By Ashok Nilakantan Ayers
NEW YORK: Within the span of seventy-two hours in early February 2026, the United States signed two agreements that, taken together, may do more to reshape South Asian trade dynamics than anything since the formation of SAFTA. Even though following Supreme Court verdict nullifying Trump’s powers to hike tariff, the basics of the two trade deals remain.
On February 6, Washington and New Delhi announced a framework for a US-India Interim Agreement on reciprocal trade, slashing American tariffs on Indian goods from a punitive 50 percent to 18 percent. Three days later, on February 9, the US concluded its Agreement on Reciprocal Trade with Bangladesh, fixing tariffs on Bangladeshi imports at 19 percent — with a pathway to zero for garments made from US-origin cotton and man-made fibres.
The proximity of these announcements was not coincidental. Together, they reveal the strategic architecture Washington is constructing in South Asia. But they also create a lattice of overlapping interests, competitive pressures, and potential fault lines that will define the region’s economic trajectory for years.
The Bangladesh deal is framed on fragility. For Bangladesh, the agreement could not have come at a more critical time. The country’s readymade garment sector, which accounts for over 80 percent of export earnings and employs approximately 4.4 million workers — predominantly women — had been staring into the abyss of a 37 percent reciprocal tariff imposed under President Trump’s Executive Order 14257 in April 2025.
After nine months of what the Ministry of Commerce described as “intensive structured discussions,” Dhaka secured a rate of 19 percent: still elevated, but survivable, and in fact lower by one percentage point than what India ultimately obtained at 18 percent. When the penalty tariff imposed on India for purchasing Russian oil is factored into the timeline, Bangladesh effectively operated with a tariff advantage for much of 2025.
The headline numbers matter. Bangladesh exported roughly $7.34 billion in apparel to the United States in fiscal 2024-25, capturing approximately 9 percent of the US market — making it the third-largest supplier after China and Vietnam. In the first quarter of 2025 alone, Bangladeshi garment exports to the US rose 26.64 percent year-on-year to $2.22 billion, the fastest growth rate among all major suppliers. That momentum is what Bangladesh is now seeking to institutionalise through the trade pact.
The deal’s most consequential provision is the zero-tariff mechanism for garments made using US-produced cotton and man-made fibres. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) immediately hailed this as a structural opportunity, even while cautioning that traceability and valuation of US-origin inputs would be critical to unlocking the benefit. The volume eligible for zero tariffs will be determined based on the quantum of US textile inputs exported to Bangladesh — a clever design that ensures Washington’s cotton and fibre exporters benefit directly from any preference Bangladesh claims.
Beyond garments, the agreement’s breadth is significant. Bangladesh committed to phased tariff cuts on 7,132 US tariff lines, preferential access for American agricultural goods including soy products, dairy, beef, poultry, and tree nuts, a $3.5 billion commitment to purchase US agricultural products, and a $15 billion energy procurement pledge over 15 years.
It agreed to purchase approximately 14 Boeing aircraft, committed to stronger export controls, and signed up for a duty evasion cooperation agreement that directly addresses Washington’s concern about third-country goods — read: Chinese goods — entering the US through Bangladesh. In exchange, Bangladesh secured zero-duty access for approximately 2,500 product categories in the US market.
Uniquely, Bangladesh also negotiated a withdrawal clause — an exit mechanism absent from comparable agreements with Malaysia, Cambodia, El Salvador, Guatemala, and Argentina — indicating that Dhaka’s negotiators extracted more political headroom than regional peers.
This is a reflection of Bangladesh’s leverage: its garment sector is structurally embedded in American retail supply chains. Brands like Walmart, H&M, Zara, and Primark have decades of sourcing relationships and compliance infrastructure in Bangladesh that cannot simply be relocated.
Trump’s deal with India is long term but woven into innumerable uncertainties. The US-India framework, announced just days before the Bangladesh agreement, is in many ways the more consequential document geopolitically — but also the more uncertain one commercially. India and the US share bilateral goods trade of $129.2 billion annually, dwarfing the roughly $11 billion US-Bangladesh total.
India’s commitment to purchase $500 billion worth of US products over five years — spanning energy, aircraft, precious metals, technology, and coking coal — signals the depth of economic integration Washington is seeking.
India’s tariff reduction on Indian goods, from a high of 50 percent (after the Russian oil penalty was layered onto the base reciprocal tariff) to 18 percent, represents a substantial commercial reprieve. But the deal remains, as analysts at Clark Hill noted, a framework for “managed access” rather than free trade.
Critical details — the scope of agricultural liberalisation, rules of origin for textiles and pharmaceuticals, digital trade rules, and the treatment of non-tariff barriers — remain unresolved pending the finalisation of the Interim Agreement (expected by March 2026) and the broader Bilateral Trade Agreement, which negotiators are targeting for late 2026 or 2027.
India has made significant concessions — agreeing to eliminate or reduce tariffs on all US industrial goods and a wide range of agricultural products including dried distillers grains, sorghum, soybean oil, tree nuts, and fruit. Dairy and rice remain ring-fenced for now, reflecting domestic political sensitivities.
But the full-fledged BTA will push into precisely these protected zones, where Indian farmer lobbies wield considerable influence. That negotiation will be harder and longer than the current framework suggests.
Garment exports to the US by both countries serve as the flash point and inflection point. That 1% difference between tariffs India (18%) and Bangladesh (19%) will be an irritant for Bangladesh but it can take comfort , albeit temporarily in the fact that the US has imposed an additional penalty on Russian oil buys, which restores its competitive edge.
On paper, the tariff differential between Indian and Bangladeshi garments entering the US is now just one percentage point — 18 percent versus 19 percent. But in an industry where operating margins hover between two and five percent, and where large US retailers arbitrage even fractional price differences across suppliers, that spread matters.
More importantly, the zero-tariff mechanism for Bangladesh-made garments using US cotton introduces a non-linear competitive dynamic that cannot be captured in simple percentage comparisons.
Consider the architecture: if Bangladesh sources US cotton and meets the rules-of-origin threshold, it can ship garments to the US entirely duty-free on specified volumes.
India, at 18 percent, has no comparable pathway — at least not yet. Indian textile industry associations were quick to read the implications. The Confederation of Indian Textile Industry (CITI) described the challenge as two-fold: a narrowed tariff differential from two percent to one percent, and the potential erosion of India’s yarn exports to Bangladesh, which had been one of the sector’s growth pillars.
The numbers underlying this concern are significant. Bangladesh exports approximately $44 billion in garments annually, of which roughly 80 percent — or about $35 billion — are cotton garments. That implies annual yarn and fabric demand of $17-18 billion.
Bangladesh’s domestic spinning and fabric capacity can meet only $3-4 billion of that, leaving a structural sourcing gap. For the US-facing portion of production, Bangladesh’s mills will need to pivot to US cotton — but cannot do so entirely, given supply constraints and existing European and UK market relationships. Analysts at the Indian Texpreneurs Federation estimate that at best 20-25 percent of Bangladesh’s yarn and fabric demand can be met internally; the remainder will need to come from India and Vietnam, if rules of origin permit.
Paradoxically, this means Indian yarn and fabric exporters could actually benefit from Bangladesh’s garment boom, even as finished Indian garments face stiffer competition.
India’s competitive position is not without its own strengths. A US International Trade Commission report in late 2024 highlighted India’s growing appeal as a premium sourcing destination, citing political stability, vertical integration in cotton garments, and a reputation for high-value, high-skill production.
With one-third of India’s apparel exports heading to the US, and the country ranked as the fourth-largest apparel supplier to America, India has built sourcing relationships that are stickier than raw tariff arithmetic suggests. In the first half of 2025, India’s garment exports to the US rose 24 percent year-on-year to $4.07 billion — ahead of Bangladesh’s $2.79 billion in the same period, though Bangladesh has been narrowing the gap rapidly. The Indian industry’s response is already evolving: voices within CITI and ITF are calling for India to push for a parallel zero-tariff mechanism for garments made with US cotton — a logical demand given that India is itself one of the world’s largest cotton producers and spinners.
The simultaneous conclusion of these two agreements creates both conflict and collaboration between Dhaka and Delhi — and between each of them and Washington. So , where do the trade deals intersect , its conflict and collaboration at the same time.
The clearest zone of conflict is garment export competition for US market share. Both countries are fighting for a share of the roughly $20 billion per quarter in US apparel imports. Bangladesh’s zero-tariff mechanism, even if capped on volume, tilts the playing field for mass-market cotton categories.
India, which has historically positioned itself in higher value-added garments, is relatively more insulated — but not immune. Basic knitwear and large-volume woven categories, where Indian and Bangladeshi factories compete directly, are most exposed to order diversion.
Agricultural trade presents a second layer of complexity. Both Bangladesh and India have committed to expanding soybean oil imports from the US. India imports 14-15 million metric tons of edible oil annually, over 60 percent of domestic consumption, and soy oil is a significant component. If US soy enters Bangladesh more competitively, gets processed locally into oil, and meets SAFTA rules-of-origin thresholds for value addition, it could in theory flow into India under preferential tariffs — a concern already prompting Indian trade economists to call for tighter port-level scrutiny.
This is not transshipment in a legal sense; it is the normal functioning of trade rules. But it illustrates how Washington’s bilateral deals, stitched together in quick succession, can create unintended regional ripple effects.
The strategic layer, however, is where genuine complementarity exists. Both deals contain explicit economic security language — cooperation on export controls, information sharing on inbound investment, and commitments to address “non-market policies of third parties,” a diplomatic formulation that unmistakably references China.
Bangladesh has agreed to limit military equipment purchases from certain countries and strengthen export control enforcement for goods controlled by the US Bureau of Industry and Security. India has deepened its cooperation on supply chain resilience and outbound investment reviews.
Washington is, in effect, weaving both countries into a regional security-trade architecture designed to reduce dependence on Chinese supply chains — a goal that India, Bangladesh, and the US all share, even if their specific interests diverge on garments and agriculture.
Cotton is the pivot around which much of this architecture turns. US cotton is of high quality but premium priced. Bangladesh’s factories, historically dependent on cheaper South Asian cotton, will need to restructure their upstream supply chains to access the zero-tariff benefit.
That restructuring will take time, investment, and supply chain diplomacy. In the interim, the competitive geometry in US garment imports will shift gradually rather than abruptly — giving India time to lobby Washington for a comparable preferential mechanism and to deepen its own supply chain integration with American textile producers.
The US-India BTA, when finalised, will be the larger structural event. It will determine whether India’s pharmaceutical sector — the world’s largest supplier of US generics — gets the zero-tariff access the interim deal promises, whether Indian dairy and agricultural producers face the full force of American competition in their home market, and whether India’s digital services sector can negotiate meaningful access to the US digital economy. Against that backdrop, the Bangladesh deal is smaller in absolute scale but sharper in its immediate competitive implications for Indian exporters.
For Bangladesh, the agreement’s biggest gain is stability — a legally binding tariff structure that allows factories to plan, invest, and book orders with multi-year visibility. In an industry built on thin margins and tight timelines, that predictability is worth more than the specific tariff rate. The zero-tariff mechanism for US-cotton garments is the icing: potentially transformative if volumes are generous, but valuable primarily as an incentive to deepen supply chain integration with American agriculture.
Washington, for its part, has secured two things simultaneously: expanded agricultural market access in a fast-growing South Asian market, and a deepening of its strategic footprint in a region where China’s economic influence has been expanding for a decade. The two deals, read together, are less about bilateral trade balances and more about constructing a durable American commercial and security presence across South Asia’s most dynamic economies.
The South Asia trade triangle — Washington, Delhi, Dhaka — is being redrawn. The lines are not yet fixed, and the BTA negotiations with India will be the next major test of whether strategic alignment can survive the friction of agricultural market access and dairy protectionism. But the direction is clear: the United States is embedding itself into South Asian supply chains in ways that will be difficult to reverse, regardless of who sits in the White House. (IPA Service)
