The United States, under President Donald Trump, has announced a significant 44% tariff on Sri Lankan imports, as part of a broader trade policy initiative under his “Fair Trade Doctrine” This move aims to counterbalance trade imbalances with countries that impose high barriers on American exports.
With this decision, Sri Lanka now ranks among the countries facing the highest tariff rates globally, a development that could have substantial economic consequences for the island nation.
Key Tariff Details
- A baseline tariff of 10% applies to all imports into the U.S., with higher rates assigned to specific countries.
- Sri Lanka’s tariff rate has been raised to 44%, a significant jump from the previous 12.2%.
- The U.S. justifies this increase by claiming that Sri Lanka imposes an 88% trade barrier on American goods.
Economic Impact on Sri Lanka
The United States is Sri Lanka’s largest export market, accounting for 23-25% of total exports, with over 70% of these shipments being apparel-related.
1. Decline in Apparel Exports
- In 2024, Sri Lanka exported nearly $3 billion worth of goods to the U.S., primarily apparel products like t-shirts, outerwear, and undergarments.
- The sharp increase in tariffs could make Sri Lankan exports less competitive in the U.S. market, leading to a potential drop in orders and reduced export revenue.
2. Threat to Employment
- The apparel sector is Sri Lanka’s largest employment provider.
- Reduced demand from the U.S. may lead to job losses, further aggravating the country’s already fragile economic situation.
3. Increased Economic Strain
- Export earnings are vital for Sri Lanka’s foreign exchange reserves and overall economic stability.
- A decline in exports could worsen fiscal imbalances and intensify the country’s existing economic challenges.
4. Competitive Disadvantage
- The tariff increase adds nearly 50% to the cost of Sri Lankan goods entering the U.S.
- Competitors like Bangladesh (37% tariff) and Vietnam (46% tariff) may become more attractive to U.S. buyers, further weakening Sri Lanka’s position in global trade.
5. Potential Trade Disputes
- The move could provoke global retaliatory measures, complicating Sri Lanka’s export strategy.
- Diplomatic negotiations may be necessary to seek exemptions or mitigate the impact of the tariffs.
Global and Domestic Ramifications
Economic analysts warn that these tariffs could not only impact Sri Lanka but also drive up costs for American consumers. Additionally, retaliatory measures from affected countries could lead to broader trade conflicts.
For Sri Lanka, immediate policy action is crucial to protect its economy and workforce from the adverse effects of this tariff hike.