Trump tariffs: How can Sri Lanka mitigate the pain?

THE global trading system faces a significant shock following the imposition of new US tariffs. These tariffs, announced on 2 April (‘Liberation Day’), represent a drastic escalation of the ‘America First’ trade policy under President Trump. Given the US’s position as the world’s largest economy (accounting for roughly a quarter of global GDP in 2023) and largest importer, such unilateral actions inevitably risk widespread economic disruption.

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The tariffs announced on 2 April were beyond what anyone could have imagined in terms of their size, the countries covered, and how they were calculated. But that has indeed been the style of the Trump administration. It should be clear to everyone now that the world must brace itself for a turbulent ride as the ‘America First’ trade policy unfolds under the leadership of President Trump.

Sri Lanka exports around $ 3 billion worth of goods to the United States, accounting for around 25% of the country’s total exports. Apparel is the largest export product to the US (48%) followed by rubber products (10%) and tea and spices (2%). Sri Lanka does not have a trade agreement with the US to cushion the blow. Even when the US GSP program (a unilateral preferential access arrangement for imports from developing countries) was active, it provided preferential access to only 8% of Sri Lanka’s exports to the US. The program has not been renewed by the US since it expired in December 2020.

The article argues that the impact of Trump tariffs will extend beyond exports to the US. The pressure to offer quiet fixes to bilateral talks with the US remains high. However, this article highlights the importance of going beyond such quick fixes. Sri Lanka will be better off using this moment as an opportunity to implement broad-based reforms to enhance its global competitiveness. Such reforms will help Sri Lanka weather the impact better, seize opportunities that arise with shifts in global trading patterns and at the same time positively impact its engagement with the US.

The impact of tariffs will extend beyond exports to the US