How US tariffs and a fragile rupee are exposing SL's export vulnerabilities

Following is based on an interview conducted with Prof. Sirimal Abeyratne, Emeritus Professor of Economics at the University of Colombo.

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As Sri Lanka navigates the delicate path of economic recovery, two mounting challenges have converged to expose deep-rooted vulnerabilities in its export economy: the appreciation of the rupee over the past two years and a fresh wave of reciprocal tariffs imposed by the US. For a country where nearly a quarter of exports are US-bound, these developments carry serious implications—not just for revenue but for investment, competitiveness and long-term growth.

According to leading economist Prof. Abeyratne, these pressures should be seen less as external shocks and more as symptoms of underlying structural gaps.

“The problem isn’t just what Trump did,” he explained.

“It’s the fact that Sri Lanka has been running an overly protective and inefficient trade regime for decades. What this tariff move has done is hold a mirror up to our own weaknesses.”

The newly proposed US tariff regime, introduced under the justification of ‘reciprocal trade fairness’, penalises the countries running large bilateral trade surpluses with the US. Sri Lanka, despite its relatively small export volume, is among the top targets. The apparel exporters—already grappling with squeezed margins—will be faced with an additional 44 percent duty from July 8, on top of the existing Most Favoured Nation tariff rate, threatening their foothold in key global markets.

The bigger risk, Prof. Abeyratne warned, is not just losing market share but losing investments altogether.