"Trump Action": Sword of Damocles on Sri Lankan labour market

The apparel industry is a cornerstone of Sri Lanka's economy, directly employing around 300,000 individuals

- By Pradeepa Kekulawala

The apparel industry is a cornerstone of Sri Lanka's economy, directly employing around 300,000 individuals while supporting hundreds of thousands more through indirect employment. The looming threat of reduced profit margins may compel both larger companies and smaller, medium-sized exporters to cut production, implement layoffs, or even shut down operations entirely, exacerbating the economic challenges faced by the nation. With the apparel sector contributing to about 64% of our exports, valued at nearly $ 1.8 billion in 2023 and with nearly 40% of earnings coming from the US, decrease in revenue due to reduced orders could lead to mass layoffs across the sector, increasing employment concerns as industries scale down operations.

It is also noteworthy that Sri Lanka is not alone in facing increased tariffs; other major apparel-exporting countries such as Bangladesh, Vietnam, India, and Cambodia have also been subjected to high duties. However, Sri Lanka's tariff rate stands out as one of the highest, placing it at a competitive disadvantage compared to these countries. As US buyers look to mitigate costs, though the widespread tariff increase complicates their ability to switch suppliers, they may switch to relatively low cost bases geographically further deepening the challenges for Sri Lanka's export-driven economy. Furthermore the threat of increase in tariffs from GSP+ rates to MFN rates could lead to substantial export losses, ultimately affecting the livelihoods of many workers.