By Sugeeswara Senadhira/Daily News
Colombo, April 18 – Sri Lanka is among the countries currently facing a 90-day respite from hefty 44% tariff imposition on imports announced by US President Donald Trump. This gives a breathing space to plan out short-term and long-term measures to reduce the trade surplus in Sri Lanka’s favour by increasing imports from the US amidst possible duty cuts.
Reducing Sri Lanka’s trade deficit with the US will require a combination of diplomatic engagement, targeted tariff adjustments, increased imports from the US, export diversification, and improvements in competitiveness and compliance. By proactively addressing US concerns and strengthening its own economic fundamentals, Sri Lanka can protect its vital export sectors and maintain a stable trade relationship with its largest export partner.
One important thing the trade officials have not taken into consideration is that the new tariff rate will not be 44%. Already our exports to US are being levied from 3% to 11%. Hence the new rate will be 47% and 55% depending on the product.
As the first stem Sri Lanka will have to cut down imports from Europe, Canada, Australia and few other countries and buy them from the US after conducting a survey on price advantages. While Sri Lanka imports stocks of animal feed from the US, local authorities are looking at improving local production and finding other cheaper sources. There is no impact on pharmaceutical imports from the US, as they are duty-free, but the pharmaceutical industry has been trying to increase local production, thereby reducing imports and saving foreign exchange.
At the same time it is necessary to look for new markets garments in India, China, Europe and several other countries as a way to circumvent the newly imposed US tariffs on Sri Lankan exports.
This will be in addition to diplomatic negotiations with US authorities to reduce the 44% tariff on Sri Lanka’s exports while also exploring ways in which the Government can help exporters to ease the tariff burden on them.
Trade Deficit
As first step, Sri Lanka will to appeal to the US Government to extend the 90-day pause for six months. Sri Lanka’s trade deficit with the United States is significant, with the US importing around $3 billion worth of Sri Lankan goods while exporting only about $368–$516 million to Sri Lanka, resulting in an 88% trade deficit from the US perspective. This imbalance has prompted the US to consider reciprocal tariffs, which could severely impact Sri Lanka’s key export sectors, especially apparel. To address this, Sri Lanka can adopt a multi-pronged approach starting with high-level talks with the US Trade Representative to clarify how Sri Lanka’s tariffs are evaluated and to advocate for the continuation or extension of preferential trade structures, such as sector-based benefits similar to GSP privileges.
Simultaneously, we can enact targeted adjustments to our tariffs on US imports, especially where they are currently high, to demonstrate goodwill and reduce triggers for reciprocal US tariffs.
The Government has already established a joint committee comprising Government officials and private sector representatives to coordinate negotiations and policy responses.
Sri Lanka has expressed willingness to increase imports from the US, particularly in areas like animal feed, wheat and few products to help balance trade flows and potentially secure tariff reductions on its exports. Lowering tariffs on selected US goods could encourage more imports, directly reducing the trade deficit and addressing US concerns.
As a long-term strategy, it is essential to diversify export markets to reduce over-reliance on the US by strengthening trade agreements and marketing efforts in the EU, India, and other Asian economies.
As proven effective after the first removal of the GSP+ concession, the garment industry must shift from mass-market garments to higher-value, specialty, or sustainable apparel lines, which can command premium prices and better withstand tariff pressures.
During Covid pandemic, there was a switch to production of health protection products such as gloves, sanitary products and protective kits. It will be necessary to invest in productivity improvements for key export sectors like apparel, rubber, agriculture through automation, cost reduction, and advanced logistics. The manufacturers must maintain high labour and environmental standards to build a positive reputation among US consumers and policymakers, potentially mitigating the impact of tariffs.
Customs Procedures
It is already underway to streamline customs procedures and adopt advanced cargo-tracking to reduce trade friction and improve the ease of doing business.
There is also a requirement for financial incentives, such as credit lines or tax breaks, to exporters upgrading machinery or meeting advanced US compliance standards.
One aspect we tend to ignore is the need for continuous monitoring and stakeholder engagement. The authorities must institutionalise a permanent unit to monitor US trade policy developments and respond in real time and keep exporters and industry stakeholders regularly informed about negotiation progress and policy changes to ensure timely adaptation.
As long-term measures, we must look towards alternate markets for Sri Lankan exports such as India, China, Malaysia, Indonesia, Middle-east and EU nations. Most exports, including garments, tea and gems, will be impacted by the tariffs. Currently, Sri Lanka imports animal feed, pharmaceutical products, electrical and electronic products, yarn, plastic products, chemical products, meat/fish and dairy products, telephone sets, audio-video equipment and parts, woven fabrics, paper and paper products, motor vehicles and parts, cereals and its products, automatic data processing machines, switches, boards and panels, unprocessed tobacco, aircraft and parts, soap, washing preparations, waxes, candles, base metal products, and paints, varnishes and dyeing extracts.
The official records state that the highest duties imposed on US goods are vegetables, fruits and nuts (38.3%); food products (35.9%); leather producers (32.6%); rubber and plastic goods (28.8%); and vegetable oils and fats (25.8%). Soybean meal as animal feed was the largest import, worth US$140.66 million in 2024, according to official data, while the second largest import from the US was pharmaceutical products, which incidentally is a tax-free import.
During the debate in parliament as well as in rallies and media briefings, opposition Members of Parliament attacked the Government for what they said was a failure to anticipate the situation and the lack of a proper plan to resolve the crisis. They stressed that the tariffs on imports from Sri Lanka were far higher than those imposed on other countries in the region, insisting that this showed how badly Sri Lanka had mishandled the situation.
However, the Government dismissed the accusations, noting that the US administration of President Donald Trump had levied sweeping tariffs across many countries and territories globally, adding that no country could have anticipated tariffs on such a vast scale. “All the possible risks and consequences have been assessed and taken into consideration accordingly,” Deputy Minister of Economic Development Anil Jayantha Fernando said.
He pointed out that President Anura Kumara Dissanayake has already appointed a special committee consisting of industry experts and Government officials including two deputy ministers to look into the situation and propose possible actions to be taken. Several meetings were conducted locally and with US authorities virtually, he said.
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