Sri Lanka once again finds itself in the thick of an evolving global trade recalibration after the United States (US) formalised a 30% tariff on Sri Lankan exports, a reduction from the originally flagged 44%, but still a considerable levy on the country’s outbound shipments to the US.
While local industry groups have described this as a constructive start, there is little indication the outcome will do much to fortify Sri Lanka’s competitiveness in an environment of rapidly changing global trade.
The new US tariffs stem from Washington’s push to apply ‘reciprocal’ duties aligned with the average barriers it faces in partner markets. For Sri Lanka, that baseline is high. US officials have estimated that Sri Lanka’s average applied tariffs on American goods reach close to 88%.
Sri Lanka exports roughly $ 3.15 billion annually to the US but imports just $ 370 million, yielding a sizeable trade surplus. This disparity has given the US justification, under its adjusted framework, to reset rates on Sri Lankan goods entering American ports.
Tempered reaction from SL’s biz community
The Ceylon Chamber of Commerce, the country’s oldest business association, characterised the revised rate as “a constructive and important first step by the Government towards bringing Sri Lanka’s tariff structure for exports to the US closer to that of regional competitors”.
Yet it addressed the need for sustained engagement, urging authorities to press for a further reduction before the August implementation. “Progress in achieving a further reduction will be critical to strengthening Sri Lanka’s position in this key market, maintaining buyer confidence, and supporting sustained trade growth over the long term,” the chamber said.
The statement also positioned the chamber as a ready partner in lobbying efforts.
A direct rationale from Washington
The US administration has framed the measures as a straightforward course correction.
US President Donald Trump, outlining the policy shift in his letter to President Anura Kumara Dissanayake, noted: “We have had years to discuss our trading relationship with Sri Lanka, and have concluded that we must move away from these very persistent trade deficits, engendered by Sri Lanka’s tariff and non-tariff policies and trade barriers. Our relationship has been, unfortunately, far from reciprocal.”
Starting in August, all Sri Lankan products shipped to the US will face this standard 30% duty, applied separately from any other sector-specific rates.
Industry concerns
Sri Lankan exporters have been left analysing how this reconfigured tariff regime will ripple through their cost structures and margins. National Chamber of Exporters (NCE) Secretary General/Chief Executive Officer (CEO) Shiham Marikar told The Sunday Morning that the impact was at different layers and levels, varying by product category and underlying supply chains.
Marikar also pointed to the likely need for strategic shifts by manufacturers. “We may have to explore alternative materials or blends to keep our costs aligned. I have already seen posts from suppliers evaluating these adjustments.”
Beyond apparel, he flagged a secondary potential impact. “Our coconut sector could benefit because Cambodia and other Asian suppliers might lose some of their pricing advantage under these same US recalibrations.”
Nevertheless, he acknowledged that the data was incomplete. “We initially tried to highlight our direct imports from the US, but there is a lot of indirect trade, with American companies based in other countries exporting to Sri Lanka. How comprehensively we have captured that is still uncertain,” he said.
With Sri Lanka emerging from an International Monetary Fund (IMF)-backed stabilisation phase, he framed the tariff discussion against macro concerns. “Given our IMF conditions, we’re just stepping out of a severe financial crisis. We should cite these issues and aim to bring this tariff down to 20%. That has to be the target for negotiators.”
Meanwhile, the Joint Apparel Association Forum Sri Lanka (JAAFSL) issued a statement on Thursday (10), noting that Vietnam had already wrapped up negotiations and secured a 20% rate, while Bangladesh, currently facing 35%, had started its own talks to lower that figure.
India remains in discussions, but early signals suggest it may receive a more favourable arrangement than Sri Lanka. Cambodia, with a tariff marginally higher than Sri Lanka’s, is also expected to negotiate for a reduction.
“If the 30% tariff stands, we risk seeing a migration of US buyers to lower-tariff countries,” the JAAFSL warned.
At the same time, the JAAFSL acknowledged the recent drop from 44% to 30% as a sign of productive engagement.
“This reduction recognises the good faith with which Sri Lanka has approached dialogue with the United States Trade Representative,” the group noted, adding that it was encouraged by the Government’s assurances that talks with Washington would continue urgently ahead of the August implementation.
Limited bargaining space
Meanwhile, University of Colombo (UOC) Department of Economics Professor Priyanga Dunusinghe told The Sunday Morning: “This isn’t a deal in any meaningful sense. A substantial outcome would have been moving from 44% to 20%. Dropping from 44% to 30% is cosmetic.”
He contrasted Sri Lanka’s trajectory with India’s evolving talks, noting: “Reports suggest India might secure a 10% tariff on labour-intensive goods like apparel, textiles, and leather. But these are still to be finalised. What’s clear is that Washington’s initial inclusion of countries like Bangladesh, Japan, South Korea, and Thailand under similar high-rate proposals was tactical, in order to pressure them back to the table.”
For Sri Lanka, Prof. Dunusinghe said, the practical consequences are immediate. “About 25-30% of our exports head to the US. These rates will inevitably weigh on demand. It also compounds our existing problems. Bangladesh has a more comfortable operating environment.
“Sri Lanka has just faced a 15% electricity price hike, which already undercuts our competitiveness. Put that on top of tariffs and we’re at a structural disadvantage.”
When questioned if Sri Lanka could push the number lower, he was cautious. “The letters from Washington are primarily to accelerate negotiations. I doubt these are final. From an administrative perspective, it’s complex for the US to maintain widely divergent rates by country and product.
“Once deals are signed with India, Canada, Mexico, China, and Japan, we may see a more uniform baseline. But Sri Lanka is ultimately a price taker; we don’t have the lobbying heft.”
A shifting global framework
Prof. Dunusinghe also placed these developments in a much larger context.
“This adjustment didn’t start with Trump. Even under President Joe Biden, the stance didn’t undergo a fundamental shift. The US sees parts of the global trading system as operating against its interests, and it’s moving away from World Trade Organization (WTO)-led multilateral structures towards bilateral or regional deals where it can dictate more of the terms.”
He echoed a point recently made by Singapore’s Prime Minister, that the old US-led trade architecture allowed smaller countries easier access to global markets. “That system is clearly evolving. It’s likely the European Union and other large economies will move in similar directions, increasing the premium on direct negotiations.”
Vietnam’s proactive approach
Vietnam offers a pointed contrast. Its Deputy Minister of Trade Phan Thi Thang said recently that the new tariffs served as an impetus for improving product quality and reducing dependency on the US by deepening ties through 16 existing free trade agreements.
Vietnam’s economy grew nearly 8% in the last quarter and officials there continue to position the country as a stable Foreign Direct Investment (FDI) hub with clear US market access.
Many analysts and economists on social media platforms are now urging Sri Lanka to take Vietnam as a role model, given its impressive negotiation with Washington and the now aggressive promotion to lure FDIs, marketing its 20% discounted tariff.
Govt. perspective
When The Sunday Morning reached out to Deputy Minister of Economic Development Anil Jayantha Fernando to determine the Government’s plans pertaining to the tariff, he requested the newspaper to refer to the press conference the Government conducted on Thursday (10) in this regard.
Despite multiple attempts by The Sunday Morning to contact Deputy Minister of Trade R.M. Jayawardana, the calls went unanswered.
Speaking at the press conference, Treasury Secretary Harshana Suriyapperuma confirmed that until 1 August, Sri Lankan exports to the US would continue to enjoy the 10% discounted tariff rate announced three months ago.
“We will continue to engage, while assessing the situation and getting the input of other stakeholders, particularly major exporters to the US market,” he said.
Meanwhile, Central Bank of Sri Lanka Governor Dr. Nandalal Weerasinghe stated that further discussions would depend on the tariff rates secured with the US by regional competitors. He also noted that the letter from the US indicating the tariff rate effective from 1 August was only a single document that had been made public, and did not preclude other ongoing communications.
According to Dr. Weerasinghe, direct and private channels of communication are continuing and will be disclosed in due course.
“We are satisfied with where we are now and with the progress we have made from where we were. But we need to make more progress, hence we are continuing our engagements,” he said.
The road ahead for Sri Lanka
Sri Lanka’s next moves are expected to be clarified in further engagements by the Finance Ministry and Department of Commerce, which have signalled continuing dialogue. Whether that yields a rate closer to 20% or locks in at 30% will shape pricing structures for apparel, coconut, and a wide band of other exports.
Longer term, economists point out that Sri Lanka’s trade competitiveness will rely less on tariff manoeuvring and more on domestic reforms, from energy costs to logistics efficiency to export diversification, which are needed to stay viable under global structures increasingly governed by bilateral priorities.
In the meantime, the country faces the reality of operating in a trade sphere where leverage is limited, margins are under pressure, and the rules are being reset in real time by larger economies looking to secure their own interests.