Ready for sweeping US tariffs?
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Indian Prime Minister Narendra Modi, Chinese President Xi Jinping and US President Donald Trump – are the three main global figures that Sri Lanka has to deal with. But ask any person on the street nowadays who – among these three leaders – they are familiar with and pat would be the answer – Modi, given India’s influence in this country and also Modi’s April 4-6 visit.Modi’s visit was also part of the discussion of the trio on Thursday, a day before he arrived in the country. “Indianu agamathi lankawata awata passey apita prathilaba hamba weida (Will we get some benefit from the visit of the Indian Prime Minister)?” asked Kussi Amma Sera. “Covid saha wenath prashna apita thiyena kota, indiawa lankawata godak udaw kara (During the COVID-19 pandemic and other problems, India helped Sri Lanka a lot),” noted Serapina. “Mama indiawata kaemethi. Indiawa lankawey yaluwek nae (I like India. India is a friend of Sri Lanka),” added Mabel Rasthiyadu.
While Modi was due to sign several agreements of support to Sri Lanka, today’s discussion is about the man who is upsetting the world order – Trump. The rumbustious US leader is triggering a new social, political and economic dimension with a US-first policy. The worrying impact of this change is whether Sri Lanka would be subject to crippling import taxes and duties in the US, which – if it happens – would adversely impact Sri Lanka exports, mainly apparel, to the US.
According to US media reports on Wednesday, 180 countries would be subject to new tariff rates and this is likely to include Sri Lanka, According to an official listing of reciprocal tariffs, Sri Lanka imposes a total of 88 per cent import duty on US goods while the US imposes just half of that – 44 per cent – on Sri Lankan goods. If the US choses to increase taxes on
Sri Lankan goods, this would have a significant bearing on
Sri Lankan apparel exports, make them costlier for US consumers and affect most of the workers in the Sri Lankan garment industry who are from the village.
The US is Sri Lanka’s biggest trading partner. Exports last year totalled US$2.9 billion against $2.75 billion in 2023. The next closest export market was the UK with $903 million worth of exports in 2024. Exports to the US were even higher than to the EU (excluding the UK). Sri Lanka’s main export products to the US were apparel, rubber finished products and coconut kernel products among others.
As I examined these issues while munching on a ‘maalu paan’ in between sips of tea, the home phone rang. It was Ruwanputha, my young economist friend who – you read it right – wanted to discuss Trump’s impact on Sri Lanka and the world. From Russia to China, from the UK to Canada, Trump is upsetting the global dynamics with brash statements and threats to impose crippling tariffs on imports. His theory is about protecting local industries from foreign competition, but what about the new cost of vehicle parts and other supplies to feed local industries? Those would cost more for locals. Also many US companies which have plants overseas would have to pay higher tariffs for supply to the US.
“He is upsetting the world order,” said Ruwanputha. “The US policy is to protect jobs at local companies but higher tariffs mean prices would rise for consumers buying imported goods like garments. In a way, Sri Lanka follows a similar practice, high tariffs on imported goods to protect local farmers and domestic producers,” I said. “All kinds of tags have been given to the policies of the brash US leader like TrumpMania and Trumponomics. At the speed of things, you don’t know what to expect next in US policy,” he said.
“One of the biggest problems is the new policy direction pertaining to immigration and student visas. Sri Lankan students need to be cautious in not taking part in anti-Israel protests. Already two foreign students, who took part in anti-Israel protests and threatened with detention, have left the US, while hundreds of international students in the US have got warning emails from the US Department of State,” I said.
“Trump is shrewd. He is imposing sanctions on foreign students saying: ‘We gave you a visa to study in the US and get a degree, not to become a social activist.’ Most countries follow similar visa restrictions. In Sri Lanka, a British tourist had a problem because she took part in the ‘Aragalaya’ protests,” he said.
Hundreds of tourists are cancelling trips to the US, worried over possible rejection at the border or detention, after several tourists – particularly from Canada (with whom Trump is having a major battle after having declared that he wants Canada to be part of the US) – were detained and subsequently deported. According to research firm Tourism Economics, inbound travel to the US is now projected to decline by 5.5 per cent this year, instead of growing by nearly 9 per cent, as previously forecast. A further escalation in tariff and trade wars could result in further reductions in international tourism, which could amount to an $18 billion annual reduction in tourist spending in 2025.
Recent reports of a Sri Lankan delegation heading to the US this month to discuss tariff concerns on Sri Lankan goods have been frowned on by sections of the garment industry as ‘premature’. “We were not consulted on what this delegation was going to do. We were totally unaware,” one garment business owner said, adding: “The government should have consulted the industry before deciding on such a mission.”
He said it was too early to assess the impact on potential new tariffs on Sri Lankan products and “we should wait under the radar to see how the US decision pans out instead of ‘jumping’ the gun.”
Central Bank Governor Dr. Nandalal Weerasinghe has also said it’s too early to assess the potential new tariffs on Sri Lankan exports to the US.
As Sri Lankans prepare to celebrate the Sinhala and Hindu New Year, let’s hope and pray Sri Lanka doesn’t get into a
‘tariffs’ battle with the US and that there is limited impact from the new US policy. Otherwise, it would be a bleak Avurudu 2025 for Sri Lanka’s villages, highly dependent on jobs in garment factories.
(PS. Trump’s order came a few hours after this column was written).
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