U.S. Imposes 44% Tariff on Sri Lankan Exports: Next Step To Take
In a development that could reshape Sri Lanka’s trade future, the United States has imposed a 44% tariff on all imports from Sri Lanka. The decision, announced as part of the U.S. administration’s “Liberation Day” tariff initiative, has sent ripples across Sri Lanka’s export sectors — particularly apparel, tea, rubber, ceramics, and gems — which depend heavily on the American market.
What Sparked the Tariff?
The U.S. government, under the leadership of President Donald Trump, launched a new trade doctrine under the “Liberation Day” initiative in April 2025, aimed at addressing perceived imbalances and protectionist barriers in foreign markets. Sri Lanka was cited as a country imposing an 88% average effective tariff on American goods, prompting the U.S. to respond with a 44% retaliatory tariff on Sri Lankan exports.
This policy is framed as a push for “fair trade,” encouraging reciprocal market access and tariff parity.
Sector-Wise Impact
Apparel and Textile Industry
- The apparel sector accounts for over 45% of Sri Lanka’s total exports, with the U.S. as its largest market.
- A 44% tariff effectively erodes the price competitiveness of Sri Lankan garments, pushing buyers toward cheaper alternatives like Vietnam or Bangladesh.
- Export orders may decline, and job cuts are expected in manufacturing hubs like Katunayake, Biyagama, and Koggala.
Gems and Jewellery
- With the U.S. being a top buyer of Ceylon sapphires and custom jewellery, the tariff is a significant blow to high-end, value-added exporters.
- The Sri Lanka Gem and Jewellery Association has called on the government to swiftly resolve the issue diplomatically.
Tea, Rubber, and Other Agricultural Products
- Though not as dominant as apparel, Ceylon tea and natural rubber exports to the U.S. could become unviable at the new tariff rate.
- Organic and fair-trade segments, where Sri Lanka held a niche advantage, now face reduced demand.
Macro-Economic Implications
- Foreign reserves and export income could decline if U.S. demand contracts significantly.
- Investor confidence may waver, especially in BOI-approved export ventures targeting North America.
- The World Bank has projected Sri Lanka’s GDP growth at 3.5% for 2025, warning that tariff pressure could suppress exports and widen the trade deficit.
Diplomatic & Policy Response
Sri Lanka has taken a diplomatic approach, opting for negotiation over escalation.
- A delegation led by Deputy Finance Minister Harshana Suriyapperuma is due to meet U.S. trade representatives in Washington on May 27–28, 2025.
- The government is also considering bilateral trade agreements with other nations to diversify its export base and lessen dependence on the U.S. market.
- There are internal calls to lower import tariffs on U.S. goods to regain “Most Favored Nation” (MFN) trade status.
What Can Exporters Do Now?
Until an agreement is reached, exporters are advised to:
- Reassess pricing strategies to absorb part of the tariff if margins allow.
- Explore alternative markets (EU, China, India, Middle East) that offer trade advantages or FTAs.
- Increase value addition, branding, and premium positioning to justify higher price points despite tariffs.
- Collaborate with trade chambers and export councils for legal and policy advocacy.
Long-Term Opportunities Amid Crisis
While the situation is challenging, it could serve as a catalyst for reform:
- Sri Lanka may fast-track economic diversification, digitization of trade processes, and regional integration (like RCEP or BIMSTEC).
- Domestic industries may be encouraged to reduce overreliance on a single market and enhance productivity through innovation and technology adoption.
