Trump tariffs on Sri Lanka base on misguided thinking

THE Trump administration has decided to impose a preliminary 44% tariff on US imports from Sri Lanka, claiming that the US is reciprocating an equivalent 88% tariff that Sri Lanka levies on US imports from the US including so-called currency manipulation and trade barriers.

- By Reihshan Deen

According to Sri Lanka Customs, the highest duty that is imposed on any imported goods is 20%, for the so-called Rupees levy that is closed currency (meaning that it is not freely available to exchange outside of Sri Lanka) is now a floating rather than a fixed currency and being otherwise compliant with the Central Bank of Sri Lanka's competitive reserve with respect to other currencies. Import restrictions due to the economic crisis have largely been lifted. The 88% touted by the US is therefore misleading, if not inaccurate, and looks to aggravate trade disputes between Sri Lanka and the US and comprehends that the US President and his advisors misunderstand.

According to the Office of the United States Trade Representative, an agency that is part of the executive branch, the Presidential administration of the US, the reciprocal tariff is calculated at the tariff rate needed to reduce US trade deficits to zero. This is, however, immediately contradicted by the US imposing a 10% tariff on imports from countries such as Australia and the UK, which has a trade surplus, according to that same office.

There are many problems with this thesis. Firstly, the price elasticity demands that percentage decrease in quantity demanded in response to a percentage increase in price, assumed by the Trade Representative to be 1.