Muslim World Report

India Halts Trade with Bangladesh Amid Rising Nationalism and Tariffs

Dr. Anthony Lindsay | Apr 14, 2025 10:17 AM | 9 min read | 1713 words

TL;DR: India has unilaterally halted cargo trans-shipment operations with Bangladesh amidst rising nationalism and economic pressures. This trade blockade threatens regional cooperation, disrupts supply chains, and may push Bangladesh to strengthen ties with China, complicating the geopolitical landscape in South Asia.

The Situation

On April 8, 2023, India executed a significant and unilateral decision to halt cargo trans-shipment operations with Bangladesh. This move starkly highlights rising tensions fueled by nationalist sentiments and competitive dynamics in the region. The Indian government framed this action as a necessary response to Bangladesh’s growing ties with China, illustrating a broader paranoia within Indian leadership regarding Beijing’s increasing influence, particularly in Northeast India (Sahoo, 2013; Pravakar, 2013).

This trade blockade marks a troubling shift towards a more aggressive and protectionist foreign policy that prioritizes national interests over regional cooperation. Such a stance runs counter to the established frameworks of intra-regional collaboration that have previously defined South Asian economic relations (Islam, 2018; Datta, 2002).

Economic Pressures

This disruption unfolds against the backdrop of external economic pressures, notably:

  • The staggering 36% tariffs imposed by the Trump administration, devastating Bangladesh’s export potential (Gul & Yasin, 2011).
  • These tariffs restrict Bangladeshi access to U.S. markets, placing substantial strain on the nation’s economic recovery during a critical period.

The implications of India’s blockade threaten to disrupt established supply chains and force a recalibration of trade routes, imposing severe hardships on sectors dependent on Indian logistics. As Bangladesh navigates this precarious economic landscape, it risks alienating itself from its historically intertwined neighbor and jeopardizing decades of cultivated bilateral relationships.

The Indian decision reflects a resurgent wave of nationalism characterized by an increasingly triumphalist narrative surrounding domestic industry (Kumar, 2019). However, such narratives obscure the ramifications of isolationism and competitive posturing, which ultimately threaten constructive dialogue and mutual benefit.

By obstructing Bangladesh’s access to vital transit points, India endangers not only its neighbor’s economic health but also the foundational fabric of cooperation that can drive collective growth in the region (Rather & Gupta, 2014). As India pursues dominance through unilateral actions, one must ponder: at what cost does this come to the collaborative efforts essential for stability and prosperity in South Asia?

The Economic Landscape

To understand the implications of India’s blockade, it is essential to delve deeper into the economic landscape of South Asia. Bangladesh, with a burgeoning garment manufacturing sector, relies heavily on export markets for its economic survival. The strained relationships with major trading partners can lead to dire consequences for its economic health.

Consequences of the Blockade

The consequences of India’s trade blockade include:

  • Immediate economic damages.
  • Disruption of established supply chains leading to long-term ripple effects.
  • Jeopardizing current trade frameworks and future investments.

The potential for Bangladesh to pivot to alternative markets is significant but fraught with challenges, given its historical dependency on Indian logistics and markets.

What If Bangladesh Turns to Alternative Partnerships?

Should Bangladesh pivot to diversify its economic partnerships in light of India’s blockade, it may increasingly look to solidify ties with:

  • China
  • Other Southeast Asian nations.

Such a strategic shift could lead to new trade agreements that bypass Indian logistics, fostering:

  • Direct shipments to global markets.
  • Enhanced connectivity with the China-Myanmar Economic Corridor (CMEC).

This corridor represents an opportunity for Bangladesh to enhance trade routes and draw in much-needed investment and infrastructure development.

However, this pivot carries risks. While it might strengthen trade routes, it could deepen economic dependency on China—an outcome that India would likely view as a direct threat. This perception could trigger further militarization along the Indian border or increase naval presence in critical waterways like the Bay of Bengal (Sahoo, 2013; Kumar, 2019).

The Chinese Factor

China’s growing influence in South Asia is undeniable. Through initiatives like the Belt and Road Initiative (BRI), China seeks to establish itself as a dominant economic player in the region. Bangladesh’s increasing economic ties with China might seem like a logical alternative given the current geopolitical climate, but it is crucial to analyze what this relationship entails.

Opportunities and Pitfalls

The prospect of Chinese investment can:

  • Revitalize Bangladesh’s infrastructure.
  • Enhance global connectivity and trade efficiencies.

Yet, dependence on Chinese capital may lead to vulnerabilities, particularly in areas such as debt sustainability. As Bangladesh navigates these new partnerships, it must ensure its sovereignty and economic autonomy are not compromised.

India’s Domestic Dynamics

The unilateral suspension of cargo trans-shipment could provoke significant backlash from domestic stakeholders in India, particularly businesses that rely on trade with Bangladesh. Possible repercussions include:

  • Economic losses for import-export companies.
  • Rising operational costs due to cargo delays.
  • Public sentiment shifting against the government’s hardline stance.

This discontent could manifest in various forms, from protests to electoral challenges, prompting industries to rally for a return to a more liberal trade regime (Bardhan, 2002).

Potential Consequences

Widespread economic dissatisfaction could compel the ruling party to:

  • Reconsider its approach.
  • Diplomatic reassessment of foreign policy, prioritizing dialogue over isolation (Rathbun, 2007).

Conversely, if backlash fails to materialize and nationalist sentiments persist, India may entrench its position further, prolonging hostilities and economic strife—ultimately undermining both regional stability and economic interconnectedness (Rather & Gupta, 2014).

The Political Landscape in India

The political landscape in India is crucial to understanding how the blockade might evolve. The ruling party’s focus on nationalism often overshadows pragmatic economic considerations. If the backlash against trade restrictions intensifies, it could lead to:

  • A shift in political calculus.
  • Pressure on politicians to adapt foreign policy strategies ahead of elections.

If businesses and local constituencies demand a return to a more trade-friendly approach, the government might reconsider its hardline stance, potentially opening doors for renewed diplomatic dialogues with Bangladesh that focus on restoring trade relations and fostering cooperation.

Regional Dynamics

The trade halt and its associated diplomatic fallout could catalyze a broader shift in regional dynamics within the South Asian Association for Regional Cooperation (SAARC). Should Bangladesh respond by forging alliances with:

  • Pakistan
  • Sri Lanka

It may cultivate a coalition that actively challenges India’s historical dominance in the region (Sahoo, 2013). This coalition could pursue joint initiatives to counteract India’s influence in critical sectors such as agriculture, textiles, and technology.

The Creation of a Coalition

Imagining a strengthened coalition between Bangladesh, Pakistan, and Sri Lanka presents a complex but potentially transformative scenario for South Asia. Such a coalition could signify a move away from historical animosities towards collaborative economic initiatives.

However, the success of such a coalition hinges on navigating historical animosities, particularly those between Bangladesh and Pakistan (Rather & Gupta, 2014). The memories of past conflicts are significant barriers that complicate efforts for collaboration. Any attempt to form a united front requires painstaking diplomatic groundwork, wherein mutual benefits and economic imperatives could overshadow historical grievances.

India’s response to such a coalition would likely be one of heightened concern and proactive measures to maintain its regional dominance. If this coalition solidifies and successfully initiates actions that challenge Indian hegemony, India may respond with aggressive postures to protect its interests—potentially leading to escalating tensions and conflict, which threaten regional stability and lasting economic development.

Strategic Maneuvers

In light of the evolving geopolitical landscape, key players—India, Bangladesh, and China—must consider strategic maneuvers that align with both national interests and regional stability.

India’s Diplomatic Recalibration

For India, recalibrating its foreign policy is crucial. Instead of confronting Bangladesh, India should engage diplomatically to:

  • Reaffirm trade agreements.
  • Offer economic incentives through joint ventures in sectors like renewable energy and technology (Bardhan, 2002; Agarwal, 1997).

Strengthening economic ties could alleviate fears of Chinese encroachment while counterbalancing Bangladesh’s potential pivot towards Beijing. Additionally, leveraging India’s soft power through cultural diplomacy can help bridge the current divide and contribute to a broader narrative of cooperation across South Asia.

Bangladesh’s Diversification Strategy

For Bangladesh, diversifying economic partnerships while nurturing existing ones is vital. Strengthening ties with regional players, including Vietnam and Indonesia, can mitigate the economic impacts of India’s blockade (Sahoo, 2013). Engaging with international organizations such as the World Trade Organization (WTO) can also provide support against unilateral trade measures imposed by larger economies.

Moreover, enhancing infrastructure and logistics capabilities to reduce dependency on India for trade is essential. The development of ports and transportation networks could be pivotal in establishing direct trade routes to international markets, thereby diminishing the impact of any future trade restrictions from India.

China’s Strategic Opportunity

For China, the unfolding situation presents a strategic opportunity to enhance investments in Bangladeshi infrastructure and establish robust trade routes. By reinforcing its presence in South Asia, China could provide Bangladesh with the support needed to withstand Indian pressures, fostering a multipolar environment where no single nation can dictate regional dynamics (Chung, 2017).

Additionally, directing investments towards key sectors in Bangladesh—such as technology, telecommunications, and renewable energy—would solidify China’s role as a strategic partner. This growing relationship could also provide Bangladesh with leverage in its dealings with India, ensuring that its economic interests are better protected.

Ultimately, introspection from all parties is warranted. The challenge lies in transcending extreme nationalism and recognizing the value of collaboration. Sustainable economic growth and regional stability in South Asia depend on interconnectedness and dialogue, offering a pathway towards a balanced and cooperative future.

References

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  • Chung, C.-P. (2017). What are the strategic and economic implications for South Asia of China’s Maritime Silk Road initiative?. The Pacific Review, 30(2), 145-157.
  • Datta, S. (2002). Indo‐Bangladesh relations: An overview of limitations and constraints. Strategic Analysis, 26(2), 201-218.
  • Gul, N., & Yasin, H. M. (2011). The Trade Potential of Pakistan: An Application of the Gravity Model. The Lahore Journal of Economics, 16(1), 51-70.
  • Islam, A. M. (2018). Inter- and Intra-industry Trade Relations between Bangladesh and India: Empirical Results. FIIB Business Review, 7(4), 248-257.
  • Kumar, R. (2019). India & South Asia: Geopolitics, regional trade and economic growth spillovers. Journal of International Trade & Economic Development, 28(3), 397-421.
  • Pravakar, S. (2013). The Growing Dominance of China in South Asia: An Indian Perspective. The International Trade Journal, 27(3), 245-271.
  • Rather, Z. A., & Gupta, D. (2014). India-Bangladesh Bilateral Trade: Problems and Prospects. International Affairs and Global Strategy, 23, 21-29.
  • Sahoo, P. (2013). Economic Relations with Bangladesh: China’s Ascent and India’s Decline. South Asia Research, 33(1), 85-103.
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