A Rift That Could Prove Costly
As global eyes remain fixed on the simmering US-China trade war, a smaller but significant disruption is quietly unfolding in South Asia — between India and Bangladesh. Once touted as a model for bilateral cooperation, ties between the two neighbours are showing signs of economic strain.
In April 2025, two developments indicated a chilling shift. First, India suspended the transshipment facility for Bangladesh’s export cargo, a vital route for its trade with Bhutan, Nepal, and Myanmar. In retaliation — or perhaps escalation — Bangladesh halted yarn imports from India via five key land ports: Benapole, Bhomra, Sonamasjid, Banglabandha, and Burimari.
This exchange of trade restrictions signals more than just a disagreement — it hints at a brewing economic standoff. But the question remains: Can Bangladesh afford this?
Strained Relations: The Political Undercurrent
The worsening trade ties are rooted not only in economic strategy but political changes. Diplomatic strains emerged after Prime Minister Sheikh Hasina’s exit from power last year, an event followed by reports of attacks on Hindus in Bangladesh, sparking strong condemnation from New Delhi.
Although PM Narendra Modi’s recent meeting with Chief Adviser Muhammad Yunus aimed to reset the tone, no tangible breakthrough emerged. Instead, both countries have made moves that further isolate trade engagement, raising concerns about regional economic stability.
Bangladesh Tilts Toward Pakistan: A Strategic Gamble?
Adding to the complexity is Bangladesh’s warming relationship with Pakistan. In April, Pakistan’s Foreign Secretary Amna Baloch visited Dhaka to attend Foreign Office Consultations. The visit marks growing intent between the two countries to boost bilateral trade, a shift underscored by the launch of direct shipping routes.
Pakistan eyes increased exports of cotton, sugar, rice, and wheat, and during FY 2023–24, it exported over $627 million worth of goods to Bangladesh, while imports from Dhaka stood at just $61.98 million.
According to Iqbal Hussain Khan, Bangladesh’s High Commissioner to Pakistan, Islamabad sees “significant potential” in increasing exports — especially if Pakistani products remain price-competitive.
This pivot, however, raises eyebrows. Can Pakistan fill the economic gap left by a potential fallout with India?
India-Bangladesh Trade: The Uneven Equation
To understand the stakes, consider this: India is one of Bangladesh’s largest trading partners, with total bilateral trade valued at $12.9 billion in FY24.
Bangladesh exports just $1.8 billion worth of goods to India — but imports are significantly higher, dominated by essential commodities such as:
- Cotton (crucial for the textile sector)
- Mineral fuels and oils
- Vehicles and machinery
- Food grains and sugar
- Electronic goods and steel
India exported over 5,620 commodities to Bangladesh last year alone. With such reliance, any trade disruption — especially over critical imports — would directly threaten Bangladesh’s manufacturing backbone, most notably its textile industry, which accounts for 11% of the country’s GDP and a significant portion of its employment.
Notably, 35% of India’s cotton exports go to Bangladesh, highlighting just how interlinked the two economies are in the textile value chain.
Economic Reality Check: Why Dhaka Can’t Afford This Fallout
Despite diplomatic ambitions to diversify its trade partnerships, Bangladesh’s economy isn’t insulated enough to withstand the aftershocks of a prolonged trade standoff with India. The textile industry alone could face severe supply disruptions, raising production costs, reducing competitiveness in global markets, and triggering job losses.
Moreover, India’s geographic proximity, established trade routes, and logistical efficiency offer Bangladesh a trade advantage that Pakistan or even China cannot easily replicate.
The transshipment facility — suspended by India — is not just important for Bangladesh’s economy but also for Nepal and Bhutan, whose trade flows through Bangladesh’s ports. Its termination could spark regional dissatisfaction, complicating Bangladesh’s diplomatic standing further.
The Path Forward — Diplomacy Over Disruption
While both nations have taken assertive steps, the long-term impact of a trade war would disproportionately affect Dhaka. Bangladesh’s heavy import dependence, particularly for industrial and agricultural inputs, means cutting off or reducing trade ties with India could destabilize its economy.
For Bangladesh, the prudent course is to de-escalate tensions through diplomatic channels, leveraging economic dialogue to resolve trade irritants. Reaffirming regional cooperation — especially via mechanisms like SAARC and BIMSTEC — can help insulate both countries from political spill overs.
Likewise, India must tread carefully. Though it holds economic leverage, stability in the subcontinent is best preserved through mutual benefit, not coercion. A return to cooperative trade and stronger institutional ties could restore confidence and pave the way for long-term regional prosperity.
(With inputs from agencies)
