Bangladesh’s Protectionist Policies Doing More Harm Than Good
For years, the detrimental impact of Bangladesh’s protectionist economic policies has been a topic of concern. The country’s high tariffs are restricting export potential and complicating trade negotiations. In the upcoming budget, decisive action is needed to reduce tariffs by at least 15-20% to address these issues.
Currently, the economy heavily relies on protectionist policies, primarily confining exports to the garment sector. Neighbouring countries boast significantly lower tariff rates, maintaining their competitiveness in global trade, whereas Bangladesh’s high tariffs continue to be a barrier. Alarmingly, tariff rates have surged by 40% in the last two years. This increase lacks justification and further diminishes the viability of exports.
One of the most damaging outcomes of these high tariffs is the corruption they breed. Faced with excessive duties, importers are often driven to evade payments rather than bear the full costs. The correlation is clear: higher tariffs foster a stronger inclination toward corruption. To combat tax evasion effectively, a logical step is to lower these duties.
Consider a straightforward scenario: An importer brings in goods worth Tk100, and tariffs inflate the price to Tk140. Naturally, there is an incentive to conceal or underreport the import to avoid incurring such steep costs.
This concept is not without precedent. In the 1990s, Bangladesh reduced tariffs from an average of 79% to 45% over five years without any loss in government revenue. If such a strategy was successful then, it stands to reason it could work now. While the current economic situation may not permit drastic cuts, some reduction is imperative.
The trade relationship with the United States further underscores the problem. The US calculates Bangladesh’s tax on their exports at 74%, contrasted with Bangladesh’s estimate of 64%, with the difference stemming from non-tariff barriers. Consequently, the US has imposed a 37% duty on Bangladeshi exports. In response, Bangladesh minimally taxes certain US imports, such as cotton, metal, and scrap materials at just 1.5%.
However, tariffs on other goods—especially cars and alcoholic beverages—are excessively high, with some vehicle imports attracting duties exceeding 500%.
While high tariffs on alcohol are intended to deter consumption, the extreme taxation on certain vehicles appears unjustifiably high. Such policies do not benefit the economy but rather restrict market access and stifle growth.
The reality is that Bangladesh lacks the market leverage to dictate trade terms to the US or other major economies. Smarter negotiation and strategic management of trade policies are essential to strengthening Bangladesh’s global economic position. Lowering tariffs is not solely about cost reduction—it is about empowering Bangladesh to become a more robust and competitive player in the global market.
