Economic Impact of Increased American Tariffs on Sri Lanka – By Dr Harold Gunatillake
An Analysis of Potential Consequences Overview of Sri Lanka – United States Trade Over the past five years, exports from Sri Lanka to the United States have experienced an annualised growth rate of 1.38%, rising from $2.78 billion in 2018 to $2.98 billion in 2023.
Dominance of Apparel Exports
In 2023, Sri Lanka’s top exports to the US were apparel (US$1.9 billion), followed by rubber-based products and tea. The US was Sri Lanka’s largest export market, absorbing $2.98 billion worth of Sri Lankan goods.
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The imposition of higher tariffs by the United States on Sri Lanka’s exported goods is poised to have significant repercussions on the island nation’s economy. As Sri Lanka relies heavily on exports for its economic sustenance, any disruption to this stream can lead to a cascade of adverse effects.
Trade Relations
Sri Lanka maintains excellent trade ties with the United States, exchanging a diverse range of products, including textiles, tea, rubber, and seafood. However, the new tariffs may make it a bit tougher for Sri Lankan goods to shine in the American market, potentially leading to a drop in demand. This change could impact export revenues, which play a significant role in the country’s GDP.
Textile Industry Impact
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The textile industry is one of the most significant sectors of Sri Lanka’s economy, contributing significantly to its export revenues.
An increase in tariffs is likely to escalate the cost of Sri Lankan textiles within the U.S. market, potentially prompting American buyers to seek lower-cost alternatives from other countries.
This transition could result in a substantial reduction in orders, which would impact not only revenue but also employment within the industry.
It is noted that, in addition to the United States, nations including China, India, Germany, Italy, and Turkey serve as significant importers of textiles and apparel, with China recognised as the foremost exporter. It may be prudent to concentrate our trading efforts in these countries for our apparel distribution.
Agricultural Sector Impact
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Sri Lanka’s agricultural exports, mainly tea and rubber, have found a loyal customer base in the United States. However, if higher tariffs are implemented, it could result in increased prices, making these beloved products less
appealing to American consumers. This situation may pose challenges for the agricultural sector, potentially impacting the livelihoods of many hardworking farmers and workers who rely on this vital trade.
Economic Forecast
GDP and Trade Deficit
The decline in export revenues is expected to have a direct impact on Sri Lanka’s Gross Domestic Product (GDP), resulting in a deceleration of economic growth. Furthermore, the trade deficit may expand as the nation continues to import goods, potentially at elevated prices due to retaliatory tariffs or changes in trade dynamics.
Inflation and Currency Devaluation
The reduction in the influx of foreign currency from exports may result in inflationary pressures within Sri Lanka. With a diminished amount of dollars entering the economy, the Sri Lankan Rupee is likely to depreciate, rendering imports more costly and exacerbating inflation. This cycle has the potential to undermine the nation’s economic stability further.
Mitigation Strategies
To counteract the adverse effects of increased American tariffs, Sri Lanka may need to explore alternative markets for its exports.
Strengthening trade relationships with other countries or regions that have lower tariff barriers can help mitigate revenue losses. Diversifying the export portfolio can also reduce dependency on a single market and provide a buffer against economic shocks.
Moreover, enhancing the competitiveness of Sri Lankan goods through quality improvements and cost-efficiency measures can help retain market share despite higher tariffs. Negotiating trade agreements and seeking tariff relief or exemptions through diplomatic channels may offer another avenue to cushion the impact.
In conclusion, while the increased American tariffs on Sri Lankan exports present a formidable challenge, strategic measures and proactive policies can help the island nation navigate these economic waters. The key lies in adaptability, diversification, and the fostering of new international partnerships to sustain economic growth and stability.
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The White House- the executive office of the President 1600 Pennsylvania Ave., NW Washington, DC 2050.
An Open Appeal to President Trump: A Call for Fair Trade with Developing Nations
Dear President Trump,
As a leader who has consistently prioritised economic growth and equitable trade, I write to appeal for a reconsideration of the tariffs imposed on developing nations, particularly Sri Lanka. This small island nation, once a symbol of resilience, now faces an unparalleled economic crisis. Declared bankrupt in 2022, Sri Lanka is navigating a path of recovery, heavily reliant on IMF bailouts and a rigorous economic restructuring plan to begin repaying foreign debts by 2028.
Sri Lanka’s economic challenges are multifaceted. The country has faced a severe balance-of-payments crisis, compounded by the collapse of its tourism sector during the pandemic and a sharp decline in foreign remittances. These factors have left Sri Lanka struggling to import essential goods, including food, fuel, and medicine. The tariffs imposed on Sri Lankan exports, such as tea, textiles, and rubber, further exacerbate these challenges, threatening the livelihoods of millions who depend on these industries.
Despite these hardships, Sri Lanka has demonstrated a steadfast commitment to reform. The government has implemented measures to enhance fiscal discipline, improve governance, and create a more transparent and accountable economic framework. These efforts aim to attract foreign investment and foster sustainable growth. However, the burden of tariffs undermines these initiatives, making it increasingly difficult for Sri Lanka to achieve economic stability.
Please consider this matter and take appropriate action. Signed- Dr. Harold Gunatillake, Order of Australia MBBS(Cey), FRCS (UK), FICS (US), FIACS (US), AM (Sing),
(haroldgunatillake1@gmail.com)
