tariff reduction, however, is only part of the story. Buried within the agreement is a clause that industry executives say could reshape supply chains across South Asia: Bangladeshi garments manufactured using US-produced cotton or man-made fibres will qualify for zero-duty access to the American market. That provision transforms what might otherwise be a modest one-percentage-point tariff cut into a potentially decisive competitive lever, provided the logistics and economics of sourcing American cotton can be made to work.
India secured its own bilateral tariff deal with Washington just one week prior, on 2nd February. On the surface, that one-percentage-point advantage over Bangladesh’s 19% might seem sufficient insulation for Indian exporters. While India retains a marginal headline advantage, the zero-duty cotton clause effectively creates a parallel tariff track for Bangladesh — one that India cannot access under its current agreement. For US buyers sourcing volume knit and jersey garments, a potential swing from 19% to 0% on qualifying Bangladeshi shipments is a structural incentive to redirect procurement.
Pallab Banerjee, managing director and group president of Pearl Global Industries — a garment manufacturer with operations in both, India and Bangladesh — framed the deal’s implications carefully when speaking to CNBC. “Bangladesh is already more competitive than India because of its ecosystem and price points,” he says. “This deal makes them incrementally more competitive, though I don’t view it as a massive change immediately.”
Bangladesh’s advantages in labour costs and ease of doing business, built over two decades of deliberate industrial policy, have already put Indian exporters on the defensive. A tariff carve-out, however narrow in its initial scope, adds another layer to that pressure.
With India at 18% and Bangladesh at 19%, US has effectively established an informal negotiating floor for South Asian reciprocal tariffs — one that future claimants will struggle to undercut. This is standard trade-negotiation dynamics: the first bilateral agreements in a region serve as reference points for subsequent ones.
When other South or Southeast Asian economies approach Washington, US can point to the India and Bangladesh deals as precedent, making single-digit or near-zero base rates substantially harder to justify. That anchoring effect, while unwritten, is a real constraint on the region’s collective bargaining position.
The Cotton Question
The zero-duty clause hinges on a straightforward but complex requirement: about 70% of a garment’s input material must originate in the US. For Bangladesh’s ready-made garment (RMG) sector, which currently imports the overwhelming majority of its cotton and yarn from India, Brazil and China, that threshold demands a fundamental rethink of raw material procurement rather than a cosmetic adjustment.
On price, the arithmetic is newly favourable to US. American cotton is currently priced below Indian cotton — a reversal of the historical premium that once made American fibre uncompetitive for cost-sensitive Bangladeshi buyers.
Mr Banerjee acknowledged this shift in his NDTV Profit interview, noting that “previously, using US cotton to spin yarn in Bangladesh was not cost-effective, so that business segment remained small.”
The new tariff incentive, he suggested, could change that calculus. On whether US cotton or US-sourced yarn landed in Bangladesh is now broadly comparable in price terms to Indian alternatives, the picture remains qualitatively mixed — competitive on raw material cost, but not yet decisive once all variables are factored in.
India’s geographic proximity to Bangladesh represents an advantage that no pricing model can easily replicate. Cotton and yarn move from Indian mills to Chattogram Port in days, via road and rail corridors that have been operational for years, with freight costs that add only marginally to landed prices. American cotton travelling from the US Gulf or East Coast to Bangladesh requires long-haul container shipping, with transit times of 30 to 45 days or more, resulting in higher freight costs and greater exposure to supply chain disruptions.
India currently supplies the vast majority of Bangladesh’s yarn imports — a supply relationship worth over US$2bn (billion) annually. Bangladesh has no domestic cotton farming and relies entirely on imports, with India as by far the largest yarn supplier. The US clause is explicitly designed to redirect a portion of Bangladesh’s raw material spending away from India and toward the United States.
Alongside China and US, India ranks among the world’s largest cotton producers, typically generating between 5mn (million) and 6mn metric tonnes annually. While China leads in overall textile manufacturing and installed spindle capacity, India operates over 50mn spindles — the second-largest spinning base globally. This dual strength, combining large-scale raw cotton production with massive domestic spinning infrastructure, gives India an integrated ecosystem linking farmers, ginners, spinners and garment exporters.
The trade agreement carries clear geopolitical weight beyond commerce, having been signed just days before Bangladesh’s general elections. For Washington, it secures market access for US agriculture and energy, supports Boeing exports, and strengthens ties with a strategically located country long seen within India’s sphere of influence. For Bangladesh, the urgency is understandable. With its preferential access set to expire in 2029, Dhaka is locking in bilateral arrangements to secure export footing.
For Indian textiles exporters, the agreement presents a differentiated set of risks and, in some cases, opportunities. The most direct exposure sits with yarn and cotton suppliers: if Bangladesh progressively substitutes Indian yarn with US cotton spun domestically in Bangladesh — even partially — the demand impact on India’s spinning sector could become material over time. India’s yarn exports to Bangladesh represent a significant bilateral trade flow and any structural erosion of that market would be felt across spinning clusters in Gujarat, Maharashtra and Tamil Nadu.
