US Zero-Tariff Window for Bangladesh: Are India’s Textile Concerns Overstated?

Stocks of several Indian textile companies declined sharply on February 10 after the United States and Bangladesh announced the conclusion of a bilateral trade arrangement. Shares of Gokaldas Exports, KPR Mill, Arvind, and Pearl Global Industries fell by more than 5% during the intraday session, reversing earlier gains driven by positive sentiment around the India–US trade outlook.

The sell-off, triggered by concerns over the US–Bangladesh textile arrangement, appears rooted in fears that preferential treatment for Bangladeshi exports could erode the competitive advantage Indian exporters were expecting in the US market. However, the speed of the market reaction raises an important question are these concerns justified, or is this a case of overreaction amid limited clarity?

What the US–Bangladesh Deal Actually Says

Under the newly concluded arrangement, the US has agreed to reduce reciprocal tariffs on Bangladeshi goods to 19%, down from the higher duties outlined in Executive Order 14257 issued in April 2025. This remains marginally higher than the 18% tariff applicable to Indian textiles and apparel under the evolving India–US framework.

The most contentious provision, however, relates to textiles and apparel. According to the joint statement, Washington and Bangladesh have agreed to establish a mechanism allowing a specified volume of Bangladeshi textile exports to enter the US at zero mutual tariff. Crucially, eligibility for this benefit will depend on the use of US-origin inputs, such as cotton and man-made fibres.

Why Indian Textile Exporters Were Initially Bullish

Prior to this announcement, sentiment within India’s textile sector had turned strongly positive. The India–US trade framework was widely seen as a breakthrough, offering improved access to the $118 billion US textile and apparel import market.

The US already accounts for the largest share of India’s textile exports, valued at $10.5 billion, including 70% of apparel and 15% of made-up textile products. The reduction of tariff disadvantages—especially compared to competitors like Bangladesh (20%), China (30%), Pakistan (19%), and Vietnam (20%)—was expected to strengthen India’s position.

Industry optimism was evident on the ground. In Tiruppur, India’s largest knitwear export hub, business leaders projected a sharp rise in orders. According to PTI reports, Tiruppur Exporters Association President K. M. Subramanian noted that garment exports to the US could double to ₹30,000 crore over the next three years, potentially creating up to five lakh jobs.

Does the Bangladesh Zero-Tariff Clause Change the Equation?

While the zero-tariff provision for Bangladesh has introduced uncertainty, its actual impact remains unclear. The agreement does not specify product categories, export volumes, or implementation timelines. Moreover, the requirement to use US-origin inputs could raise production costs for Bangladeshi exporters.

Trade analysts point out that Bangladesh’s apparel sector is heavily dependent on imported raw materials, particularly from China. A shift towards US inputs could compress margins or reduce operational flexibility, potentially offsetting the benefits of tariff-free access. At the same time, ongoing India–US trade negotiations leave room for additional provisions that could favour Indian exporters.

India’s Strategic Cushion: Europe

Even as uncertainties persist in the US market, India’s position in Europe offers a strong counterbalance. The EU–India free trade agreement, announced on January 27, grants India immediate zero-duty access to the European Union’s $263 billion textile and apparel market.

This development has been described as “critical” by CareEdge Ratings, which estimates that India’s market share in the EU textile segment could rise from 5% to 9% over the medium term, potentially adding $4.5 billion in exports.

For Bangladesh, this represents a shift in competitive dynamics. While it has historically enjoyed duty-free access to the EU as a Least Developed Country, India’s entry with similar tariff advantages effectively narrows that edge.

Conclusion

While the US move to explore zero-tariff access for select Bangladeshi textile exports has unsettled Indian markets, the long-term implications remain far from certain. The lack of clarity on volumes, conditional input requirements, and the evolving nature of India–US trade negotiations all suggest that the perceived disadvantage may be overstated.

Coupled with India’s strengthening position in the European market and robust domestic demand, the broader outlook for the textile sector remains resilient. As March and April 2026 unfold with further clarity expected on trade frameworks and implementation details, the current market reaction appears more reflective of uncertainty than of any fundamental shift in India’s competitive standing in global textiles.