How India’s US Deal Tariff Advantage over Bangladesh Vanished Overnight
- Anjali Regmi
- 2 hours ago
- 4 min read
The world of international trade moves fast, but few sectors feel the whiplash quite like the textile industry. For a brief moment in early February 2026, Indian textile exporters were celebrating what looked like a historic victory. After months of high-pressure negotiations and crippling 50% tariffs, India secured a trade deal with the United States that slashed those duties down to 18%. It was a breakthrough that promised to put India back on top of the global apparel map, especially against its fiercest regional rival, Bangladesh.
But in the world of global diplomacy, "overnight" is a long time. Just days after India’s celebrations began, the news broke that the US had signed a separate, game-changing deal with Bangladesh. Suddenly, the competitive edge India thought it had secured didn't just shrink; it practically evaporated.
The Brief Moment of Indian Victory
To understand why this is such a big deal, we have to look at where things stood just a week ago. Under the previous trade climate, Indian textiles were facing massive hurdles. When the US announced it would lower reciprocal tariffs for India to 18%, the industry breathed a collective sigh of relief. This was lower than the 20% tariff Bangladesh was facing at the time.
For Indian exporters in hubs like Tirupur, Surat, and Panipat, this 2% gap was everything. In the garment business, profit margins are razor-thin. A 2% advantage can be the difference between winning a massive contract from a global retail giant or watching that business go elsewhere. The sentiment was clear: India was finally ready to outpace Bangladesh and reclaim its spot as the preferred alternative to China.
The Midnight Surprise from Dhaka
The celebration was cut short on February 9, 2026. While Indian officials were still finalizing the fine print of their own agreement, the US and Bangladesh announced a trade deal of their own. At first glance, the numbers didn't look too bad for India. The US lowered the general tariff for Bangladesh to 19%, which was still one percentage point higher than India’s 18%.
However, the "hidden" clause in the US-Bangladesh deal changed everything. The US agreed to a mechanism that allows certain Bangladeshi textiles and garments to enter the American market at zero tariff. This isn't just a small discount; it is a total exemption for products made using American-produced cotton and man-made fibers.
Why the Zero Tariff Clause Is a Game Changer
This specific "US materials" clause is what turned India’s advantage into a disadvantage overnight. By agreeing to use American cotton, Bangladesh secured a path to skip the 19% tax entirely. Meanwhile, Indian textiles remain locked at an 18% tariff across the board.
Think about it from the perspective of a buyer in New York. If you can source a shirt from Bangladesh with zero import duty because it’s made from US cotton, why would you pay an 18% premium to buy a similar shirt from India? Bangladesh already has lower labor costs than India. When you combine those lower wages with a 0% tariff compared to India’s 18%, the math becomes very simple and very painful for Indian manufacturers.
The Double Blow to Indian Cotton Farmers
The impact of this deal isn't just limited to the factories that sew the clothes. It travels all the way back to the farms. Historically, India has been a massive supplier of raw cotton and yarn to Bangladesh. In 2024, India exported nearly $1.5 billion worth of cotton yarn to its neighbor.
Because the new US deal requires Bangladesh to use American cotton to get the zero-tariff benefit, Bangladesh has a huge incentive to stop buying from India and start buying from the US. This creates a "double blow" for the Indian economy. Not only are Indian garment exporters losing their price edge in the US, but Indian cotton farmers and spinners are also losing one of their biggest customers.
The Reaction from the Industry
The shift was so sudden that it sent shockwaves through the Indian stock market. Shares of major textile companies like Gokaldas Exports and KPR Mill, which had surged on news of the India-US deal, took a sharp dive as investors realized the landscape had shifted.
Industry experts pointed out that while India’s deal was good, Bangladesh’s deal was more strategic. By opening their doors to US agricultural products and machinery, Bangladesh managed to negotiate a "carve-out" for their most important industry. Indian exporters are now calling for the government to revisit the negotiations to ensure a level playing field.
Looking Ahead to a New Trade War
Is all hope lost for India? Not necessarily. India still has a more diverse manufacturing base and is less dependent on just one or two types of fabric. There is also the question of capacity. Bangladesh is currently facing its own internal challenges, including energy shortages and labor unrest, which might prevent them from fully taking advantage of the zero-tariff quota immediately.
Furthermore, the Indian government has pointed out that their deal is a broad framework that could still be improved. There is a possibility that India could negotiate similar "value-addition" clauses that would lower the 18% rate for specific categories of goods.
The Bottom Line for the Consumer
For the average person shopping in the US, this trade tug-of-war is mostly invisible, but it ultimately dictates the "Made in..." label on the back of their clothes. As 2026 progresses, we are likely to see a surge in garments made in Bangladesh using American materials.
For India, the lesson is clear: in the modern trade environment, a general tariff cut is rarely enough. Success depends on the small, specific clauses that give one country a "zero" while the other is stuck with double digits. The advantage that seemed so solid for India was gone in less than 24 hours, proving once again that in global trade, nothing is final until the last ship leaves the dock.