Trade under pressure: India’s rise and Sri Lanka’s struggle in tea and oil sectors amid sanctions

ON 30 July 2025, President Donald Trump announced a 25% reciprocal tariff on imports from India, to take effect from 1 August (later formally deferred to 7 August).

- By P.M. Amza

The justification cited included India’s high internal tariffs, non-tariff trade barriers, and its continued procurement of Russian military equipment and oil, particularly in the context of the ongoing Ukraine conflict.

Sri Lanka, too, was targeted under the same reciprocal tariff framework, facing a 20% tariff on its exports to the United States, effective 7 August 2025.

In Sri Lanka, opposition politicians expressed strong criticism in the beginning, arguing that the Government had failed to engage meaningfully with the Trump administration on tariff-related discussions—especially in contrast to the proactive negotiations undertaken at that time by the Indian side. They noted that Sri Lanka lacked a coordinated diplomatic strategy during the period following President Trump's “Liberation Day” proclamation, when the tariff structure was first proposed.

However, the latest revision, which reduced Sri Lanka’s originally proposed tariff rate (reportedly as high as 44%) to 20%, is now seen as placing the country on a more level playing field. Still, in the absence of a formal trade agreement and given President Trump’s unpredictable policy stance, there is considerable uncertainty regarding how US trade measures may evolve further. According to media reports, Sri Lanka is inclined to explore options to import US oil and agricultural commodities in an effort to maintain or possibly reduce the announced tariff rate.

This article will explore how India strategically outmanoeuvred Sri Lanka in the Iranian tea market during the period of sanctions, and how it financially capitalised on discounted Russian oil, both of which had significant implications for regional trade dynamics.