Navigating global trade shifts: Sri Lanka exports for global success

Sri Lanka has weathered a relentless succession of economic shocks in recent years. The turmoil began with the constitutional crisis in 2018, followed by the tragic Easter Sunday attacks in 2019. As the country began charting a path to recovery, the COVID-19 pandemic in 2020 dealt a severe blow, compounding existing vulnerabilities and ultimately contributing to a sovereign debt crisis driven by both external shocks and domestic policy missteps. The years 2023 and 2024 were marked by difficult but determined efforts toward stabilisation and recovery, laying the groundwork for a potential economic resurgence in 2025. With economic growth now returning back to track, a new external threat of tariff related trade disruption has emerged.

- BY SHIRAN FERNANDO Chief Economic Policy Advisor at The Ceylon Chamber of Commerce

The Rationale Behind Reciprocal Tariffs

President Trump has consistently prioritised addressing the United States' trade imbalances, a cornerstone of his first-term agenda. While initial efforts focused on China, recent rhetoric, particularly in the run-up to the next election and early in his second term has broadened to include other countries with which the U.S. runs significant trade deficits. This policy shift is driven by the U.S.'s combined trade and services deficit, which now exceeds USD 1 trillion, or approximately 3-4% of GDP. Under the existing framework, the U.S. trade deficit effectively finances itself through capital inflows by way of investments in U.S. equities, debt instruments, and other assets.

Sri Lanka, which recorded a trade surplus of around USD 2.6 billion in 2024 with the U.S., was among the countries flagged. On April 2nd, the U.S. announced a 44% reciprocal tariff on Sri Lankan exports, calculated based on the scale of the bilateral trade imbalance. Though labeled a "reciprocal tax," the measure functions as a proportional import tariff, directly linked to the size of the surplus Sri Lanka holds in its trade with the U.S.

Uncertainty results in global economic growth slowdown