By: Staff Writer
April 17, Colombo (LNW): In a move that has sent shockwaves through Sri Lanka’s export sector, the United States has significantly increased tariffs on imports from several countries, including Sri Lanka.
The sharp hike—reportedly up to 44% on key products—threatens the island’s crucial garment industry, a pillar of its economy and a lifeline for over 350,000 workers, an eminent economist disclosed.
The United States is Sri Lanka’s largest single export destination, accounting for $2.9 billion in goods in 2024—nearly a quarter of the nation’s total exports. Of that, apparel made up $1.7 billion, underscoring the sector’s strategic importance
The imbalance in bilateral trade—Sri Lanka enjoys a $2.5 billion surplus—has prompted criticism from the US administration, which has labelled the trade relationship as one-sided
Currently, US tariffs on Sri Lankan goods stand at 11–12.5%, while Sri Lanka imposes a steep 88% average tariff on US imports.
This discrepancy has fueled tensions, with Washington citing the imbalance as a rationale for its recent tax policy shifts, which appear aimed at countries with which the US runs deficits. an economist and a former member of the Sri Lanka Council for Agricultural Research Policy and former director of the Merchant Bank of Sri Lanka and Finance PLC, Chitral Jayawarna said.
Industry on the Brink
The impact on Sri Lanka’s apparel industry has been immediate. The US market alone accounts for nearly 38% of all Sri Lankan apparel exports. Industry leaders warn that the sharp increase in tariffs is already triggering order cancellations and threatens to force production cuts. If unaddressed, this could result in widespread job losses and social disruption.
Several major manufacturers have begun shifting operations to more cost-effective countries like Bangladesh, raising fears of a long-term exodus. With little meaningful government intervention thus far, stakeholders are calling for urgent measures to safeguard the sector.
Calls for Action
Industry experts have proposed a series of emergency responses, including initiating diplomatic negotiations with the US to reconsider tariff rates, offering financial relief packages to exporters, exploring new trade deals to diversify markets, and investing in technology and innovation to boost competitiveness.
Critics argue that the Sri Lankan government and its diplomatic missions failed to act preemptively despite early warnings about the impending US policy shift. Some have called the official response weak and ill-prepared.
A Trade Policy Reckoning
At the heart of the dispute lies the principle of reciprocity. Former US President Donald Trump’s administration championed the idea of taxing countries in proportion to what the US perceives as unfair trade practices. Under this approach, nations like Vietnam, China, India, and even Sri Lanka have seen higher proposed tariff rates based on their trade surpluses with the US.
In response, Sri Lanka could consider lowering its own tariffs on American goods from 88% to 40% as a goodwill gesture to reset trade relations. In return, Colombo may seek a reduction in US tariffs on Sri Lankan exports to no more than 10%.
Global Implications
These protectionist policies are not just bilateral concerns—they carry global consequences. As production costs rise and trade flows slow, developing nations like Sri Lanka face increased vulnerability. Inflation, unemployment, and reduced investor confidence are just a few of the potential ripple effects.
Amidst these challenges, Sri Lanka’s tax system also comes under scrutiny. The existing structure is complex, inconsistent, and lacks transparency. Reforming it with a simplified and fairer framework could strengthen investor confidence and economic resilience.
Ultimately, while the US tariffs are an external shock, Sri Lanka’s response must be proactive, strategic, and inclusive—protecting both its economy and its people from deeper crisis.
