The United States was born as the result of people from thirteen colonies protesting against taxation without representation imposed by the British monarch. Several centuries later, another leader — this time the President of the United States himself — has imposed heavy taxes on the world without representation from Congress, the body constitutionally empowered to levy taxes. With the stroke of a pen, President Donald Trump has sent shockwaves across global trade systems, reshaping trade relations worldwide and delivering severe blows to economies, large and small.
Sri Lankans awoke on April 3 to alarming news that the U.S. had imposed reciprocal tariffs of 44 percent against Sri Lankan exports — among the highest globally, second only to tariffs levied on Vietnam and Cambodia.
Dubbed “Liberation Day” by President Trump, this dramatic move blindsided policymakers across the world. Many had expected a tariff hike, for example Foreign Minister Vijitha Herath told Parliament in mid-March that they have set up a task force to tackle challenges arising from new tariff policies introduced by recently elected US President Trump, while Israel cancelled its remaining tariffs on imports from the United States. However, the scale and the severity of Trump’s tariff and the fact that he imposed tariffs even on the closest allies of the US, took almost everyone by surprise.
The current tariff framework is unlikely to remain static and it will evolve based on how different stakeholders respond. There are likely to be three key reactions: first, from within the United States itself, where many American companies affected by the tariffs will lobby for changes or exemptions; second, from countries such as the European Union and China, who may retaliate with their own countermeasures; and third, from countries such as Sri Lanka and Vietnam, which will attempt to negotiate with the U.S. for tariff reductions. This dynamic and uncertain environment creates significant instability for businesses and investors alike.
The tariffs, however, represent not only a sharp economic blow but an urgent wake-up call to Sri Lanka’s deep-rooted economic vulnerabilities. The United States, which accounted for 23 percent of Sri Lanka’s merchandise exports in 2023, has now become a much tougher market to access. The tariffs have left Sri Lanka’s business community reeling and policymakers scrambling. While some view it as a geopolitical chess move aimed at China, for Sri Lanka, the impact is immediate, structural, and deeply painful.
Heavy blow
Sri Lanka’s export economy is still limping from the effects of its worst economic crisis since independence. The 2022 financial meltdown — driven by high global commodity prices, Covid-19-related losses in tourism and remittances, and years of policy missteps — culminated in a sovereign default. The nation is still navigating its 17th IMF program and is under pressure to meet external debt obligations even as foreign exchange reserves remain fragile.
Sri Lanka is exposed to multiple layers of risk from the newly imposed U.S. tariffs, says, Research Director at Verité Research, Subashini Abeysinghe. “Our relative competitiveness has already deteriorated. Sri Lanka wasn’t the cheapest destination to begin with — especially in labour-intensive sectors such as apparel, where we’re already less cost-competitive than countries such as Bangladesh. Now, with a 44 percent tariff on our exports, sourcing from Sri Lanka becomes even more expensive, placing us at a serious disadvantage.”
She adds that this shock comes just as the country was emerging from a crippling economic crisis, leaving little room to absorb another hit. “We are in desperate need of foreign exchange. Our economy simply doesn’t have the cushion to absorb an external shock of this magnitude.”
The impact won’t be limited to the U.S. market alone. “Economists said that U.S. demand will decline sharply due to the scale of the tariffs. Our products will be more expensive and therefore, less attractive to U.S. consumers. That shrinks our market share in our biggest export destination.”
A third concern is the global economic ripple effect. “When the world’s largest importer contracts, so does the rest of the global economy. Key alternative markets such as the EU and China will also slow down. The global economy was already growing sluggishly — this will make it worse.”
But perhaps the most destabilising aspect of the new tariff regime is its unpredictability, she said, adding that in the coming weeks and months, the policy environment will change rapidly. This creates tremendous uncertainty for businesses and investors, who will freeze their activities “until the dust settles.”
Time to renegotiate the IMF deal?
The shockwaves of President Trump’s recent tariff hike may feel sudden, but the roots of this crisis run deep. For economist, Danusha Gihan Pathirana of the Institute of Political Economy, this moment is less a surprise and more a long-brewing eruption — the inevitable result of capitalism’s deeper structural crisis. “This is not just about Trump,” he said. “This crisis echoes the 2008 crash. The U.S. economy has been running on fiscal steroids for years. Now the cracks are showing — and we’re caught in the ripple.”
Trump’s tariffs, Pathirana said are not isolated policies but desperate responses to an unstable global economic order. For Sri Lanka, already grappling with fragile exports and an undiversified economy, the impact will be severe. “Since 1977, we’ve been deindustrialising, not industrialising,” he says. “We built an economy on tax-concession-driven apparel exports, while energy costs soared and productivity lagged. Now, global competition is rising — especially from India and China — and our domestic manufacturing base is dangerously exposed.”
Even proposals to pivot eastward may not offer easy relief. “The East Asian supply chain is deeply tied to China — and it too is under pressure. Everyone’s diversifying. We’ll be one of many fighting for a shrinking slice of the pie.”
The stakes are not just economic. They are human. Pathirana said that the Government must also think about what would happen to thousands of young men and women in our garment factories — some of the most productive workers in the country — when orders vanish. The Government can’t simply let the market take over and adopt a passive, “wait and see” approach, he said. “That would be a recipe for disaster. We now need a state-led industrial plan because obviously the private sector is now disoriented to say the least,” he said.
Pathirana said that the crisis presents a critical opportunity for the Government to return to the negotiating table with the International Monetary Fund (IMF) and external creditors as the economic assumptions underpinning Sri Lanka’s current debt restructuring deal have shifted dramatically.
“This is the time to go back to the IMF and our creditors and say: the situation has changed,” he said. “Our capacity to follow through with the current agreement is now severely compromised. We need deeper debt relief, greater flexibility, and a reconsideration of the repayment timeline.”
Break free from overdependence on the Global North
For researcher Shiran Illanperuma of the Tricontinental: Institute for Social Research, the crisis is a warning and an opportunity. He said that the crisis is a wake-up call to break free from overdependence on the Global North and build resilience within Asia’s industrial network.
Illanperuma pointed out to the structural flaws that have long plagued Sri Lanka’s trade landscape — from overreliance on the EU’s GSP+ and the now-defunct Multi-Fibre Agreement to sluggish progress in regional economic integration. “FTAs with India, Pakistan, Singapore, and Thailand exist on paper, but they haven’t sparked transformation. Talks with China are stalled. RCEP and BRICS feel like distant ambitions.”
The core problem, he said, lies in the absence of strategic direction. “We’ve poured money into infrastructure since 2009 — ports, highways, airports — but failed to pair it with value-added manufacturing. Our export basket remains narrow and low-tech. Yet the potential is there: a literate, healthy workforce, capable of entering electronics, semiconductors, even electric vehicles. What’s missing is a coherent industrial strategy.”
Trump’s political playbook
As U.S. tariffs rattle global trade, Sri Lanka’s economy faces mounting pressure. Lecturer in Economics, University of Colombo, Umesh Moramudali said the fallout isn’t about Sri Lanka, but about U.S. politics — and the island nation’s apparel industry may be among the hardest hit, with long-term consequences far beyond this immediate policy shift.
“The tariffs are less about Sri Lanka and more about Trump’s political playbook. This is aimed squarely at his voter base. He’s promising to bring jobs home and slash trade deficits, even though that’s not how trade actually works.”
Sri Lanka, Moramudali says, is caught in the crosshairs. “We don’t export enough to the U.S. to wield leverage, and we certainly can’t import billions in U.S. goods just to balance the books.”
He said that the country’s apparel sector, due to orders that have already been placed, maybe buffered to the initial impact, the next cycle will be unforgiving. “Buyers will shift to countries with lower tariffs. We’ll lose ground — fast.”
President Anura Kumara Dissanayake has responded to the tariffs by appointing a high-level advisory committee including the heads of several State institutions and representatives from the private sector.
“The appointment of a joint Government–private sector committee by President Dissanayake is seen as a positive and pragmatic move. Given that it’s businesses — especially in the apparel sector — who are directly impacted, their involvement in finding a response to the tariffs is essential,” he said.
An opportunity to reform
As Sri Lanka prepares to engage with the U.S. on the fallout from the recent tariff hikes, a key question emerges: what can Sri Lanka realistically offer in return? The U.S. administration has made it clear that its concerns go beyond just tariffs — non-tariff barriers (NTBs) are also in focus.
The U.S. International Trade Administration (ITA) maintains a detailed list of barriers its companies face globally, and Sri Lanka is no exception. These include restrictions on U.S. poultry, meat products, genetically modified organisms (GMOs), and even foreign film distribution.
“We can offer to address these concerns raised by the Americans and we can also promise to address concerns they have about our engagement with China by promising increased transparency. I think there are four key areas we can use in the negotiations and implementing these reforms will also be good for us,” he said.
The first key area, the NTBs not only hinder U.S. exports but also burden Sri Lankan businesses and consumers. Reforming them would improve Sri Lanka’s competitiveness and reduce consumer costs — a win-win. If approached strategically, this moment presents an opportunity for Sri Lanka to address long-standing inefficiencies while engaging constructively with Washington.
A second key area is para-tariffs, long criticised by global trade partners. Under the IMF agreement, Sri Lanka committed to phasing them out and publishing a timeline — a step it has yet to take. Offering concrete progress here could be a meaningful gesture during negotiations, and one that aligns with existing reform goals.
A third, more sensitive issue is China. As a known critic of Chinese influence, the U.S. may raise concerns about Chinese investments in Sri Lanka, particularly regarding supply chains and the Hambantota Port. While the “debt-trap diplomacy” narrative is flawed, perceptions matter — and Sri Lanka must be ready to address them, he said.
Finally, Sri Lanka’s lack of transparency in public procurement has been a recurring concern, highlighted in the IMF’s governance diagnostic. Committing to competitive bidding, ending unsolicited proposals, and enacting transparent procurement laws would not only reassure the U.S. but also reflect the NPP Government’s reformist mandate — and benefit Sri Lanka’s long-term governance and credibility.
Like the American colonies that once turned imperial injustice into a revolution, Sri Lanka now stands before its own inflection point. This moment of challenge presents an opportunity to transform dependency into strength — to write a new economic destiny not only for today, but for generations to come. By implementing thoughtful reforms, diversifying trade relationships, and developing a coherent industrial strategy, Sri Lanka can use this moment of crisis to build the foundations for sustainable prosperity.
