Sri Lanka slapped with 44 per cent Trump reciprocal tarrif; CSE apparel stocks down

US President Donald Trump has imposed a 44% tariff on Sri Lankan goods, calling it a reciprocal response to what he described as Sri Lanka’s 88% in taxes and trade barriers on U.S. exports.

The tariff decision comes as the United States remains Sri Lanka’s largest export market, accounting for 23% of its total merchandise exports. In 2024, total U.S.-Sri Lanka goods trade was valued at $3.4 billion, with U.S. imports from Sri Lanka rising 6.1% to $3.0 billion and exports increasing 4.9% to $368.2 million. The trade deficit between the two countries widened to $2.6 billion, up 6.3% from the previous year.

Sri Lanka’s top exports to the U.S. in 2023 included men’s and women’s undergarments, outerwear, rubber tyres and tubes, T-shirts, gloves, jerseys, motor vehicle parts, activewear, and baby garments.

The move has rattled global stock markets, as the Guardian reported that Japan’s Nikkei index, in Tokyo, dropped by 4%, while South Korea’s Kospi declined by 3%.

The selling trend extended to European markets as well, with the UK’s FTSE 100 slipping 0.9%, Germany’s DAX decreasing by 1.3%, and France’s CAC falling 1.6%.  

While Trump’s announcement came after U.S. markets had closed, CNBC reported that stock futures also plummeted. Futures tied to the S&P 500 fell 3.6%, while Nasdaq-100 futures plunged 4.5%. Major U.S. brands, including Apple, Nike, and Tesla, saw their shares drop by about 7%.

Goldman Sachs has increased its projected likelihood of a U.S. recession in the next 12 months to 35%, up from the previous estimate of 20%, cautioning that such a scenario would usually result in additional losses on Wall Street.

Following the announcement of the fresh tariff imposed, the Colombo Stock Market responded negatively with apparel stocks trading down from 8 to 11 per cent. 

Meawhile, posting on X, Opposition Leader Sajith Premadasa said that the 44% US tariff is not just a trade issue, but a wake-up call. "Those who are now in government in the past blocked every trade deal, distrusted globalization, and saw investment as intrusion. That legacy must end and they have to switch up their stance," said Mr Premadasa. 

The opposition leader also claimed that Sri Lanka needs a "strategic reset," and made the following suggestions: 
"Embrace partnerships over paranoia; Stop the hate-mongering for the sake of appeasing some local cartels; Build an Asia-centric trade strategy with India, ASEAN & Bangladesh: Shift from tariffs to production-led, investor-friendly growth." 

"And above all, we must stop the silent defiance of regional interests of other nations. Protecting mutual interests is the only way forward. Posturing is not strategy. Mature nations negotiate. It’s time we did too," he further added.