A controversial new trade framework with the United States has thrust Bangladesh into the sharpening geopolitical contest between Washington and China, forcing Prime Minister Tarique Rahman to navigate one of the most delicate foreign policy balancing acts in the country’s history.
The agreement, negotiated under the interim administration led by Nobel laureate Muhammad Yunus, offers Bangladesh improved access to the American market but includes conditions that analysts say could limit Dhaka’s freedom to deepen ties with Beijing. Although the deal’s legal standing has been thrown into uncertainty following a ruling by the Supreme Court of the United States against sweeping tariff measures introduced by President Donald Trump, its provisions reveal the extent to which trade policy has become a tool of strategic competition.
Under the framework, tariff reductions granted to Bangladeshi exports could be reversed if Dhaka enters into new economic agreements with countries Washington designates as “nonmarket economies”, a category that includes China and Russia. The arrangement also encourages Bangladesh to align with US export controls, sanctions regimes and regulatory positions on sensitive technologies, while promoting deeper defence procurement ties with American suppliers.
For Bangladesh, the stakes are unusually high. The United States remains its single largest export destination, particularly for garments that underpin the country’s manufacturing-driven growth. At the same time, China is Bangladesh’s biggest trading partner and a dominant investor in infrastructure, financing projects ranging from ports and bridges to industrial parks. This dual dependency has created what economists describe as a structural dilemma rather than a temporary diplomatic challenge.
Faiz Sobhan of the Bangladesh Enterprise Institute has warned that Bangladesh’s economic recovery remains fragile and heavily exposed to the competing expectations of both powers. The country must manage Chinese-backed industrial integration while preserving American market access and security cooperation, a combination that increasingly resembles a zero-sum equation in a polarised global environment.
Recent economic data underscores this tension. American foreign direct investment stock in Bangladesh has fallen sharply in recent years, reflecting investor caution and regulatory complexities, while Chinese investment has expanded steadily alongside large-scale infrastructure financing. Beijing has also extended extensive duty-free access to Bangladeshi exports, strengthening its economic appeal at a time when Dhaka is preparing to graduate from least developed country status, a transition expected to reshape its trade privileges and development financing.
Security considerations add another layer of complexity. China remains a major supplier of military hardware to Bangladesh, offering equipment at competitive prices, while the United States continues to provide training, joint exercises and broader strategic engagement. The expectation within the trade framework that Dhaka may expand purchases of US defence equipment has therefore been interpreted by some analysts as an effort to rebalance those long-standing procurement patterns.
The geopolitical sensitivity of Bangladesh’s position is magnified by geography. Situated near the narrow Siliguri Corridor that connects mainland India to its northeastern states, Bangladesh occupies terrain of considerable strategic value in the Indo-Pacific landscape. This has drawn attention not only from Washington and Beijing but also from regional stakeholders linked through the Quadrilateral Security Dialogue, where concerns about influence, connectivity and security architecture intersect.
Former US diplomat Jon F. Danilowicz has argued that Washington’s objectives are not solely about countering China but also about addressing trade imbalances and expanding bilateral commerce. Even so, he acknowledged that the United States would prefer to remain Bangladesh’s primary strategic partner and seeks to prevent any decisive tilt toward Beijing while gradually deepening economic engagement.
China, for its part, has maintained active outreach across Bangladesh’s political spectrum, including engagement with parties that rose to prominence after the political upheaval that ended the long tenure of former prime minister Sheikh Hasina in 2024. Beijing’s approach has focused on continuity, emphasising infrastructure development, industrial supply chains and investment rather than overt political alignment.
This economic embeddedness gives China a durable advantage. Bangladeshi factories rely heavily on Chinese machinery, intermediate goods and raw materials, particularly in the garment sector that drives export revenue. Analysts note that this supply chain dependence makes any abrupt decoupling unrealistic, regardless of external pressure.
At the same time, Bangladesh faces mounting domestic and international pressures, including the responsibility of hosting more than a million Rohingya refugees and managing reforms tied to its impending graduation from least developed country status. These challenges require sustained foreign investment and stable trade relationships, leaving policymakers wary of antagonising either superpower.
Officials within Rahman’s administration have emphasised diversification as the only viable long-term solution. Expanding export destinations beyond the United States and strengthening new manufacturing sectors could gradually reduce vulnerability to geopolitical shocks. Yet such transformation will take years, and Bangladesh must make immediate decisions in a far less forgiving strategic climate.
The country’s foreign policy tradition has long rested on a principle of maintaining friendship with all while aligning with none. That doctrine allowed earlier governments to benefit simultaneously from Western markets and Eastern investment. Today, however, intensifying US–China rivalry is narrowing the diplomatic space available to middle powers, making equidistance harder to sustain.
Rahman’s government has signalled ambitions to raise foreign direct investment significantly as a share of gross domestic product, coupling that goal with governance reforms and debt management after years of heavy borrowing for megaprojects. Whether these reforms attract diversified investment or deepen reliance on one side will shape Bangladesh’s strategic trajectory for decades.
For now, the suspended trade deal serves as both opportunity and warning. It offers the promise of continued access to the world’s largest consumer market while illustrating how economic agreements are increasingly entwined with geopolitical expectations. As global competition spills into tariffs, supply chains and development finance, Bangladesh’s challenge is no longer simply economic management but strategic navigation.
The coming years will test whether Dhaka can preserve autonomy while engaging both giants, or whether mounting pressures will force choices it has long sought to avoid. In an era defined by great-power rivalry, Bangladesh’s experience may foreshadow the dilemmas facing many mid-sized nations striving to grow without becoming arenas of contest.
