February 2026 has marked a dramatic turning point in the global textile trade map. The recent conclusion of a landmark trade agreement between the United States and Bangladesh has created a new "chessboard," forcing major players—particularly India—to recalculate their strategic moves. Under this pact, the U.S. has granted zero-tariff access to Bangladeshi garment exports, provided they are manufactured using U.S.-sourced cotton or man-made fibers.
The announcement immediately triggered a measurable reaction in the Indian financial markets. Shares of several listed Indian textile firms experienced declines amid concerns that Bangladesh’s tariff-free access could erode India’s export volumes and profit margins. Although India has successfully negotiated its own tariff reduction with the U.S. to approximately 18%, the existence of a "zero-percent path" for Bangladesh in labor-intensive categories like T-shirts and casual wear creates a tangible price differential for American importers.
However, the Indian textile industry is far from conceding. A fundamental difference between the two nations serves as India's primary defense; while Bangladesh remains heavily centered on ready-made garments, India’s industry is highly diversified, spanning high-quality yarn, specialized fabrics, and technical textiles. Furthermore, India holds a vertical integration advantage—growing its own cotton and spinning its own yarn—meaning it does not need to rely on imported raw materials to remain competitive.
"The reality is that switching to U.S. cotton is not an instantaneous fix for Bangladesh. Currently, they source the vast majority of their raw materials from India and China," noted an industry expert regarding the market dynamics. They added that higher freight costs and longer lead times associated with shipping cotton from the U.S. could become a "cotton trap," potentially offsetting the benefits of the zero-tariff status.
On the other flank, India holds an ace in the European market. Almost simultaneously with the U.S.-Bangladesh deal, India signed a comprehensive Free Trade Agreement (FTA) with the European Union in February 2026, eliminating duties on nearly 99.5% of Indian exports. This puts massive counter-pressure on Bangladesh, especially as the country prepares to graduate from Least Developed Country (LDC) status, which will phase out many of its historical trade advantages.
This competition is no longer just about who can produce the cheapest shirt; it is about who is most agile in navigating trade diplomacy and complex supply chains. India is now actively debating a push for reciprocal benefits from the U.S. to neutralize Bangladesh’s price edge. Ultimately, whether this moment becomes a setback or a springboard for South Asian textiles will depend on how quickly manufacturers can adapt to these new, increasingly intricate rules of play.
