Energy diplomacy: How Sri Lanka can bridge trade gap with United States

FOR Sri Lanka, the United States is more than just a trading partner.

- By Dr. W.K.H. Wegapitiya

One potential path forward is to rethink how Sri Lanka engages with the US economy. By importing energy products-specifically crude oil, petroleum products, liquid natural gas (LNG) and liquefied petroleum gas (LPG)-Sri Lanka can simultaneously reduce its own energy costs, diversify away from its current Gulf-centric suppliers, and create a stronger bargaining position to negotiate tariff concessions for its exports. In other words, energy diplomacy can be the key to bridge the trade gap.

The trade statistics speak volumes. In 2023, Sri Lanka exported nearly $ 2.76 billion worth of goods to the United States, while imports from the US were just $ 507 million. This left Sri Lanka with a bilateral trade surplus of over $ 2.2 billion. The pattern is consistent over the past five years, with Sri Lanka exporting between $ 2.5-3.3 billion annually, while importing less than $ 650 million.

Figure 1 illustrates the persistent imbalance in Sri Lanka-US trade, highlighting both the scale of Sri Lanka's export success and the absence of significant reciprocal imports.

Sri Lanka's export basket to the US is dominated by apparel-outerwear, underwear, T-shirts, sportswear, and baby garments-while rubber tyres, gloves, tea, and seafood make up the remainder. By contrast, imports from the US are limited to animal feed, pharmaceuticals, plastics, electronics, and aviation parts. This asymmetry, while beneficial for Sri Lanka's foreign exchange earnings, has become a political vulnerability under the doctrine of reciprocal tariffs.

The Trump administration introduced a decisive shift in US trade policy. The philosophy of "reciprocity" meant that any country enjoying a large trade surplus with the US would be pressed to import more American goods or face tariffs. Steel and aluminum duties in 2018 set the tone, and Asian economies were particularly targeted.