How US tariffs and fragile rupee are exposing Sri Lanka's export vulnerabilities

AS Sri Lanka navigates the delicate path of economic recovery, two mounting challenges have converged to expose deep-rooted vulnerabilities in its export economy: the appreciation of the rupee over the past two years and a fresh wave of reciprocal tariffs imposed by the United States. For a country where nearly a quarter of exports are US-bound, these developments carry serious implications-not just for revenue, but for investment, competitiveness, and long-term growth.

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According to leading economist Prof. Sirimal Abeyratne, these pressures should be seen less as external shocks and more as symptoms of underlying structural gaps. "The problem isn't just what Trump did," he explains. "It's the fact that Sri Lanka has been running an overly protective and inefficient trade regime for decades. What this tariff move has done is hold a mirror up to our own weaknesses."

The newly proposed US tariff regime, introduced under the justification of reciprocal trade fairness, penalises countries running large bilateral trade surpluses with the US. Sri Lanka, despite its relatively small export volume, is among the top targets. Apparel exporters—already grappling with squeezed margins will be faced with an additional 44% duty from 8 July, on top of the existing Most Favoured Nation tariff rate, threatening their foothold in key global markets. The bigger risk, Prof. Abeyratne warns, is not just losing market share, but losing investments altogether. "If it becomes cheaper to produce in Vietnam or Bangladesh, export oriented companies especially apparel will follow the logic of survival and shift operations.