By Roshan Pussewela –

Sri Lanka has been blindsided by the latest wave of U.S. tariffs, with Washington imposing a staggering 44% duty on Sri Lankan exports. This move, part of a broader trade realignment, is expected to deal a severe blow to the island nation’s economy, already grappling with post-crisis recovery efforts. Early estimates suggest that Sri Lanka could face a loss of up to $3 billion in export revenue, further straining an economy still recovering from financial turmoil. The question now is whether Sri Lanka can withstand this economic onslaught or if its key industries will crumble under the pressure.

A Crushing Blow to Exports

The new U.S. trade policy applies a universal 10% tariff on all imports while significantly raising rates for specific countries. With China facing a 34% tariff, Japan 24%, and the EU 20%, Sri Lanka’s 44% duty is among the highest imposed—effectively pricing many of its exports out of the U.S. market. While American officials claim this move aims to correct trade imbalances and protect domestic industries, Sri Lanka accounts for less than 1% of total U.S. imports. This has fueled speculation that it has been unfairly targeted as part of a broader geopolitical strategy rather than as a genuine response to trade deficits.

Industries on the Line

The implications for Sri Lanka’s economy are dire. The U.S. has long been a crucial market for Sri Lankan goods, particularly in industries such as apparel, rubber and plastic products, and niche agricultural exports. The apparel industry, which employs hundreds of thousands of workers and contributes significantly to national exports, is likely to suffer the most. With a 44% tariff, Sri Lankan garments will struggle against duty-free competitors such as Bangladesh and Vietnam. This could lead to a major decline in U.S. orders, factory closures, and mass layoffs across the sector.

Similarly, Sri Lanka’s rubber and plastic goods, which have long been exported to the U.S., are now at risk of losing their competitive edge to suppliers in Malaysia and Thailand. Even the tea industry, although not heavily reliant on the U.S. market, may experience a knock-on effect as related exports, such as spices and seafood, become less attractive to American buyers. The combined impact across these sectors could see Sri Lanka’s total export earnings shrink by billions, exacerbating the nation’s already fragile balance of payments.

The Geopolitical Undercurrent

Many analysts believe this tariff hike may be more than just a trade policy decision. Sri Lanka’s growing economic ties with China through the Belt and Road Initiative (BRI) have raised concerns in Washington, which has been wary of Beijing’s expanding influence in the Indo-Pacific region. With China increasing its footprint in Sri Lanka’s infrastructure projects—such as the Hambantota Port and Colombo Port City—U.S. policymakers may view Sri Lanka’s alignment with Beijing as a strategic concern. This tariff, then, could serve as a pressure tactic, rather than purely an economic safeguard.

Additionally, Sri Lanka’s preferential trade access to the European Union under GSP+ has already been under review, with concerns over governance and human rights issues. The U.S. may be signaling a similarly tougher stance by imposing these punitive tariffs, forcing Sri Lanka to reassess its trade and diplomatic priorities.

Can Sri Lanka Fight Back?

Faced with this economic shock, Sri Lanka has limited but crucial options. Diplomatic engagement with the U.S. is essential. Trade representatives must lobby Washington to reconsider the tariffs, emphasizing that Sri Lanka is not a threat to American industries and that such high duties could destabilize the island nation’s fragile economy. If securing exemptions proves difficult, Sri Lanka must shift its focus towards expanding alternative markets and strengthening ties with India, the Middle East, and East Asia.

One potential strategy is for Sri Lanka to negotiate new trade agreements that mitigate the impact of U.S. tariffs. Additionally, in the long term, the country must transition from low-margin exports to high-end, value-added production. By investing in technology, automation, and branding, Sri Lanka could make its exports more resilient to protectionist policies.

A Defining Moment for Sri Lanka

The road ahead is uncertain, and Sri Lanka faces an uphill battle in navigating this crisis. Without a decisive response, the economy risks severe contraction, factory closures, and widespread job losses. But Sri Lanka has endured economic hardships before, and its ability to adapt, negotiate, and innovate will determine its trajectory in the coming years.

This is not just a trade dispute—it is a test of Sri Lanka’s economic resilience. The government, industry leaders, and policymakers must act swiftly to protect key industries, secure international partnerships, and build a more robust, self-reliant economy. One thing is certain: Sri Lanka cannot afford to sit idly by while its economic future hangs in the balance.