As Sri Lanka is yet to finalise on its tariff agreement with the US, with 90% of the paperwork involving the agreement through with, it must reckon with the marked shift of the US administration’s interests in trade, from focusing on it though multilateralism to leveraging it as a strategic geopolitical tool, former Ambassador of Sri Lanka to the United States Mahinda Samarasinghe said recently (14).
“I would say that we have finished 90% of the content of the agreement, as I speak to you today. Once we agree in principle to the content, we have to then embark on the domestic processes that are needed to give legal effect, to start implementing the agreement,” Samarasinghe said, speaking at the Sri Lanka Institute of Directors members’ meeting.
“An aspect of this geopolitical strategy was the conscious moving away by the US towards preferring to negotiate on a one-on-one basis to achieve trade agreements with whoever they were negotiating with, as opposed to sticking to multilateral agreements or a multilateral framework.”
“When we started negotiations, whether it was the WTO or any other multilateral trade agreement that Sri Lanka was a signatory to, and other countries were part of, was not relevant as far as the tariff negotiations were concerned. This was the strategy adopted for all countries. It was a one-on-one negotiation process that took place outside the gambit of multilateralism, or international frameworks,” Samarasinghe said.
He further noted that even the European Union with its 27 nation-bloc has finalised its own agreement.
“Negotiations are still taking place between Sri Lanka and the US, to finalise the trade agreement that quite a number of other countries have already signed and put to effect. For example, the EU which has 27 countries within the block, has finalised their agreement. Approximately 50 countries have finished signing the agreement and some of them are already implementing the agreement. Sri Lanka is in its last stages of finalising the agreement.”
Sri Lankan President Anura Kumara Dissanayake in the first week of August acknowledged that Sri Lanka was yet to formalise the agreement with the US, which entails the crucial tariff reduction from 44% to 20%.
“We get 44% based on our Trade deficit. That is their principle. We consider reducing it from 44% to 20% as an important outcome of the discussions and the agreement between them and us,” President Dissanayake noted, speaking of the discussions held between the Sri Lankan delegation and Sri Lanka since the tariff announcement in April of 2025.
Samarasinghe explained that it is widely accepted that the US’s intention of leveraging its tariff regime is not solely meant to bolster its own domestic industries, but to wield its dominance as one of the largest export markets in the world to create supply-chain dependence and inward foreign investment.
“The general consensus in the world today is that it is not only domestic compulsions, such as revenue generation in the US; or giving a comparative advantage to the manufacturing, industrial base, the producers in the US to be able to compete with the rest of the world. It was not only those domestic compulsions that influenced the tariff regime, but in fact the carrot and stick approach, which can also be termed as the geopolitics of the tariff strategy.”
The US commands around 25% of Sri Lanka’s total yearly exports earnings, with approximately $ 3 billion earned in 2025. Expanding on his thesis, he used India’s journey through the negotiations – which had been penalised with an additional 25% surcharge for its importation of discounted Russian crude oil and military equipment.
“Our neighbour had to face a 25% surcharge, on top of the reciprocal tariffs that were announced in April 2025. This surcharge made the total tariff for the country 50%, which made it very difficult to maintain its market share in the most lucrative export market in the world. Fortunately they were able to skillfully negotiate, out of that position of having to face a 50% tariff to export to the US market, and roll back the 25% in February of 2026.”
Further, he used the 40% transshipment surcharge that had been leveraged against Vietnam, on the basis of accusing Beijing of routing Chinese goods through Vietnam to dodge American duties.
“Vietnam had to face a 40% surcharge as a result of transshipment activity going through it. As a result of agreeing to a rigorous supervision mechanism, with the consent of the US – it was agreed that the 40% would not be implemented. The 40% is still on the books, as the rigorous supervision takes place, with the cooperation of Vietnam, so that transshipment of goods produced in another country is not shipped through Vietnam.”
Samarasinghe elaborated on his explanation as to why the US has turned to leveraging its tariff regime as a strategic tool, by using Bangladesh’s 0% tariff rate on specific Bangladeshi textile and apparel goods entering the US market.
“The supply chain had been identified as crucial in giving countries the ‘carrot’ they were offering. The signing of the agreement between Bangladesh and the US. It was such that the supply-line shifted the raw materials that were being brought into the production, from a certain country, towards getting the raw materials such as cotton and fibre from the US market. Based on that, Bangladesh were to be given a quota, which would be 0%, against the 10% Bangladesh was to pay.”
The “sero-rated” provision enables certain garments and textile products manufactured in Bangladesh to qualify for sero reciprocal tariffs only if they are made using US-produced cotton and man-made synthetic fibers. This was in addition to the country gaining a significant reduction in the general tariff rate to the US reduced from 37% to 19%.
“This is a clause that Sri Lanka would also like to have, because Bangladesh is one of our strongest competitors and we want to ensure that we retain our competitive position, because of the importance of the US markets for Sri Lankan exports,” Samarasinghe concluded.