Sri Lanka’s trade landscape underwent a notable shift in 2025, with China emerging as the country’s largest trading partner, overtaking India for the first time in four years. According to the Central Bank of Sri Lanka’s Annual Economic Review, total trade with China reached approximately $5.5 billion, slightly exceeding India’s $5.4 billion. This development reverses a trend seen from 2021 through 2024, when India consistently held the top position. The United States retained its place as the third-largest trading partner, contributing $3.5 billion, with the three nations collectively accounting for just over 41% of Sri Lanka’s total merchandise trade.
The transition reflects a broader recovery in Sri Lanka’s external sector following years of economic turbulence. Both exports and imports showed improvement, but the most significant driver of change was a sharp acceleration in imports. In particular, the easing of import restrictions—introduced during the country’s external crisis played a decisive role in reshaping trade flows. Among the most influential factors was a surge in vehicle imports, especially electric and hybrid models, which significantly boosted overall trade values.
Trade patterns over the past several years reveal how policy decisions and economic conditions have influenced partner rankings. During 2022 and 2023, when import controls were at their strictest, trade volumes with both China and India declined. However, the contraction was more pronounced with China. This disparity can be explained by the composition of Chinese exports to Sri Lanka, which largely consist of machinery, construction materials, and other investment-related goods categories that were among the first to be restricted.
India, on the other hand, maintained more stable trade levels during this period. Its exports to Sri Lanka are heavily weighted toward essential goods such as fuel, pharmaceuticals, and intermediate products, which remained in demand despite tight controls. This resilience allowed India to retain its leading position until the relaxation of restrictions began to reshape import dynamics.
From 2024 onward, Sri Lanka’s trade recovery has been primarily import-driven. The resurgence of high-value imports, particularly vehicles sourced from China, accelerated the growth of bilateral trade between the two countries. China’s strong position in the electric and hybrid vehicle market further amplified this trend, enabling it to edge past India in total trade value.
Despite this milestone, the shift has also highlighted structural imbalances. Sri Lanka’s trade deficit with China widened significantly, reaching $4.9 billion in 2025, up from $4.1 billion the previous year. This increase was largely driven by rising imports of vehicles and construction materials, while exports to China remained comparatively low.
While India also saw a widening trade deficit with Sri Lanka partly due to increased vehicle imports the United States continued to stand out as a key export destination. Sri Lanka maintained a trade surplus of $2.5 billion with the US, primarily supported by strong apparel exports, underscoring the continued importance of diversified trade relationships.