“Consumers are going to pay more, importers don’t know what to charge, factories will not know what to do. This is one extraordinary mess. It’s going to take months and years to sort out and, in the end, there is no guarantee that it will be successful. It’s a vast experiment of unknown proportions with unknown consequences” – Richard Quest

In terms of numbers, the new US tariffs imposed on its global trading partners are nothing short of brutal. These new tariffs that are due to come into effect as early as next Wednesday (9) will not only forever alter global trade but also bilateral relations and alliances, with the so-called father of the free world literally abandoning the concept it created and nurtured all these years.

While shaky national economies like Sri Lanka will bear the brunt of the impact, trillions of dollars have already gone up in smoke in global capital and financial markets. But, despite the carnage, Donald Trump is confident that America is on to something good. So good that he has not hesitated to squander all the goodwill the country has gained over the years through its trade policy with this one decision. All indications thus far are that Trump is not ready to budge on what he has set in motion. And that is where the danger lies because it signifies little room to convince his administration to roll back something it appears to believe in so profoundly, going so far as to term its roll-out ‘Liberation Day.’

While the world attempts to take stock of Trump’s gambit, it should not be considered as a bolt from the blue. To be fair by the man, Trump has consistently maintained, even during campaigning for the presidency, that drastic tariff revisions will be the order of the day once he moves into the Oval Office. Implementation of the promise has taken a little less than three months – lightning speed, compared to what we Sri Lankans are used to. And it is this speed, as well as the quantum levied on each country on the planet, that has caused shock and awe.

Ever since the end of World War I over a century ago, America has set the pace in industrialisation, innovation, and global trade. Consequently, over the years, world trade has grown organically around America’s manufacturing and trading might. Leveraging this clout, America has grown accustomed to weaponising its trading capacity in order to get what it wants. But now, all that is changing with one stroke of the pen. Trump has turned America’s decades-old foreign and economic policy on its head, leaving the rest of the world scrambling to come to terms with the fallout. 

The US changing the terms of engagement so quickly and drastically has left its trading partners with just two options: reciprocate and ignite a bilateral trade war or negotiate and hope for the best. While the big and powerful like China, Canada, Mexico, and the EU will fight it out tooth and nail, those less powerful have been left with no option but to head to the negotiating table. However, given that the date of implementation is just three days away, the writing appears to be already on the wall.

As far as Sri Lanka is concerned, negotiations should ideally have commenced months ago, when Trump moved into the Oval Office. After all, having made known his plans well in advance, it was only a question of when and not how or why. Sri Lanka’s dependence on the US export market should have been enough motivation to get that ball rolling. Instead, the regime chose to busy itself with a monkey census and creating a circus over the Batalanda Commission of Inquiry report, in which it had shown no interest for the past quarter-century. 

Now, with Trump announcing the tariffs and Sri Lanka having the dubious distinction of being dished out the sixth highest tariff among all nations of 44%, all of a sudden reality seems to have hit home. Out of Sri Lanka’s total annual exports of $ 12 billion, one-fourth of it or $ 3 billion goes to the United States. It is the nation’s single biggest export market, with apparel accounting for 70% of that $ 3 billion, with rubber, tea, gems, etc. making up the rest. 

Once the punitive tariffs are applied next week, Sri Lankan exports run the risk of being uncompetitive, leading to the surrender of market share, especially in a scenario where our regional neighbours have been applied significantly lower tariffs. The Minister of Industry was quoted as stating that he was shocked by the decision but surprisingly no one in the Opposition appeared to share his sentiments, having already predicted such a scenario for at least the past couple of months.

However, the National People’s Power can be forgiven for not expecting Trump to actually walk the talk, because in this part of the world nothing that is promised pre-election is ever fulfilled. In fact, the party is fast becoming living proof of that contention. What is quite intriguing is that even the usually more watchful business chambers, including the Ceylon Chamber of Commerce, appear to have failed to read the signals, although post-event it issued a statement conveying its ‘deep concern’ over the tariffs.

It is to the credit of the current Opposition, and more so its Leader, that he raised the specific matter of imminent tariff revisions in early February in Parliament. Sajith Premadasa should know a thing or two about Uncle Sam, having apprenticed for some time under the Clinton administration. But as is to be expected, his call for urgent measures not only fell on deaf ears, but was also ridiculed for his foresight. Going by the Industry Minister’s reaction, it is clear that no one in Government had taken the matter seriously or, to put it another way, comprehended the enormity of the problem and its implications.

Last Friday, the Deputy Minister of Finance publicly acknowledged that the Government was in fact aware of the impending tariffs but was taken by surprise by the scale of the increase. It will be recalled that a similar pronouncement was made during the ‘Yahapalana’ administration in the aftermath of the Easter Sunday terror attacks. The then Defence Secretary was quoted as saying that the authorities knew about the impending attack but didn’t think it would be on such a massive scale. The rest is history. Thus, it appears that history keeps repeating due to indifferent governments at different junctures.

Underscoring the point, Deputy Minister of Economic Development Anil Jayantha Fernando was further quoted as stating that the Government had prior knowledge of the situation but awaited the official US policy decision before taking action. He has gone on to state that if talks with the US did not bear fruit, alternative options such as seeking benefits through the EU’s GSP+ tariff system could be explored. The thing is, someone needs to inform the Deputy Minister that this too is currently under review, with no assurance of an extension, meaning that the Government not only needs a backup plan B, but a plan C as well.

Meanwhile on Friday, the US Federal Reserve Chief, of all people, expressed concern that the new tariff regime would result in two near-term outcomes for America: higher inflation and slower growth. Given America’s global footprint, it is inevitable that slower growth will have an immediate impact on global growth forecasts. In fact, the International Monetary Fund has already warned that the new tariffs are a significant risk to the global economy. 

While change is part and parcel of a constantly evolving world and progressive nations gladly embrace change, the question everyone seems to be asking is why Trump decided to opt for radical change that has thrown global trade way off its axis. The sheer scale of it all is something the world last saw back in 1909, according to Fitch Ratings. 

As far as Sri Lanka is concerned, its Government must now waste no time in urgently attempting to convince the Trump administration to be more benevolent towards Sri Lanka or, alternatively, find other markets to keep the factories open and ensure continued employment for nearly a million Sri Lankans who directly depend on exports to the US. At least now, Sri Lanka must look to aggressively widen its horizons by entering into Preferential Trade Agreements with other nations and markets that could absorb the manufacturing capacity reserved for the US.

The Opposition Leader seems to have summed things up well in an X message: “Those who in the past blocked every trade deal, distrusted globalisation, and saw investment as an intrusion must end that legacy: Sri Lanka needs a strategic reset.” Indeed, that is what people voted for and continue to hope for.