The Cotton Conundrum, How the U.S.-Bangladesh Deal is Reshaping the Subcontinent’s Textile Trade
In the intricate web of global textile trade, few relationships are as symbiotic as that between India and Bangladesh. India, one of the world’s largest cotton producers, supplies millions of bales of raw cotton and yarn to its neighbour. Bangladesh, a garment manufacturing powerhouse, transforms that cotton into finished apparel and exports it to the world. It has been a mutually beneficial arrangement, built on geography, comparative advantage, and decades of commercial ties.
That arrangement is now facing its most significant challenge. On February 9, 2026, the United States and Bangladesh signed an Agreement on Reciprocal Trade that offers Bangladeshi garment exporters an unprecedented incentive: zero tariffs on exports to the U.S., provided they use American cotton or man-made fibre (MMF) inputs. The deal has sent shockwaves through the Indian textile industry, which sends nearly one-third of its $16 billion in annual garment exports to the American market and now fears being undercut by its neighbour.
As M. Soundariya Preetha’s detailed analysis reveals, the implications are complex and far-reaching. For India, the challenge is twofold: to protect its own exporters from being disadvantaged, and to manage the potential disruption to its lucrative cotton trade with Bangladesh. For Bangladesh, the opportunity comes with strings attached, requiring massive investments and a fundamental realignment of its supply chains. And for the United States, the deal is a classic example of using trade policy to open new markets for its domestic agricultural producers.
The Anatomy of the U.S.-Bangladesh Deal
The core of the agreement is simple but powerful. The U.S. has committed to establishing a mechanism that will allow certain textile and apparel goods from Bangladesh to enter the American market at a zero reciprocal tariff rate. This is a dramatic reduction from the 19% tariff that would otherwise apply (down from 20% previously).
However, the zero rate is not unconditional. The White House statement clarified that the volume of imports eligible for this preferential treatment will be determined based on the use of U.S.-produced cotton and MMF textile inputs. In other words, the more American cotton Bangladeshi manufacturers use, the more tariff-free access they will get to the U.S. market.
For Bangladesh, this is both a carrot and a stick. The carrot is the prospect of significantly increased market share in the world’s largest economy. The stick is the requirement to overhaul its supply chains, shifting away from traditional suppliers like India and Central Asia toward the United States.
The Current State of Play: India-Bangladesh Textile Ties
To understand the stakes, one must first appreciate the scale of the existing India-Bangladesh textile relationship. Bangladesh is the world’s second-largest garment exporter, shipping $50.9 billion worth of apparel globally in 2024. Of this, $7.4 billion went to the United States. The European Union, however, remains its largest market, accounting for over 63% of its exports, which enter duty-free.
Bangladesh’s garment industry is heavily dependent on imported textile inputs. It does not produce significant quantities of its own cotton. Instead, it relies on imports for the raw materials that feed its nearly 500 spinning mills. In 2024, Bangladesh imported $16.1 billion worth of textile inputs. Of this, $3.1 billion came from India.
India exported approximately 12 to 14 lakh bales of cotton to Bangladesh in 2024-25, out of Bangladesh’s total annual consumption of about 85 lakh bales. Crucially, India also shipped $1.47 billion worth of cotton yarn (570 million kg) to Bangladesh, making it the biggest destination for Indian yarn. As a report by the Global Trade Research Initiative (GTRI) notes, Bangladesh buys more yarn and fabric from India than basic raw fibre, reflecting the deep integration of the two countries’ supply chains.
The Threat to Indian Exporters
The immediate concern for India is twofold: the potential loss of its cotton and yarn market in Bangladesh, and the risk of being undercut in the U.S. garment market.
On the first front, the threat is real. Shafiqul Alam, Information Adviser to Bangladesh’s Chief Adviser Mohammed Yunus, was blunt in an interview with The Hindu. He stated that Bangladesh has traditionally imported cotton from India and Central Asia because it does not produce the cotton or yarns necessary for its textile sector. As a result of the U.S.-Bangladesh trade deal, he said, Bangladesh will replace Indian cotton with U.S.-produced cotton.
This would be a significant blow to Indian cotton farmers and exporters. If a substantial portion of the 12-14 lakh bales currently sold to Bangladesh is diverted to U.S. suppliers, Indian producers will need to find new markets or face falling prices.
On the second front, the U.S. market itself, the situation is more nuanced. The U.S. has agreed to lower its reciprocal tariff on Indian goods to 18%. Bangladesh, under its new deal, will face a 19% tariff, but with the possibility of zero for goods made with U.S. cotton. This means that unless Indian exporters can also access a zero-tariff route, they will be at a significant disadvantage against Bangladeshi competitors using American cotton.
India’s Response: Matching the Offer
Recognizing the threat, Union Commerce Minister Piyush Goyal has moved swiftly to reassure the Indian textile industry. He has stated that India will receive the same facility as Bangladesh. Under the forthcoming India-U.S. Interim Agreement, Indian garment and textile exporters will also benefit from zero tariffs on exports to the U.S., provided they use American cotton.
This levels the playing field, at least in principle. However, it raises a host of practical questions that remain unanswered.
First, will the Indian government waive the import duty on U.S. cotton? India currently levies an 11% import duty on cotton, with the exception of extra long staple (ELS) varieties like American PIMA cotton, which already enter duty-free. For the zero-tariff export mechanism to work effectively, Indian manufacturers need access to affordable U.S. cotton. If they have to pay an 11% duty to import it, the cost advantage of the zero export tariff could be eroded.
Second, how will the U.S. determine the quantity of American cotton used in a finished garment? Will it require complex certification and tracing mechanisms? Will there be a minimum percentage of U.S. content required? These details are crucial for manufacturers to plan their sourcing.
Third, what will happen to U.S. cotton prices? If both India and Bangladesh, two of the world’s largest garment exporters, begin competing for American cotton to gain tariff-free access, demand will surge. This could push up prices, potentially eroding the competitiveness of garments made from U.S. cotton compared to those made from cheaper alternatives.
The Realities on the Ground: Why Change Will Be Slow
Despite the dramatic headlines, many Indian textile exporters believe that the immediate impact of the U.S.-Bangladesh deal will be limited. There are several reasons for this caution.
First, Bangladesh’s garment industry is built to serve the European market, which has been its primary destination for years. EU buyers have specific preferences, quality standards, and supply chain requirements. Shifting a significant portion of production to serve the U.S. market, with its different demands, would require major adjustments.
Second, to qualify for zero U.S. tariffs, Bangladesh must invest heavily in new spinning and fabric-processing capacity that can handle U.S. cotton. Its current mills are optimized for Indian and Central Asian cotton. Retooling and reorienting the supply chain will take time and capital. As the Cotton Textiles Export Promotion Council notes, the Bangladeshi industry would need to change its product mix and realign its raw material supply chains. Its textile mills are already in a state of crisis, according to Indian yarn exporters, making such investments challenging.
Third, the price differential between U.S. cotton and cotton from other origins is not static. International cotton prices can vary by 2% to 8% depending on origin and destination. If U.S. cotton becomes significantly more expensive due to increased demand, the zero-tariff benefit may be partially or fully offset.
The Bigger Picture: Trade Policy as a Weapon
The U.S.-Bangladesh deal, and India’s response to it, illustrates a broader trend in global trade. The United States is increasingly using its market access as a tool to achieve multiple objectives: supporting its domestic agricultural sector (cotton farmers), countering Chinese influence in global supply chains, and rewarding countries that align with its strategic interests.
For India, the challenge is to navigate this new landscape without sacrificing its own interests. The assurance from Minister Goyal that India will receive the same zero-tariff facility is a critical first step. But the devil will be in the details of the India-U.S. Interim Agreement, expected to be signed in mid-March.
Indian exporters are hoping that the government will evolve a system that takes into account all the practical implications—duty waivers, certification mechanisms, and the need to remain competitive against other sourcing destinations. The goal is not just to match Bangladesh’s offer, but to create a framework that allows Indian manufacturers to thrive in the new, more complex trading environment.
Conclusion: A New Chapter in Subcontinental Trade
The U.S.-Bangladesh deal marks the beginning of a new chapter in the textile trade of the Indian subcontinent. The old model, in which India supplied raw materials and Bangladesh converted them into garments for Western markets, is being disrupted by the insertion of American cotton as a strategic input.
For India, this is both a threat and an opportunity. The threat is the potential loss of its cotton market in Bangladesh. The opportunity is the chance to deepen its own integration into the U.S. market by leveraging the same zero-tariff mechanism.
The coming months will reveal whether Indian policymakers can craft a response that protects the interests of cotton farmers, yarn spinners, and garment exporters alike. The answers to the many unanswered questions—on duties, certification, and price competitiveness—will determine whether the Indian textile industry emerges from this challenge stronger or weaker.
Q&A: Unpacking the U.S.-Bangladesh Textile Deal and Its Impact on India
Q1: What exactly does the U.S.-Bangladesh trade deal offer Bangladesh?
A: The deal offers Bangladeshi garment exporters the potential for zero tariffs on exports to the United States. Normally, Bangladeshi goods would face a 19% reciprocal tariff. Under the new mechanism, a specified volume of apparel and textile imports from Bangladesh will be eligible for this zero rate, provided that the garments are made using U.S.-produced cotton or man-made fibre (MMF) inputs. The more U.S. cotton Bangladesh uses, the more tariff-free access it gets. This is designed to incentivize Bangladesh to shift its raw material sourcing from traditional suppliers like India to the United States.
Q2: How does this deal threaten India’s existing trade with Bangladesh?
A: India is currently a major supplier of cotton and cotton yarn to Bangladesh. In 2024-25, India exported 12-14 lakh bales of cotton and $1.47 billion worth of cotton yarn to Bangladesh. The U.S. deal creates a strong incentive for Bangladeshi manufacturers to replace this Indian cotton with American cotton to qualify for zero U.S. tariffs. If this happens on a large scale, Indian cotton farmers and yarn exporters could lose a significant market, leading to falling prices and unsold stocks.
Q3: What assurance has the Indian government given to its own textile exporters?
A: Commerce Minister Piyush Goyal has assured Indian textile exporters that they will receive the same facility as Bangladesh. Under the forthcoming India-U.S. Interim Agreement, Indian garment exporters will also be eligible for zero tariffs on exports to the U.S., provided they use American cotton. This is intended to level the playing field and prevent Indian exporters from being undercut by their Bangladeshi competitors.
Q4: What are the practical challenges for Indian exporters in using this new facility?
A: Several practical challenges remain unresolved. First, India currently levies an 11% import duty on most cotton. To use U.S. cotton affordably, exporters need this duty to be waived. Second, there is no clarity on how the U.S. will verify the use of American cotton in finished garments—what certification or tracing mechanisms will be required. Third, if both India and Bangladesh start competing for U.S. cotton, prices could rise, potentially eroding the benefit of the zero tariff. These details need to be worked out in the India-U.S. agreement.
Q5: Will the U.S.-Bangladesh deal have an immediate, dramatic impact on the ground?
A: Most experts believe the impact will not be immediate. Bangladesh’s garment industry is heavily oriented toward the European market, which accounts for over 63% of its exports. Retooling supply chains to serve the U.S. market and investing in capacity to process American cotton will take time and capital. Additionally, the U.S. cotton price advantage is not guaranteed. So while the deal signals a significant long-term shift, the immediate disruption may be limited. The next few years will be a period of adjustment for all parties.
