The US currently has a total $3.9 trillion dollar debt of which China owns 29 per cent, or $1.138 trillion, and US President Trump wants to fix the balance of power China holds over it, starting with trade. The goal of the Trump is not only to reduce the deficit and influence China holds as a result of this, but to also bring back jobs which fleeted the country years back when America shifted away from being a major manufacturer in the world. An apparel industry worth more than gold Bangladesh has a 6.4 per cent share in  global export of apparels, a distant second to China whose market share lies at 36.4 per cent. The country’s apparel industry has recently seen a significant positive growth as more American retailers place a greater number of work orders, in efforts to avoid tariffs and political risks of the trade war. According to Bangladesh Foreign Trade Institute, Bangladesh had a 6.46 per cent  growth in market share in the American garments market during the first three quarters of 2018. The country has also benefited from being able to source cotton at cheaper prices from China, and now is its largest importer of cotton. However, there has been a 10-12 per cent increase in cotton prices from India, which normally provides Bangladesh with half of its import requirements which may be soon to change. In 2017, Bangladesh scrapped 25 per cent of the ships dismantled worldwide and it is considered as a prospective industrial sector in light of growing development projects.

The country might craft an industrial policy to develop its ship breaking yards, hoping to source a greater amount of cheaper steel domestically, which is already providing more than half of the country’s steel supply. Although Chinese policymakers are seeking to tighten capital flows in hopes to prevent a depreciation of the Yuan, China’s increasing involvement in various projects of Bangladesh may mean these constraints will not be as effective in the case of Bangladesh. Additionally, Bangladesh sees an increase in foreign direct investment (FDI) from China to be higher than forecasted through factory relocations, especially in the growing export processing zones (EPZs), as the trade war increases the costs of doing business in China. Furthermore, since Bangladesh is a member of the Belt and Road Initiative (BRI), it is more meaningful for China to increase the investment in sectors of Bangladesh that is affected in China by the trade war. Beijing’s support of Bangladesh was evident in the 27 agreements for investments and loans signed by the two countries amounting to USD 24 billion when President Xi Jinping visited Dhaka in 2016. The net FDI from China into Bangladesh exploded after Xi’s visit. It increased to USD 506 million in the 2017-18 financial year, which was only USD 68.5 million in 2016-17, according to a source. As the US-China trade war intensifies, pundits on both sides of the Pacific and elsewhere are wondering: who is the real winner?

Interestingly, it is not China or the United States, but countries like Bangladesh, Vietnam, and Chile that may reap the most benefits from a widening trade dispute between the world’s two biggest economies. The impending effect of the trade war on supply chain dynamics and investment patterns could help Bangladesh emerge as a potential winner from the conflict. China and the United States have been stable trade partners to Bangladesh for decades. The volume and value of trade Bangladesh has with both countries are significant. However, the nature of trade with both countries is different. Bangladesh’s top import partner is China, with Bangladesh importing over USD 15 billion in Chinese goods as of 2017. Meanwhile, the United States is the second largest destination for Bangladesh’s exports taking in more than USD 5.8 billion in 2017 (Germany was the largest destination at just over USD 6 billion). The changes in the geopolitical relationship between the United States and China through this trade war have alarmed many countries that have trade stakes with these two nations though this raises hope for Bangladesh. As the Asian Development Bank’s chief economist Yasuyuki Sawada argues, trade war to generate additional USD 400 million exports for Bangladesh. The garment sector is expected to reap the most benefits, as it accounts for 80 per cent of Bangladesh’s total exports.

As the trade war escalated, the country’s garment industry observed significant growth as American retailers are placing more work orders with Bangladesh in order to offset increasing tariffs. According to the US Office of Textile and Apparel (OTEXA), Bangladesh enjoyed a 6.46 per cent growth in share in the United States’ market during the first three quarters of 2018. Unlike Chinese foreign direct investment (FDI), Bangladesh can also benefit by increasing imports from the United States. According to the American Farm Bureau Federation, soybean exports to China have declined by 97 per cent after China’s tariffs on American soybeans came into effect. Currently, Bangladesh imports 2 million tonnes of crude vegetable oil, of which 30 per cent or 600,000 tonnes is soybean; 98 per cent of those soybeans come from Argentina, Paraguay and Brazil. If the country can redirect its supply chain from Latin America to the United States, it may have the potential to supply oil to consumers at cheaper prices without sacrificing profits in the long run.

The majority of steel demands of Bangladesh come from importing scrap iron from the United States and its domestic ship-breaking industry. However, the US imposed a 25 per cent tariff on all steel imports in March 2018, in efforts to revitalise its declined steel industry. This action led the US suppliers of scrap iron to store their reserves in anticipation of higher tariffs. Consequently, Bangladesh has seen a significant rise in the price of rod, an important product required for its many infrastructure projects. Unlike Chinese FDI, Bangladesh can also benefit by increasing imports from the United States. According to the American Farm Bureau Federation, soybean exports to China have declined by 97 per cent after China’s tariffs on American soybeans came into effect. If the country can redirect its supply chain from Latin America to the United States, it may have the potential to supply oil to consumers at cheaper prices without sacrificing profits in the long run. It is, therefore, critical for Bangladesh to work on a favourable policy regime to seize new opportunities as they come by, and to provide enabling conditions for more foreign direct investments all by avoiding unintended risks and consequences. Putting all these together, it clearly appears that the unwarranted trade war between the United States and China opens a sudden window of opportunity for Bangladesh. However, whether the country can reap those benefits will depend on a host of factors. Bangladesh is struggling with a crumbling infrastructure, a weak rule of law regime, and a poor business environment. Many observers are also alarmed that Bangladesh government’s excessive and reckless borrowing from Chinese credits may put the country in a longer-term debt trap, like some other countries.

Moreover, being the 51st largest trading partner of the US, Bangladesh enjoys USD 4.0 billion trade surpluses. As President Trump is going after one trade-surplus country after another, Bangladesh, by importing soybean from the US, can be benefited both by getting it at a cheaper rate and reducing the trade deficit that may ultimately contribute to stronger bilateral relations. Furthermore, Bangladesh and other low-income countries in South Asia face US duties of 15.2 per cent of the total value of exports, which has a possibility to ease if the US wants to increase imports from these countries to minimise its gap from China. Also China recently announced tariff cuts for imports from Bangladesh. At the same time, Bangladesh, and other low income countries in South Asia, currently face US duties of 15.2 per cent of total value of exports, which may be eased if the US wants to provide incentives to increase imports from these countries to make up for its gap from China. Bangladesh may see an increase in FDI from China greater than forecasted, through factory relocations, especially in the growing export processing zones (EPZs) as costs of doing business in China rise.

It is therefore critical that proper infrastructure and ease of doing business in the country is developed to stimulate growth in these areas,  although policymakers in China are seeking to tighten constraints on capital flow in hopes to preventing a depreciation of the Yuan.

China’s rising involvement in various projects of Bangladesh may mean constraints may not be as effective in the case of Bangladesh. Although it is fairly unpredictable as to what commodities may become the next target of the US-China trade war, Trump’s objective of balancing trade with China means a great opportunity is sitting in front of the country.

The writer is a contributor to

The Independent