The first of his two-part series entitled Bangladesh, RMG exports & growth restructuration
US President Donald J. Trump's 'America First' policy approach is already restructuring the global economy. One part of that change has been triggered by his Chinese tariffs. Over $200 billion of Chinese exports to the United States suddenly found tariffs doubling in slightly over one year: from 10 per cent to 25 per cent. The punishment for exporting low-waged products without commensurately opening China's markets to US goods will not stop at that level. Barring an increasingly difficult agreement between the two countries, the next round will be choking manufactured Chinese exports. Other low-waged exporters gleefully witnessed these.
Spin-offs will be immediate, since the global market is more competitive now than ever before: not just other countries, led by China, catching up with the erstwhile trade champion and global economic leader, the United States, but also too many relatively fledgling economies making hay (low-waged export income), while the sun still shines (less developed countries benefiting from not only multilaterally sanctioned noblesse oblige waivers, but also preferential battles among the heavyweights themselves amid their trade war).
Bangladesh's RMG (ready-made garment) sector seems to be reaping the benefits from this plight. Its RMG export income has spiralled up to $40.5 billion from $30 billion in only a year. On the one hand is the December 2014 BGMEA (Bangladesh Garment Manufacturers and Exporters Association) $50-billion RMG export target by the country's 50th birthday anniversary (in 2021). With 18-odd months to go today, revamped domestic efforts could be fuelling the export climb, an argument not far different from the one BGMEA Vice President Shahidullah Azim made seven years ago. On the other hand, a $10-billion jump in just one year of exports cannot be fully reduced to domestic efforts, no matter how strenuous they have been. After all, at the start of this century, the country netted only $5.0 billion worth of RMG export income. It took 8 (eight) years to double that, but only 4 (four) to double the 2008 income, not only at a far higher threshold but also amid a deep recession in importing countries. Climbing upwards from $20-billion RMG exports in 2012 to $30-billion in 2018 was more notable for the amount involved than the BGMEA 2021 target. Without Trump's tariffs augmenting the government's push, it would be hard to make any other more convincing claim.
Arun Devnath's work on this dimension alerts us to the changes afoot ("Trump's trade war is turning out to be a boon for Bangladesh," Bloomberg, July 09, 2019). He is finding a marked uptick in US corporations exploring Bangladeshi suppliers. One must remember Bangladesh is not the only beneficiary: Vietnam may be doing far better on this front, registering a 36 per cent windfall increase in RMG sales to the United States, with another exporting string, stretching from Cambodia, Malaysia, and Sri Lanka to Pakistan, also favourably positioned.
Bangladesh stands out. Though Cambodia receives larger US investments, the Chinese presence is formidably stronger while the far more authoritarian government is also slated to face penalties from the "west," especially West European, for its worker treatment. Myanmar might have been the biggest threat to Bangladesh, and though the consequences of its widely-unpopular Rohingya genocide policy have not dimmed foreign investors and inquiries, interests remain on hold. Recent Easter attacks raise a similar predicament in Sri Lanka, while Pakistan, whose prime minister is set to visit Trump this week, may salvage more support than one reckons.
For all practical purposes, Bangladesh's most significant current competitor is Vietnam. With its $39-billion trade surplus with the United States, Vietnam vaulted from the 12th largest US exporter to the 6th just because of the Chinese tariffs, but draws a similar US tariff threat as China unless it liberalises, purchases more from the United States, and refrains from reflagging Chinese exports to the United States. With $36 billion worth of RMG exports last year, Vietnam ranks just behind Bangladesh as the third largest global RMG exporter, accounting for 6.4 per cent and 5.8 per cent, respectively, of the global market.
On the one hand, Devnath's study suggests Bangladesh's surge from renewed US importer inquiries may fetch $72 billion of export income by 2024, hinting how that $50 billion BGMEA 2021 target will be spoken for. Yet, it will still cede territory to Vietnam: its 12 per cent RMG export growth to the United States owing to the China tariff is bettered by Vietnam's 14 per cent.
On the other, Bangladesh's RMG competitive advantage is not all that competitive, and indeed, faces more endogenous growth-constraining shocks. Devnath finds the per piece RMG export garment to be worth $2.79 in Bangladesh, as compared to $2.52 in Cambodia and $2.3 in China. China cannot so easily be dismissed on this score, though restructuring its economy to adjust to Trump's tariffs might still find plenty of outsourcing from China, even by China itself as it shores up global competitiveness in other sectors.
One exogenous factor Devnath points out is the factory-to-port transportation cost, affected mostly by the adequacy of existing infrastructures. Bangladesh is doing horribly on this front. Compared to the 23 hours it takes to ship an RMG export item from Shanghai into a ship, Dhaka's is a loathsome 168 hours. If China was itself not off-shoring some of its low-waged factories, Bangladesh's smile would not have been as wide as its spiralling export growth. There are lessons to be learned from this, since what goes around also comes around, and low-waged Bangladesh had better take note of this before proceeding too far up the middle-class stairway before it is too late.
In the interim, though, some RMG exporters have found their sales doubling, at the least, given those US inquiries and new letters of intent. There is plenty to gear up for, as many US importers must now find new anchors, led by such big names as Gap and Macy, or their operators, as for Hennes & Mauritz and Zara. We could open up out of our own accord, or even be pushed by exogenous forces again: if Trump's tariff war against China continues, the next round will include finished clothing. By then our infrastructures may be in better shape, though port storage still cries out loud for attention.
Even more puzzling would be all the trade agreements we were negotiating with the United States. No one talks of them anymore, though quid pro quo US policies still single out Bangladesh's lack of apparent labour reform. These may pale, as the next article in this series addresses, against more demanding domestic circumstances.
If the above readings hold, we may be headed to unchartered trade waters in the future: agreements will be fewer and farther in between, taking bilateral contours, but hitting and hurting larger outfits, such as multilateral. This is not a sunny setting as the multilateral challenge today stems from no other source than China's unilateral Belt Road Initiative (BRI) strategies. Somehow, just as the Britain-US trade competition of the 1930s and 1940s shaped post-World War II trade relations, so too may the China-US commercial skirmishes today speak for the rest of this century. Winning or losing now cannot become permanent, but lessons ignored today could guarantee more painful future losses.
The next part of this series elevates possible Bangladeshi outlets.
Dr. Imtiaz A. Hussain is Professor & Head of the Department of Global Studies & Governance at Independent University, Bangladesh.
