India-Bangladesh Trade War: 5 Shocking Impacts Threatening Regional Stability and Economic Survival

India’s recent restrictions on Bangladeshi imports through key land ports—targeting garments, plastics, and furniture—mark a retaliatory strike after Dhaka blocked Indian yarn exports, crippling a critical supply chain for Bangladesh’s $38 billion apparel industry. The move disrupts decades of economic interdependence, particularly in India’s northeast, where 90% of Bangladesh’s $700 million garment exports traditionally entered. New Delhi’s push for self-reliance in the region clashes with Bangladesh’s tariff-free access under SAFTA, exacerbating a lopsided trade deficit.

Political shifts, including Sheikh Hasina’s ouster and rising minority safety concerns, have deepened distrust, with India ending transit privileges for Bangladeshi exports. While Bangladesh risks losing a major market, India’s northeast faces economic paralysis, hurting small businesses and workers. Diplomatic solutions remain elusive, threatening to unravel regional trade networks and push Dhaka closer to China. The stalemate underscores the fragile balance between protectionism and collaboration in South Asia’s geopolitically charged landscape. 

India-Bangladesh Trade War: 5 Shocking Impacts Threatening Regional Stability and Economic Survival

India’s recent decision to restrict Bangladeshi imports through key land ports marks a dramatic escalation in bilateral tensions. Effective immediately, ready-made garments (RMG), plastics, processed foods, and furniture from Bangladesh can no longer enter India via northeastern land ports. These goods must now route through major seaports like Kolkata and Nhava Sheva, complicating logistics and raising costs for exporters.  

This move retaliates against Bangladesh’s April 2025 blockade of Indian yarn exports via land ports—a critical raw material for Bangladesh’s $38 billion RMG industry. With yarn constituting 30% of India’s textile exports to Bangladesh, Dhaka’s restrictions disrupted supply chains, forcing Indian exporters to seek costlier alternatives like sea routes.  

Economic Pain Points  

Northeast India’s Vulnerability:  

• Over 90% of Bangladesh’s $700 million RMG exports to India traditionally flowed through Assam, Meghalaya, and Tripura. Local economies in these states, reliant on cross-border trade, now face steep losses.  

• Indian manufacturers in the northeast, already constrained by Bangladesh’s high transit fees and blocked rice exports, struggle to compete with duty-free Bangladeshi goods flooding their markets. 

Asymmetrical Trade Dynamics:  

• While Bangladesh enjoys tariff-free access to India under SAFTA, its non-tariff barriers (e.g., rigorous inspections, port delays) have long stifled Indian exports. India’s trade deficit with Bangladesh surged to $8 billion in 2023, fueling resentment.  

• New Delhi’s push for “Atmanirbhar Bharat” (self-reliance) in the northeast aims to redress this imbalance by prioritizing local industries over imports. 

Global Implications for Bangladesh:  

• As the world’s second-largest RMG exporter, Bangladesh risks losing a key market. India accounts for 12% of its RMG shipments, and rerouting through seaports could delay deliveries by weeks, harming buyer relationships. 

Political Unrest Fuels Diplomatic Frost 

The ouster of Sheikh Hasina’s India-friendly government in 2023 and the subsequent interim administration led by Muhammad Yunus have strained ties. New Delhi views Dhaka’s failure to protect Hindu minorities and its perceived alignment with China as strategic threats.  

• Trans-Shipment Termination: India’s withdrawal of transit privileges for Bangladeshi exports to third countries (via Indian ports) signals dwindling trust. This move cripples Bangladesh’s cost-effective logistics, potentially rerouting trade through China-backed initiatives.  

• Minority Safety Concerns: Attacks on Hindu communities in Bangladesh have drawn sharp criticism from India, further complicating diplomatic dialogue. 

What’s Next? Pathways to De-escalation  

• Diplomatic Negotiations: Both nations could revive joint working groups to address non-tariff barriers and yarn export disputes. Mediation by ASEAN or SAARC members might ease tensions.  

• Localizing Supply Chains: India’s northeast could invest in textile hubs to reduce reliance on Bangladeshi imports, aligning with self-reliance goals.  

• Regional Alliances: Bangladesh may seek stronger ties with China or ASEAN, risking India’s historical influence in South Asia. 

The Human Cost of Trade Wars 

While policymakers spar, small businesses and workers bear the brunt. Indian yarn factory closures and Bangladeshi RMG delivery delays threaten livelihoods on both sides. A prolonged stalemate risks fragmenting regional trade networks, pushing consumers toward costlier alternatives.