Going Beyond the US Reciprocal Tariffs: Sri Lanka's exposure to the tariffs and exemptions

The United States’ (US) proclamation of “reciprocal tariffs” dealt a blow to the global trade sys-tem based on the World Trade Organisation (WTO) principles. With the individualised tariff rates, the US has dis-carded non-discrimination in the Most-Favoured-Nation (MFN) tariff structure. The “reciprocal tariff” rate does not show any reciprocity but rather a calculation hypothe-sised to drive a bilateral trade deficit to zero.

- BY DR ASANKA WIJESINGHE

Although the “reciprocal tariff” grabbed attention, US trade policy under the second Trump administration is more complex. Section 232 of the US Trade Expansion Act of 1962 is being used to target key sectors like steel, aluminium, and auto parts. In addition, investigations are ongoing to deter-mine tariffs for copper, critical minerals, pharmaceuticals, and lumber.

For Sri Lanka, as calculated using 2024 data, 95.6% of US imports are subject to reciprocal tariffs — with the 90-day pause, standing currently as a 10% global tariff. In addition, 4.2% of imports from Sri Lanka are subject to the steel and aluminium and auto parts tariffs imposed under Section 232. However, 0.2% of Sri Lanka’s imports are exempted from the new tariff measures. These exemptions were made by issuing Annex-II of the US Executive Order on the reciprocal tariffs and a notice issued by the US Customs and Border Protection (CBP) on April 12.

Sri Lanka's Exposure to Section 232 Tariffs: Steel, Aluminium and Auto Components Tariffs

In 2018, under the first Trump adminis-tration, the US imposed a 25% tariff on steel and a 10% tariff on aluminium imported from all trade partners under Section 232 tariffs.

On March 12, 2025, the US expanded the 2018 Section 232, increasing the aluminium tariff to 25%, removing all existing exemp-tions, and adding more derivative products which use steel and aluminium as compo-nents. For example, a keg is an aluminium derivative product. When steel and alumini-um imports are expensive due to tariffs, domestic producers are no longer competi-tive in the production of derivatives such as the keg in the earlier example. This leads to lobbying for cascading protectionist tariffs on imported derivatives. Thus, cascading protectionism means that when a raw mate-rial is subject to tariffs in the downstream, the final good becomes less competitive, forc-ing producers to demand tariff protection for the final goods.