U.S. Tariffs Hammer Sri Lanka’s Export-Driven Economy

A new 44% tariff imposed by the Trump administration on Sri Lankan exports has struck a major blow to the island nation’s economy, which is still recovering from a sovereign default and relies heavily on the U.S. as its largest export market, Prof. Salman Rafi Sheikh wrote for Nikkei News.

Colombo has responded by offering to reduce tariffs on U.S. imports. I Photo: Sri Lanka Ports Authority

Sri Lanka exports about $3 billion worth of goods to the U.S. annually—mostly apparel, tea, and rubber products—accounting for nearly 25% of its total exports. In contrast, Sri Lankan imports from the U.S. total just $443 million, a trade imbalance that has drawn Trump’s ire.

Experts estimate the new tariff could shrink exports by more than 20%, threatening Sri Lanka’s fragile IMF-backed recovery.

Colombo has responded by offering to reduce tariffs on U.S. imports, but the underlying issue is deeper: an overreliance on a single market and poor integration with regional trade networks.

Despite being part of the South Asian Free Trade Area since 2005, Sri Lanka has gained little due to SAFTA’s stagnation and the broader dysfunction of its parent body, SAARC. Limited bilateral deals with India and Pakistan have also produced modest benefits, hindered by restrictive conditions and narrow product coverage.