The United States’ latest tariff hike has pushed its effective tariff rate to 17.3% — the highest since 1935 — making high trade barriers the new normal. While a 20% tariff rate offers Sri Lanka marginal relief compared to previous reciprocal rates, the overall impact remains severe, with the US maintaining high duties on key Sri Lankan exports.
According to estimates, nearly a quarter of Sri Lanka’s total exports will now face at least a 20-percentage-point tariff increase. This will raise the country’s trade-weighted effective tariff rate to 29.9%, up from just 10.2% in April 2025. Sri Lanka’s top US-bound products — wearing apparel and rubber goods — will be hit hardest, facing average tariffs of 36.8% and 20.2% respectively.
Economic modelling shows the fallout could be steep. Under the 20% tariff scenario, apparel exports to the US are projected to fall by 12.1% — or USD 221 million — compared to 2024 forecasts. The rubber sector could fare worse, with exports plunging by 42%. Across all industries, the estimated export loss amounts to USD 634 million.
The impact will ripple through labour markets, disproportionately affecting unskilled workers in apparel manufacturing, most of whom are women. Model-based projections indicate the sector could shed about 15,900 jobs.
Some exporters initially viewed the 20% tariff more favourably after comparing rates faced by competitors like Vietnam and Bangladesh. However, economists warn that higher consumer prices in the US may depress overall demand, as happened during the US-China tariff war in 2018, when most costs were borne by American consumers and importers.
While a portion of lost US market share could be redirected to Europe and the UK — slightly boosting apparel and rubber exports there — this would not fully offset the damage. The situation underscores the need for fresh trade negotiations.
Analysts say that if Sri Lanka could secure a 15% reciprocal tariff rate, the net loss to GDP could be erased, with a small 0.038% economic expansion possible, driven by apparel gains and reduced rubber sector losses. Such a deal could involve removing para-tariffs like CESS and PAL for US imports.
The removal of para-tariffs, however, carries mixed consequences. Imports of US soybean residuals — a key animal feed ingredient — could rise by 39.8%, potentially benefiting livestock and household nutrition. But cheaper meat and dairy imports from the US, projected to surge by over 60%, could erode domestic production and value addition.
Economic simulations suggest that para-tariff removal would only yield a net positive effect if the US reciprocal tariff rate is reduced to 10–15%. Without such concessions, Sri Lanka risks absorbing the economic shock without adequate compensation from trade gains.
