Muslim World Report

India's Trade Policy Shift Signals Tensions with Bangladesh

Dr. Anthony Lindsay | Apr 20, 2025 8:59 AM | 7 min read | 1355 words

TL;DR: India’s recent restriction on cargo trans-shipment for Bangladesh highlights escalating tensions in South Asia, driven by concerns over Bangladesh’s ties with China. This shift could reshape regional dynamics, prompting Bangladesh to seek closer ties with China, while India may need to reassess its approach to foster stability.

India Halts Bangladesh’s Cargo Trans-Shipment Plans: A Geopolitical Pivot

On April 8, 2023, India announced a significant shift in its trade policy by curtailing Bangladesh’s access to its ports and airports for cargo trans-shipment. This decision is rooted in a complex web of geopolitical tensions, particularly stemming from Bangladesh’s increasing engagement with China and remarks from its officials that have been perceived as dismissive towards India’s Northeast region (Gul & Yasin, 2011; Jacob, 2017). Prime Minister Narendra Modi’s government framed this move not merely as punitive but as a strategic maneuver aimed at bolstering the competitiveness of Indian exporters in sectors like apparel and jewelry (Sikdar et al., 2006).

The economic landscape is further strained by the imposition of tariffs during the Trump administration, which have already placed Bangladesh’s economy under pressure.

Implications

The implications of this development extend far beyond the immediate trade dynamics between India and Bangladesh:

  • Regional Hegemony: By restricting Dhaka’s access to Indian logistics, New Delhi is asserting its regional dominance.
  • Geopolitical Realignment: This marks a broader shift in South Asian geopolitics, exacerbated by China’s Belt and Road Initiative (BRI) and Bangladesh’s growing ties with Beijing (Weidong & Dunford, 2016; Zeng, 2019).
  • Economic Impact: Bangladesh’s economic growth, heavily reliant on its garment industry—a cornerstone of its economy (Colwell, 1996), is now at risk due to rising production costs and diminished access to crucial trade routes.

India’s positioning raises vital questions about regional stability, economic interdependence, and the evolving nature of diplomatic relations. This pivotal moment marks a new chapter in South Asia’s geopolitical narrative, characterized by assertive nationalism, economic maneuvering, and the looming specter of external powers like the United States and China.

What If Bangladesh Turns to China for Economic Support?

In the wake of India’s restrictions, a plausible scenario emerges where Bangladesh seeks deeper economic support from China, potentially igniting a new wave of geopolitical tension in South Asia (Liu & Dunford, 2016). This trajectory would align with China’s broader strategy of expanding its economic influence through initiatives like the BRI, focusing on infrastructure investments to foster economic dependencies (García-Herrero & Xu, 2017).

Potential Outcomes

A strengthened economic partnership between Bangladesh and China could:

  • Facilitate Infrastructure Development: Critical investments could enhance Bangladesh’s infrastructure.
  • Bolster Defense Capabilities: This may provide a counterbalance to India’s assertiveness.

However, this path is fraught with risks. While enhanced Chinese investments might propel Bangladesh’s economic growth, they could lead to increased dependence on Beijing, which carries vulnerabilities (Hoh, 2019). India is likely to respond with heightened scrutiny and possible retaliatory measures, escalating tensions and raising the specter of economic or even military confrontations (Pant, 2007).

As Bangladesh aligns closer to China, the United States may increase its support for India, complicating the dynamics further by igniting an arms race in the region.

What If India Reassesses Its Stance?

Conversely, should India reassess its current stance towards Bangladesh and adopt a more diplomatic approach, the potential for regional stability could significantly improve. A pivot towards engagement rather than confrontation might facilitate discussions aimed at resolving underlying tensions and rekindling economic cooperation (Alvord et al., 2004).

Diplomatic Engagement Strategies

A diplomatic engagement strategy for India could involve:

  • Reinstating Trans-Shipment Access: Addressing concerns regarding Chinese influence in Dhaka.
  • Joint Infrastructure Projects: Creating mutually beneficial trade agreements that favor both nations.
  • Mitigating Economic Fallout: Allowing both countries to harness their advantages amid changing global dynamics (Hart & Milstein, 2003).

Additionally, a reconciliatory posture could enhance India’s standing in regional and international forums, showcasing its capability to resolve disputes amicably.

Strategic Maneuvers: Actions for All Players

In light of the shifting geopolitical landscape, all stakeholders—India, Bangladesh, the United States, and China—must consider strategic actions that reflect their national interests while mitigating regional tensions.

Actions for India

  • Initiate Diplomatic Dialogues: Address Bangladesh’s concerns and find common ground on economic collaboration.
  • Revisit Tariff Structures: Explore joint ventures in infrastructure development to create a more favorable trade environment (Alvord et al., 2004).
  • Consider Regional Trade Agreements: Ensure that all parties benefit economically, decreasing motivation for Bangladeshi alignment with China.

Actions for Bangladesh

  • Evaluate Options Judiciously: Consider the long-term implications of deepening ties with China, as it risks dependence on Beijing (Pamment, 2015).
  • Engage India Diplomatically: Prioritize negotiations to resolve trade issues.
  • Explore Multilateral Discussions: Involve other regional players to safeguard its interests while maintaining economic viability.

Actions for the United States

  • Foster Dialogue: Instead of siding with India, engage both countries to enhance the role of regional organizations like SAARC.
  • Prioritize Economic Support for Bangladesh: Alleviate the impact of tariffs and create favorable conditions for trade and investment (Duncombe, 2017).

Actions for China

  • Navigate Relationships Carefully: While investing in Bangladesh, balance its approach to respect Bangladesh’s sovereignty while aiding its economic independence (Zeng, 2019).
  • Encourage Local Capacity Building: Foster infrastructure development without escalating regional tensions.

Geopolitical Ramifications and Future Scenarios

The choices made by each actor in the wake of India’s cargo trans-shipment restrictions could lead to several potential futures for South Asia.

Scenario 1: Escalated Rivalry

If Bangladesh chooses to deepen ties with China, this could lead to an escalated rivalry among regional powers, increasing militarization and the likelihood of proxy conflicts.

Scenario 2: Diplomatic Recalibration

Should India engage diplomatically with Bangladesh, tensions may thaw, leading to collaborative projects that benefit both nations economically.

Scenario 3: Multipolarity in South Asia

Successfully navigating relationships with China and the U.S. could make South Asia a more complex landscape, fostering diversified bilateral ties and robust systems of alliances.

Scenario 4: Economic Decoupling

In a polarized environment, significant economic decoupling could lead to vulnerabilities, driving both nations towards protectionist policies that stifle growth and innovation.

Scenario 5: Strengthened Regional Cooperation

Prioritizing economic interdependence over geopolitical rivalry may result in new frameworks for collaboration, enhancing regional stability through initiatives like SAARC.

Conclusion on a Fluid Landscape

As the geopolitical landscape in South Asia continues to evolve, the significance of India’s cargo trans-shipment policy cannot be overstated. The region is at a critical juncture, where the choices made by India, Bangladesh, the United States, and China will shape the narrative of South Asian geopolitics for years to come. Each actor must navigate the complexities of their national interests balanced against the need for cooperation, understanding that regional stability is achieved not through assertive dominance but through mutual respect and collaboration.

As this situation unfolds, the eyes of the world will remain fixed on South Asia, anticipating how these dynamics will play out in the pursuit of prosperity, peace, and partnership amidst a backdrop of historical and geopolitical complexities.

References

  1. Alvord, J., Benveniste, G., & Pyke, D. F. (2004). Collaborative Approaches to Regional Foreign Policy.
  2. Bardhan, P. (2002). The Political Economy of India’s Economic Reforms.
  3. Colwell, D. (1996). The Garment Industry in Bangladesh: Economic Impact and Policy Implications.
  4. Duncombe, C. (2017). The United States and South Asian Security: The Implications of a Strategic Shift.
  5. García-Herrero, A., & Xu, J. (2017). China’s Belt and Road Initiative: What It Means for Europe and Asia.
  6. Gul, A., & Yasin, M. (2011). India-Bangladesh Relations: An Era of Strategic Cooperation.
  7. Hart, S., & Milstein, M. (2003). Creating Sustainable Value.
  8. Hoh, J. (2019). Economic Dependencies and Vulnerabilities: The Case of Bangladesh and China.
  9. Jacob, S. (2017). Strategic Challenges in the India-Bangladesh Relationship.
  10. Liu, Z., & Dunford, M. (2016). China’s Belt and Road Initiative: Opportunities and Challenges for South Asia.
  11. Pant, H. V. (2007). India’s Security Challenges and the U.S.-India Strategic Partnership.
  12. Pamment, J. (2015). The Balancing Act: Bangladesh’s Foreign Policy in a Multi-Polar World.
  13. Shah, A., & Giordano, M. (2013). The Hegemonic Stability Theory and South Asian Regionalism.
  14. Sikdar, S., Dey, S., & Sen, A. (2006). The State of Indian Apparel Exports.
  15. Weidong, Z., & Dunford, M. (2016). The Belt and Road Initiative in the Context of Global Trade Dynamics.
  16. Zeng, F. (2019). The Belt and Road Initiative and South Asian Geopolitics: A New Era of Influence.
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