How does Trump’s tax policy impact Sri Lankan economy?

RECENTLY, the United States government increased tax rates on imports from several countries, including Sri Lanka.

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This move is particularly significant given that the US is one of Sri Lanka’s largest export partners. In 2024 alone, Sri Lanka exported goods worth approximately $ 2.9 billion to the US, accounting for 23% of the country’s total export earnings, a substantial share of the nation’s foreign income. Out of this export revenue, around $ 1.7 billion came from apparel exports, highlighting the sector’s vital role in Sri Lanka’s economy. On the import side, Sri Lanka’s imports from the United States are valued at about $ 350 million.

In terms of taxation, the US currently imposes a tariff rate of approximately 11% to 12.5% on goods imported from Sri Lanka. Conversely, Sri Lanka applies a significantly higher tariff rate of 88% on imports from the United States. This imbalance has drawn criticism from the US administration.

The US President has pointed out that US faces a trade deficit in its bilateral trade with Sri Lanka, implying that the US imports more from Sri Lanka than it exports to it. From the US perspective, this creates a negative trade balance, which they consider detrimental to their economy. On the other hand, Sri Lanka benefits from a trade surplus of approximately $ 2.5 billion in this bilateral relationship.

It appears that this trade imbalance is one of the factors behind the recent changes in US tax policy. The new tax measures seem to target countries with which the US incurs trade deficits, with the aim of correcting perceived imbalances and protecting domestic industries.

Impact on Sri Lanka's garment industry