Ripple effects: How US trade policies cast long shadow over Sri Lanka and beyond

Introduction In an interconnected global economy, the trade policies of major powers like the United States have far-reaching consequences. While geographically distant, Sri Lanka — along with numerous other strategic markets—finds itself vulnerable to the shifting tides of US trade strategies. This article delves into the projected impacts of US trade policies, examining their effects on Sri Lanka's economy, key export sectors, and the broader implications for regional and global markets.

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Sri Lanka's trade dependence and vulnerability

Sri Lanka's economy is heavily reliant on exports—particularly textiles, apparel, and agricultural products—with the US being a significant market. In 2023, Sri Lanka exported approximately $ 2.5 billion worth of goods to the US, with apparel making up around 70% of these exports. Changes in US trade policies, such as tariffs or quotas, or alterations to trade agreements, can disrupt established supply chains and erode Sri Lanka's competitive advantage.

Apparel industry

Sri Lanka's garment sector contributes over 6% of GDP and employs more than 300,000 workers. Increased tariffs or reduced preferential access to the US market could lead to significant job losses and a decline in export revenue.

Agricultural exports

Products like tea (accounting for $ 1.2 billion in annual exports), rubber, and spices are crucial commodities. Changes in US import regulations or tariffs could negatively impact these sectors, affecting rural livelihoods and export earnings.

Foreign Direct Investment (FDI)

US trade policies also influence investor confidence. Uncertainty surrounding market access and trade relations may deter US and other foreign investors from investing in Sri Lanka, exacerbating economic instability.

Increased tariffs or reduced preferential access to the US market could lead to significant job losses and a decline in export revenue.

Mechanisms of impact