HOW SRI LANKA CAN WEATHER THE US TARIFF STORM

As the United States imposes sweeping reciprocal tariffs around the world, Sri Lanka finds itself in especially dire straits.

- By BRIAN R. BRAUN

The staggering 44% tariff rate, the sixth highest globally, poses a direct threat to Sri Lanka's US-dependent export market, potentially leading to steep job losses and economic instability at a time when the country is struggling to recover from a 2022 financial crisis.

To put this into context, the new tariff poses an existential threat to Sri Lanka's economic stability. The US is Sri Lanka's largest export destination, accounting for 23% of all merchandise exports and over 70% of apparel exports, the country's most profitable. With the new tariff, Sri Lanka's garments sector is at grave risk of increased costs and new competition from other major apparel exporters with lower tariff rates, namely Bangladesh and Vietnam. This comes at a critical time, as Sri Lanka emerges from a painful economic crisis in 2022 marked by inflation, fuel shortages and debt restructuring that it is only just beginning to recover from.

Given the magnitude of this challenge, Sri Lanka will need to act decisively and strategically to weather these economic headwinds.

Sri Lanka must accelerate its diversification efforts

First, Sri Lanka must accelerate its diversification efforts. While the country has been exploring new markets and sectors for years, the urgency of the current situation demands a more focused approach. Sri Lanka should consider expanding into renewable energy technologies given its natural endowments, furthering its pharmaceutical manufacturing efforts, and developing its advanced agricultural products. These sectors can be exported to emerging markets in Africa, Southeast Asia, and Latin America, where there is growing demand for sustainable and high-tech products. For instance, leveraging its expertise in agriculture, Sri Lanka could export organic produce to countries like India and China, which have large and growing markets for organic food.