Arya News - "The new political balance would make it more difficult to pursue further tariff increases without facing serious political challenges," says Abdur Razzaque.
DHAKA – The results of the US midterm elections appear to be a major political setback for US President Donald Trump. As Democrats seize control of both the House of Representatives and the Senate, the administration will face much stronger opposition to its policies, including those related to international trade.
Extensive use of tariffs by President Trump has generated considerable debate in the United States, especially over their impact on consumer prices and business costs. The new political balance would make it more difficult to pursue further tariff increases without facing serious political challenges.
For Bangladesh, this development offers some grounds for cautious optimism. A Democratic-controlled Congress could provide greater opportunities to raise concerns about US trade restrictions and to seek more favourable market access conditions.
Stronger Congressional scrutiny may also constrain some of the administration’s unilateral trade measures, along with some of the bilateral trade deals that the US enforced upon some countries, including Bangladesh.
Nevertheless, expectations of immediate or substantial changes in US trade policy should remain modest.
One important consideration is that President Trump will continue to exercise considerable executive powers, particularly in international trade, where existing legislation provides significant discretion to impose tariffs and undertake other trade-related measures. These powers are subject to legal restrictions, but Congressional opposition cannot automatically prevent their use.
Indeed, disagreements between the White House and Congress could lead to greater political confrontation, with the administration continuing to pursue its trade agenda through executive actions while Congress attempts to challenge or constrain them. Such tensions could generate further policy uncertainty and volatility.
It would therefore be premature to assume that the election outcome will necessarily produce a more stable and predictable international trading environment.
There is also a broader issue concerning the direction of US trade policy.
The resurgence of industrial policies, growing protectionist tendencies and scepticism towards certain aspects of the multilateral trading system have become increasingly prominent features of American economic policymaking across party lines.
It is worth recalling that President Biden retained several major elements of Trump’s first-term trade policies. His administration maintained important tariffs on Chinese products and continued the US opposition to appointments to the World Trade Organization’s (WTO) Appellate Body, leaving the WTO’s dispute settlement system without a functioning appeals mechanism.
The Biden administration also pursued ambitious industrial policies, including substantial subsidies under the Inflation Reduction Act and the CHIPS and Science Act.
These developments suggest that the changing US approach to international trade reflects deeper shifts in American economic priorities.
Both political parties attach considerable importance to protecting strategic industries, responding to China’s economic influence and preserving domestic policy space. Their approaches to international cooperation certainly differ.
Trump’s strong preference for bilateral bargaining and unilateral trade measures could face greater resistance under the new Congress, potentially creating some room for more constructive multilateral engagement. But a fundamental reversal of the US position on WTO disciplines and dispute settlement seems unlikely simply because the political balance in Washington has changed.
For smaller trading economies such as Bangladesh, which have a strong interest in predictable and enforceable international trade rules, this continuing shift in US policy is an important concern.
For Bangladesh, the immediate question is how any changes in US trade policies might affect its export prospects. This is particularly relevant for the readymade garment sector, where even relatively small differences in tariff treatment between Bangladesh and competing suppliers, including Vietnam, India and Cambodia, can influence international sourcing decisions.
The relative tariff advantage or disadvantage matters as much as the tariff imposed on Bangladesh itself.
Greater certainty about future US trade measures would also help exporters and international buyers plan their sourcing and investment decisions. Bangladesh should therefore closely monitor the emerging policy environment and assess the opportunities for improving its competitive position in the American market.
The implications could extend beyond merchandise trade. Developments in US economic and foreign policies influence global financial conditions, exchange rates, investment sentiment and commodity markets.
Of particular concern is the continuing crisis in the Middle East, where the conflict involving Iran, disruptions to shipping through the Strait of Hormuz and wider geopolitical tensions have created serious uncertainties for global energy supplies and prices.
Whether the changing political balance in Washington will lead to any substantive shift in the US approach to the Middle East crisis, particularly towards de-escalation and restoring normal energy shipments through the Strait of Hormuz, remains to be seen.
A meaningful easing of these tensions could help stabilise international energy markets and bring down fuel prices. For an energy-importing economy like Bangladesh, lower prices would reduce import costs, ease pressure on foreign exchange resources and help contain domestic inflation and production costs.
Such developments would certainly be welcome. Much, however, will depend on how the geopolitical situation evolves, and there is little reason to assume that the midterm results alone will bring about a resolution of the crisis.
These potential external developments must also be viewed against Bangladesh’s present economic difficulties, many of which have developed primarily from domestic policy weaknesses and prolonged delays in implementing meaningful reforms.
Persistent inflation, the severe banking sector crisis characterised by exceptionally high non-performing loans, weak domestic revenue mobilisation and declining investment have created formidable challenges. Restoring macroeconomic stability, particularly bringing inflation under control, remains an immediate priority.
Strengthening the government’s fiscal position, improving financial sector governance and restoring confidence in the banking system are equally urgent. Improving export competitiveness also requires sustained domestic policy attention, especially given the importance of containing production costs and strengthening productivity.
Bangladesh’s forthcoming LDC graduation adds another dimension to these challenges. The eventual erosion of trade preferences and the loss of certain policy flexibilities will require significant improvements in export competitiveness and greater diversification of the country’s export base.
The additional three years now available before graduation offer an important opportunity to make meaningful progress in these areas. Yet the reform requirements have been known for a long time, and progress in addressing many of the underlying constraints has remained disappointingly limited.
Bangladesh can ill afford to let this additional period pass without substantial improvements in its competitiveness and productive capacity. The immediate challenge is to identify and sequence the most critical reforms, establish an accountable implementation process and ensure that adequate resources and political commitment are available to carry them through.
The next three years must produce tangible progress rather than another round of policy commitments that remain largely unimplemented.
This is where the significance of the US midterm results for Bangladesh’s broader economic prospects needs to be placed in perspective. A less restrictive US trade policy and a more stable international economic environment would certainly be welcome.
Bangladesh should take advantage of any opportunities arising from the changing political balance in Washington, engaging with the incoming Congressional leadership while maintaining constructive negotiations with the Trump administration.
At the same time, the possibility of continuing trade tensions, geopolitical instability and policy uncertainty must be recognised.
Ultimately, the US midterm results may influence certain external conditions facing Bangladesh, particularly its trade opportunities and the wider international economic environment. Their contribution to resolving the country’s most pressing economic challenges is likely to be limited.
The more consequential decisions will have to be taken at home. Progress in restoring macroeconomic stability, addressing financial sector weaknesses, strengthening fiscal capacity and preparing for LDC graduation will depend overwhelmingly on the government’s ability to prioritise and implement long-overdue reforms.
Political developments in Washington may create opportunities, but Bangladesh’s economic recovery and future competitiveness will be shaped primarily by the quality of its own economic policymaking.
The author is an economist who also serves as chairman of Research and Policy Integration for Development, a Dhaka-based think tank. He can be reached at [email protected] .