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India and Bangladesh have been enacting reciprocal trade restrictions over the past month as political and economic tensions between the two Commonwealth members increase.
Both India and Bangladesh face exceedingly high tariffs from the US – 27% and 37%, respectively – which led some to hope the South Asian giants would band together and strengthen their trade ties. Instead, the relationship is souring, potentially disrupting trade and shipping routes in the entire region.
On 13 April, Bangladesh stopped all land imports of yarn from India, ostensibly to protect domestic producers from foreign competition. The restriction effectively acts as an expensive tariff for Indian imports, as all yarn must now travel via sea or air routes, which is far more costly and may lead to delays as sea routes become backed up due to the excess traffic.
After the restriction was announced, India withdrew transshipment facilities for Bangladesh on 8 April, citing “congestion”. Since 2020, Bangladesh had been transporting goods, especially clothing, to India by road and using Indian ports, stations, and airports to get them to their final destination in Europe or the US.
This made exporting much faster for Bangladeshi producers, cutting down transit times from eight weeks to one. Bangladeshi shipment hubs are not equipped to handle the massive volumes of exports that local producers send abroad; shipping routes are made more dangerous by piracy incidents, which have been on the rise since last year.
At the moment, the effects of the reciprocal restrictions seem to be limited: trade relations between the two countries “are still underway and form a significant part of our bilateral commerce,” said Sudhanshu Das, a regional minister in Tripura, an Indian region on the border with Bangladesh.
The relationship between India and Bangladesh, marred by a turbulent partition in 1947, has improved significantly over the past decade, with the resolution of long-standing border disputes and the establishment of treaties and credit lines. When Bangladeshi Prime Minister Sheikh Hasina was forced to resign after months of unrest, she took refuge in India; the new Bangladeshi government demanded her extradition, which the Indian government is refusing while accusing Bangladesh of “systematically persecuting” Hindu minorities.
India and Bangladesh are important trade partners. India is Bangladesh’s second-largest source of imports, responsible for 17% of all imports; most of Bangladesh’s exports go to the US and Europe, in large part because of the country’s second-largest clothing export industry. Bangladesh is India’s biggest trading partner in the subcontinent, but the trade balance is heavily in India’s favour, with a £6.93 billion trade surplus for the Asian giant.
The restrictions and likely disruption they will cause serve as a powerful example of the way internal politics and even relatively minor diplomatic spats can have a broad-ranging effect on global trade. This is also a sign that the weaponisation of trade is becoming normalised across the world, and that its tools have expanded beyond tariffs to affect trade routes, deep-tier supply chains, and long-standing trade agreements.
