As the global trade order undergoes seismic shifts under the return of Donald Trump’s aggressive tariff policy, Sri Lanka finds itself in a familiar yet fragile position, it is again caught in the crosshairs of geopolitical brinkmanship with limited economic leverage. With Washington temporarily suspending sweeping tariffs on imports for 90 days, Colombo is scrambling to assess whether it can, or should, increase imports from the United States to reduce its widening trade imbalance.
A delegation of Sri Lankan officials will leave for the United States next week to discuss tariffs levied against Sri Lankan goods, according to Chairman and Chief Executive of the Export Development Board in Sri Lanka, Mangala Wijesinghe.
Wijesinghe said on Wednesday that President Anura Kumara Dissanayake appointed a special committee on April 3 to develop strategies to address the US tariffs, and this committee has submitted a report outlining short, medium, and long-term solutions. “The committee recommended sending a delegation to the US to directly discuss these tariff concerns,” Wijesinghe told reporters. “We’ve already had preliminary meetings with US embassy trade officials in Colombo, stressing that Sri Lanka, currently undergoing an IMF program, urgently needs economic relief.”
Yet, as Sri Lankan economists caution, increasing US imports without first bolstering domestic production through state-led industrialisation would neither be economically viable nor strategically sound.
“The first thing we need to realise is that, without a progressive plan for industrial development, we might not realistically address this issue with the United States,” says, economist at the Institute of Political Economy, Danusha Gihan Pathirana. “We require a clear state-driven industrialisation strategy. The private sector alone is too vulnerable and fragmented to withstand the impending trade shocks.”
Political economist at the Tricontinental Institute for Social Research, Shiran Illanperuma said that without state intervention to diversify production and enhance industrial capacity, Sri Lanka will continue to import expensive capital goods while exporting low-value products.
“One consequence of the US-led globalisation model was outsourcing industrial production to cheaper labour markets,” Illanperuma said. “Sri Lanka became a peripheral player, producing low-value goods. Over the past 50 years we have not moved up the product value chain. We can’t afford the high-tech products the US produces without first developing our own industries to create real demand for them.”
Pathirana and Illanperuma view the Trump-era tariffs as an opportunity for Sri Lanka to recalibrate its economic policies but caution against making hasty bilateral concessions without a strategic long-term vision.
Importing American: politically motivated, economically flawed
Recently some in the Government have suggested that it may consider increasing imports from the US, especially energy products such as liquefied natural gas (LNG) as a way to reduce trade imbalanced between the US and Sri Lanka.
The total value of US goods exports to Sri Lanka in 2024 was 368.2 million dollars, up 4.9 percent from the previous year. Meanwhile Sri Lankan exports to the US were 3 billion dollars, up 6.1 percent ($173.5 million) from 2023, according to data by the Office of the United States Trade Representative.
So far, Sri Lanka has bought crude and refined oil at the cheapest price at the market. Energy products from the US is more expensive, increasing the cost of production in a country that already has one of the highest energy prices in the region. Illanperuma said that Sri Lanka will face a similar situation to the EU if a decision is taken to buy energy products from the US at a much higher price.
“Even considering what happened to the European Union after cutting off gas supplies from Russia, they were forced to buy far more expensive LNG from the US,” Illanperuma said. “It doesn’t make economic sense for Sri Lanka either. The only reason to do so would be to appease political pressure.”
Pathirana said that the costs are simply prohibitive. “Even if we tried importing refined petroleum, we’d face problems. The US produces high-quality fuel, Euro 6 and Euro 7. Our refineries and vehicle fleet are not built for that. It’s just not practical.”
Even if crude oil were considered, Sri Lanka’s refinery infrastructure is calibrated for Middle Eastern crude, primarily from Iran, the UAE, and Indonesia, not for the lighter crude from the US.
“There’s a technical mismatch,” Pathirana added. “And until we get LNG infrastructure operational, importing LNG is not just impractical, it’s irrelevant.”
Agriculture: A modest opportunity, but with many hurdles
The U.S is also a top agricultural producer in the world. The United States is the top exporter of agricultural products with 176 billion dollars in exports as of 2024. In the fiscal year 2024, the United States exported agricultural products worth around US dollars 25.7 billion to China, a slight decrease compared to the previous fiscal year. US agri exports to China are now subject to a total tariff of 135 percent, leaving many farmers in limbo.
In Sri Lanka, an area where the US already plays a significant role is agricultural inputs, particularly soybean meal used in Sri Lanka’s poultry industry. According to an agri-trade researcher and the South Asian correspondent to the Asian Agribiz Magazine, Zahrah Imtiaz, the country imported over 101 million dollars worth of US soy meal in 2023, a 25 percent increase from 2022.
“Soy is our biggest agricultural import from the US,” she said. “It feeds the poultry industry, which is overproducing right now. So, while increasing imports sounds easy on paper, in reality, the domestic market cannot absorb more unless we expand poultry exports.”
While Sri Lankan officials and companies have long tried to break into the international poultry markets, exporting poultry to these markets, especially China and the Middle East, isn’t straightforward. Regulatory bottlenecks have plagued Sri Lanka’s attempts to enter these markets for over a decade.
“To export to China, we need a national plan for disease monitoring, traceability, and residue monitoring,” Imtiaz said. “The commercial farms are ready to comply, but the Government hasn’t provided the framework or staffing. We need more vets, better technology, and political will.”
Even then, the scale of imports required to balance the US trade deficit would far exceed the size of Sri Lanka’s domestic consumption or export potential.
“As a small country, we simply don’t have the purchasing power to significantly reduce our trade deficit with the US through agriculture,” she said.
Sri Lanka’s tariff disadvantage
Adding to the challenge is Sri Lanka’s high tariff exposure under Trump’s latest trade policy. Currently, Sri Lankan exports face tariffs as high as 44 percent, while India, one of its closest competitors, enjoys a lower rate of around 26 percent.
Pathirana said that this discrepancy could trigger an exodus of Sri Lankan manufacturing to India, where export access to the US is significantly cheaper.
“There are speculations that Trump might get rid of the universal 10 percent tariff across the board. If that happened India’s effective rate could drop to 16 percent while ours drops to 34. This would be worse than the status quo. That would make our exports more than double the cost of India’s, pushing investors and factories to relocate,” he said.
Pathirana said Sri Lanka must not ask for random tariff relief. Instead, it should strategically push to close the tariff gap with India. “That should be our target, achieve parity or at least come close to India’s rate. Otherwise, the comparative disadvantage will grow.”
The case for multilateralism and SAARC
Sri Lanka’s case highlights the essential flaw in the current global trading system: smaller countries lack meaningful leverage or bargaining power to negotiate with economic giants like the United States. Individually, these smaller economies wield little clout, making them vulnerable to external economic shocks beyond their control. However, this predicament also offers a powerful lesson, solidarity and collective negotiation can amplify their voice significantly.
For Illanperuma, Sri Lanka’s best hope lies not in bilateral deals but in collective bargaining with other developing nations facing similar pressures.
“Trump’s tactic is to create panic and then force countries to come and negotiate one-on-one,” he said. “But that works in his favour. It divides the global South. Sri Lanka should be working in coordination with other small economies to present a united front.”
He believes that smaller countries should revive regional platforms such as SAARC to form a bloc that can collectively lobby for fairer treatment in global trade, especially with major powers like the US. He said SAARC was established almost four decades ago precisely to foster regional cooperation, had the potential to offer these small countries a collective voice in global forums. However, SAARC remains tragically underutilised, its effectiveness compromised by longstanding geopolitical rivalries, particularly between its two largest members, India and Pakistan.
“SAARC has been dormant for years, but this is exactly the kind of issue where it can be useful,” Illanperuma said. “Instead of each country walking into the lion’s den alone, we should be negotiating together. Otherwise, we’ll just get picked off one by one.”
Pathirana said that South Asia must finally confront its own trade fragmentation. “Less than five percent of our trade is within the region. There’s too much duplication, too little trust, and not enough vision. If we ever needed a reason to reactivate SAARC and start thinking like a region, this is it.”
A moment of reckoning
In the final analysis, all three economists converge on a common theme: the need for a structural rethinking of Sri Lanka’s trade and industrial policies. While it is tempting to view the current US tariff regime as a short-term diplomatic problem, it actually exposes long-standing weaknesses in Sri Lanka’s economic model.
“We have spent decades stuck in low-skill manufacturing and high dependency on imports,” said Pathirana. “This is the moment to rethink everything, from how we produce to what we consume, and whom we trade with.”
And while increasing imports from the US might seem like a quick fix to reduce the trade gap, Illanperuma said that without a solid base of domestic industry, it risks being just another political gesture.
“You can’t buy your way out of structural imbalance,” he said. “You have to build your way out.”
As Sri Lanka’s delegation prepares to engage with US officials, their efforts must reflect a balanced strategy, advocating for immediate tariff relief while advancing a broader vision for economic resilience through strengthened domestic industry and regional solidarity.
