By: Staff Writer
November 17, Colombo (LNW): U.S. President Donald Trump’s protectionist trade policies have had a broad impact on Sri Lanka’s economy, affecting trade relations, investment, and geopolitical positioning.
Economic experts in Sri Lanka have highlighted the opportunities and challenges brought about by these shifts in global trade dynamics. While the policies opened some doors for diversifying trade partnerships, they also introduced uncertainties and risks for Sri Lanka.
Changes in Tariffs and Exports
Professor Priyanga Dunusinghe, a noted Sri Lankan economist, emphasized the potential impact of Trump’s trade policies on Sri Lanka. He pointed out that the new tariffs, proposed after Trump’s election, included a 60% increase on Chinese goods and a 20% hike on imports from other countries.
This could have a significant effect on Sri Lanka’s exports, particularly in the textile sector, a major component of its economy. If the 12.2% tariff on garments exported to the U.S. were to rise to 20% or more, the price competitiveness of Sri Lankan garments could be compromised, leading to a decline in sales.
In 2023, Sri Lanka’s exports to the U.S. were valued at $2.7 billion, accounting for 23% of the country’s total exports. Dunusinghe estimated that a tariff increase could lead to an 8-10% drop in foreign exchange earnings from the U.S. This, in turn, could create challenges for Sri Lanka’s trade balance and economic stability.
Broader Impact on Trade Relations and Investment
Trump’s decision to withdraw from the Trans-Pacific Partnership (TPP) in 2017 had a ripple effect on global trade, even though Sri Lanka was not a member.
The move altered the landscape of regional trade agreements, potentially impacting Sri Lanka’s strategy in the Asia-Pacific region.
Trump’s preference for bilateral over multilateral trade deals created opportunities for countries like Sri Lanka to negotiate directly with the U.S. but also added complexities to trade negotiations.
Trump’s protectionist stance also led to shifts in global supply chains. Some U.S. companies, wary of trade uncertainties, explored alternatives to China. This opened up opportunities for countries like Sri Lanka to attract foreign direct investment (FDI) if they could position themselves as stable manufacturing hubs.
Impact on Tourism, Debt, and Economic Vulnerability
Although tourism was not directly affected by Trump’s trade policies, his administration’s foreign policy changes and travel advisories had the potential to influence global travel patterns, indirectly affecting Sri Lanka’s tourism sector.
Additionally, Trump’s economic policies, including tax cuts and increased U.S. spending, led to higher global interest rates. For Sri Lanka, a country with significant foreign debt, higher interest rates increased borrowing costs, complicating economic stability.
Trump’s trade policies presented a mixed bag for Sri Lanka—offering some opportunities for increased investment and diversification but also posing significant risks due to economic instability and heightened trade tensions.
The long-term effects, including ongoing protectionist measures under subsequent U.S. administrations, suggest that Sri Lanka must continue to navigate a complex global trade landscape with caution, seeking to balance economic interests with shifting geopolitical alliances.
