Free Trade in Retreat: Can Bangladesh Compete?

For decades, developing countries were encouraged to open their markets, lower tariffs and embrace global competition. Free trade was presented as a pathway to prosperity. Today, many countries that championed these principles are protecting their industries through tariffs, subsidies and strategic restrictions. For Bangladesh, whose economic success depends heavily on access to foreign markets, this reversal raises an uncomfortable question: can an export-dependent economy prosper when global trade is increasingly governed by national interests?
The contradiction has historical roots. Following the Second World War, Western economies promoted trade liberalisation through General Agreement on Tariffs and Trade (GATT), followed by World Trade Organization (WTO) in 1995. World Bank and International Monetary Fund reinforced market-oriented reforms across developing economies. Yet advanced economies often retained agricultural subsidies and industrial protections while advocating open markets elsewhere. Bangladesh benefited substantially from this system. Preferential access to European markets, competitive labour costs and international investment helped transform its garment industry into a major global exporter. Millions of workers, predominantly women, entered manufacturing employment, contributing to poverty reduction and economic mobility.
Now, the international trading system is changing. The United States increasingly uses tariffs and industrial policy to advance economic security and geopolitical interests. Protectionist measures introduced during Donald Trump’s first presidency largely continued under Joe Biden, alongside industrial subsidies through the CHIPS and Science Act and Inflation Reduction Act. Trump’s return intensified tariff-based policies, while competition with China accelerated restrictions on strategic technologies. Europe is prioritising industrial resilience, environmental standards and clean technology. China continues supporting strategic industries through state-directed investment. Although these policies differ, they collectively signal a shift towards nationally managed economic competition.
Yet globalisation is far from over. The WTO's October 2026 outlook projects merchandise trade growth of 3.9 per cent in 2026 and 4.1 per cent in 2027. Artificial intelligence-related products accounted for 47 per cent of global merchandise trade growth during the first half of 2026. International commerce continues expanding, but emerging opportunities increasingly favour economies with advanced technology, productive industries and reliable supply chains.
For Bangladesh, this transition exposes serious structural weaknesses. According to Export Promotion Bureau, merchandise exports reached approximately $48 billion in FY2025-26, with ready-made garments contributing $38.7 billion, or 80.6 per cent. Such concentration leaves Bangladesh vulnerable to changing tariffs, consumer demand and sourcing decisions in major markets. The garment industry’s success is undeniable, but dependence on a single sector has become an economic vulnerability. Bangladesh now has additional time to address these weaknesses. On 29 October 2026, the United Nations General Assembly approved a three-year extension of its Least Developed Country (LDC) graduation, moving the deadline to 24 November 2029. This provides valuable breathing space, but postponement cannot substitute for reform.
The European Union’s ‘Everything But Arms’ arrangement currently provides Bangladesh duty-free access for most products. Under existing EU rules, LDC trade preferences continue for a three-year transition following graduation. Beyond that period, securing alternative arrangements, potentially through GSP+, will require sustained diplomacy and compliance with eligibility conditions. Meanwhile, the February 2026 US-Bangladesh reciprocal trade agreement provides for a 19 per cent reciprocal tariff on most Bangladeshi products, with specified exceptions. Such developments illustrate how market access increasingly depends on bilateral negotiation and regulatory commitments.
So, a credible response must begin with strategic trade diplomacy. Bangladesh should prioritise future EU market access, maintain constructive economic relations with the United States and China, and expand commercial partnerships with India, ASEAN and other Asian economies. Regional integration can diversify markets, improve access to intermediate goods and connect domestic industries with international production networks.
There is also an uncomfortable domestic contradiction. Bangladesh seeks greater access to foreign markets while maintaining tariffs and regulatory barriers that can make its own exporters less competitive. High duties on imported machinery and intermediate goods, where applicable, can discourage investment and diversification. Protection may temporarily support domestic industries, but excessive protection weakens incentives to innovate. Competitive exports require competitive production costs.
Equally important is industrial reform. Pharmaceuticals, leather goods, agro-processing, light engineering, electronics and digital services offer opportunities for diversification. Yet potential alone cannot generate exports. Reliable energy, efficient ports, predictable taxation, accessible finance and internationally recognised standards are essential. Industrial incentives should reward productivity, technological upgrading and measurable performance rather than perpetuate inefficient protection.
Vietnam offers useful lessons. Its manufacturing diversification benefited from trade agreements, infrastructure investment and integration into global supply chains. Bangladesh cannot simply replicate Vietnam’s development model, but it can improve investment facilitation, reduce regulatory uncertainty and strengthen links between domestic enterprises and international investors.
Human capital must also become central to trade competitiveness. Technical education, digital capabilities, managerial skills and labour productivity increasingly determine industrial success. Workers need opportunities to adapt to technological change, supported by appropriate training and labour protections. Without a more productive workforce, Bangladesh risks remaining trapped in low-value manufacturing.
Most importantly, the extended LDC transition must become a timetable for measurable reform. By 2029, Bangladesh should demonstrate progress in export diversification, trade logistics, investment conditions, institutional efficiency and workforce productivity. Otherwise, the country risks approaching graduation with the same structural weaknesses that justified the extension.
Bangladesh’s earlier export success rested partly on preferential market access and inexpensive labour. Its next phase must depend on productivity, innovation and economic diplomacy. Free trade may no longer operate as its advocates once promised, but retreating from global markets is no solution. The challenge is to build an economy capable of competing even when the rules become less favourable.
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The writer is an academician and development strategist, currently serving at a foreign diplomatic mission in Dhaka.

He can be reached at [email protected]