Impact of Trump’s tariff policies on Sri Lanka and global trade

Introduction: The US trade deficit and Trump’s tariff strategy

- By Prof. Nandasiri Keembiyahetti

THE United States has long experienced a significant trade deficit, importing more goods than it exports. In 2024, the US recorded a massive deficit of $ 295.40 billion with China and $ 92.46 billion with Vietnam. Other countries, including Mexico, Ireland, Japan, South Korea, and Taiwan, also contributed to the overall trade deficit. The US faced a combined trade deficit of over $ 620 billion with its five largest trading partners—China, Japan, South Korea, Taiwan and Vietnam—in 2024. As a result, the US holds the largest trade deficit in the world, reaching a record $ 1.2 trillion in 2022. Despite its relatively small role in global trade, the US maintains a negative trade balance with Sri Lanka, which amounts to around $ 2.7 billion.

On 2 April 2025, US President Donald Trump announced sweeping tariffs on imports from around 90 countries, including reciprocal tariffs of 10% across the board taxes on all imports into the US. This move, which Trump labelled “Liberation Day”, was designed to reduce the US trade deficit, particularly with countries like China, the European Union and others. Under this policy, some countries would face the universal 10% tariff, while others would face higher specific tariffs. For example, countries like the United Kingdom, Brazil, and Singapore would face only the 10% tariff, while countries like Cambodia, Laos, Vietnam, Sri Lanka, Myanmar, Bangladesh, Thailand, and China would face higher taxes, with Sri Lanka’s tariff set at 44%. Trump’s rationale for these tariffs was simple: “Reciprocal means they do it to us, and we do it to them.”

Understanding the rationale behind Trump’s tariffs