by Shiran Illanperuma

China’s rapid development over the last few decades has been the source of much debate among economists. Some claim China as the model par excellence of market liberalisation and the superiority of private sector driven growth. Others equally argue that China’s model is one of planning and state intervention.

On 28 March, I was invited by Nexus Research to deliver a presentation on China’s development model alongside former Ambassador to China Dr. Palitha Kohona. Unfortunately, the contents of this presentation have been misreported in an article in the Island published on 4 April (Dr Kohona: developing countries should covet China model). The article claimed that my presentation touched on “low-cost labour, foreign direct investments, and global trade agreements”. In fact, such simplistic tropes were precisely what I had intended to counter.

China’s development model challenges many of the axioms of neoclassical economics. If low-cost labour were the decisive factor for take-off, then investment should be pouring into much-cheaper labour markets in sub-Saharan Africa. On the contrary, rising wages in China have not led to the outflow of capital one would expect under such a model. This is because the advantage China offers is a healthy and skilled workforce (relative to price) and an infrastructural system that keeps non-wage operating costs (such as transport and energy) low. This, combined with a domestic value chain, is China’s main strength and why economic growth has been combined with rising wages and standards of living.

While foreign direct investment (FDI) has been a huge part of China’s success story, it is possible to overstate their importance. First, FDIs only really took off from the 1990s onwards, yet to begin there would be to ignore the decades of work done to develop the country’s agricultural self-sufficiency, basic industrial system, and institutional structure. Second, what has mattered for China is the quality of FDI, which is determined by government policy. By the standards of the OECD Foreign Direct Investment Regulatory Restrictiveness Index, China remains fairly selective on what FDI is allowed and encouraged. FDI is promoted not as an end in itself but as a means to acquire technology that should be transferred to national champions.

Role of Local Government

A significant portion of my presentation for Nexus Research was on the role of local governments economic policy – something that is often neglected (though there is a growing literature on the subject). China has a fairly decentralised system of governance, a product of its vast size and geography, as well as the institutional changes and experiments in direct democracy during the period of the Cultural Revolution.

Chinese economist Xiaohuan Lan, in his book How China Works (2024), has said that “In China, it is impossible to understand the economy without understanding the government.” While the central government in China formulates indicative plans and the overall goals and trajectory for development, implementation of these plans is delegated to local governments. Local governments have a broad remit to interpret these plans, experiment with implementation, and compete with each other for investment. This leads to a much more dynamic and decentralised development process that encourages grassroots participation.

A comparison between China and India on the share of public employment at different levels of government is very revealing. For China, over 60% of public employment is at the level of local government, with federal and state governments comprising less than 40% of employment. In contrast, less than 20% of Indian public employment is in local government. India, therefore, despite its much-touted linguistic federal system, is far more centralised than China. The weakness of Indian local governments remains a significant barrier for its development.

The Role of SOEs

State-owned enterprises (SOEs) are the elephant in the room when it comes to China’s development model. Chinese political scientist Prof. Zheng Yongnian said in 2011 that “the state sector is in fact important for China’s macroeconomic stability.” This is a radically different approach from neoclassical economics, which views macroeconomic policy purely through the lens of fiscal and monetary policy.

Broadly speaking, SOEs in China perform four ‘macroeconomic’ functions. First, they conduct the low-cost production of upstream inputs such as metals, chemicals, and rare earth minerals. Second, they manage essential commodity reserves and intervene in commodity markets to stabilise prices. Third, they engage in countercyclical spending on public works during economic downturns. Fourth, they are deployed to respond during emergencies and external shocks such as the 2008 Sichuan earthquake and the COVID-19 pandemic. The through line in these functions is to keep costs low and smoothen out business and commodity cycles. This is why China has not yet faced a recession comparable to many capitalist economies.

As a consequence of this model, SOEs remain a significantly large part of the Chinese economy in quantitative terms. According to data compiled by the Peterson Institute for International Economics, SOEs accounted for around 75% of the aggregate revenue of Chinese firms in the Fortune 500. While it is true these firms are often not as profitable as the private sector, this is by design, as they pass on low prices to domestic manufacturers.

China has entities such as the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) which facilitate the centralised governance and oversight of SOEs. This model is crucially different from the Temasek model often discussed in Sri Lanka. Under Temasek, SOEs are almost entirely market-oriented and depoliticised. This is not the case in China, where SOEs continue to play crucial social and political functions.

The Role of Competition

What confuses most observers of China is the fact that it very obviously has a fiercely competitive and dynamic private sector. How then to reconcile the preceding elaboration of the role of local government and SOEs with a competitive private sector? Local governments and SOEs provide the basic institutional framework and economic building blocks for the private sector to play its role in capital accumulation and innovation.

The competitive cycle in China could be broadly divided into four phases. In the first phase, incentives created by the central and local governments lead to a flood of investment in desired sectors and sub-sectors, resulting in the establishment of new firms and production capacity. In phase two, these incentives are eased, leading to fierce competition and survival of only the fittest firms. In phase three, once the market has reached a stage resembling monopoly, one of three tactics may be used: 1. Firms are forced to compete internationally and export; 2. monopoly firms are broken up by the state; or 3. monopoly firms are nationalised or brought under stronger state supervision. The system is designed to resist the market’s natural tendency towards monopolisation.

Political Leadership

The Chinese state has an exceptional ability to maintain what political sociologist Peter B. Evans calls ‘embedded autonomy’. It is close enough to the private sector to understand economic conditions and formulate policy but politically independent enough from capital to resist capture by private interests. This is a key difference between China’s development model and the developmentalism of East Asian states such as Japan and South Korea, where large private firms (zaibatsu in the former, chaebols in the latter) dominate political life.

China’s development model cannot be understood in isolation of its leadership system. The Communist Party of China, which has around 100 million members (almost five times the population of Sri Lanka!), has been key to the process of China’s development. The party remains committed to developing Marxist-Leninist philosophy and applying it to the country’s concrete conditions. It retains deep roots in all levels of Chinese society, engaging in consultation during the policymaking process.

To what extent China’s model can be replicated by other countries is an open question. While the CPC has often invited academics and political parties to study its system, this does not equate to the party attempting to export said system. There is no real ‘Beijing consensus’ that is equivalent to the ‘Washington consensus’. On the contrary, President Xi Jinping, in 2023, cautioned that modernisation “cannot be realised by a cookie-cutter approach”.

“For any country to achieve modernisation, it needs not only to follow the general laws governing the process but, more importantly, consider its own national conditions and unique features.”

(Shiran Illanperuma is a researcher at Tricontinental: Institute for Social Research and a co-editor of Wenhua Zongheng: A Journal of Contemporary Chinese Thought. He is also a co-convenor of the Asia Progress Forum which can be contacted at asiaprogressforum@gmail.com)

Sri Lankan Foreign Policy since the End of the Cold War

By the end of the Cold War, Sri Lanka’s foreign policy priorities were predominantly shaped by its armed conflict with the LTTE, despite pivotal shifts in its regional and global geopolitical spaces. The significance of the country’s foreign relations was largely viewed through the lens of its strategic needs in the ongoing civil war, often overshadowing other broader regional and global developments.

The Indo-Sri Lanka Peace Accord of 1987 and the subsequent establishment of the Provincial Council system under the 13th Amendment to the Constitution failed to bring lasting peace and merely perpetuated the vicious cycle of violence. Meanwhile, the uprising (1987-1989) led by the Janatha Vimukthi Peramuna (JVP) and its ruthless suppression deepened the political and social turmoil and tarnished the country’s democratic credentials, further constraining the government’s ability to focus and react to broad external strategic developments. As a result, the critical shifts occurring in South Asia, the Indian Ocean, and the global strategic environment after the Cold War were more or less overlooked in Sri Lanka’s foreign policy decisions.

Following the decisive military defeat of the LTTE in 2009, Sri Lanka underwent a significant shift in its politico-strategic needs, marking the beginning of a new phase in the country’s foreign policy. With the conclusion of the protracted civil war, a different set of issues came to the forefront and decided Sri Lanka’s foreign policy and geopolitical priorities. Accordingly, the evolution of Sri Lanka’s foreign policy in the post-Cold War era can be divided in two distinct phases, with the end of the war in 2009 acting as a pivotal turning point.

Enduring Crises and Foreign Policy

under President Premadasa

When Ranasinghe Premadasa assumed the presidency after a violence-ridden election, Sri Lanka was mired in multi-faceted crises. The Indian Peace Keeping Force (IPKF), initially deployed to supervise the Peace Accord, quickly found it embroiled in violent conflict with the LTTE in the North. Maneuvering the IPKF’s withdrawal without alienating India became a delicate and daunting challenge. Meanwhile, the brutal suppression of the Janatha Vimukthi Peramuna (JVP) insurgency in the South only deepened the country’s instability and culpability, further intensifying international backlash over human rights violations.

Despite facing significant challenges, Sri Lanka’s foreign policy lacked coherence and strategic direction. The government’s foreign policy responses were often reactive, addressing events in isolation rather than within a broader strategic framework. Decision-making appeared to be driven more by immediate political considerations than by long-term objectives. As a result, Sri Lanka became entrapped in a foreign policy dilemma, struggling to manage multiple crises across various fronts simultaneously.

One of President Ranasinghe Premadasa’s key achievements was persuading/pressuring  India to withdraw the Indian Peace Keeping Force (IPKF) from Sri Lanka in 1990. However, it also strained Indo-Sri Lanka relations in the short term. One of the key achievements of President Ranasinghe Premadasa was persuading India to withdraw the Indian Peace Keeping Force (IPKF) from Sri Lanka. However, this success came at the cost-damaging Indo-Sri Lanka relations.

During a public meeting on June 1, 1989, President Premadasa demanded the complete withdrawal of the IPKF from Sri Lanka by July 29, 1989, giving India just two months’ notice. India was taken aback by the manner in which this demand was made and made it clear that Sri Lanka could not impose a unilateral deadline. India was only prepared for a phased withdrawal and had limited options. In response, India made a misguided decision to train a Tamil National Army.

In an effort to pressure India into withdrawing the Indian Peace Keeping Force (IPKF) from Sri Lanka, President Premadasa sought to leverage the South Asian Association for Regional Cooperation (SAARC). In July 1989, Sri Lanka boycotted the SAARC Ministerial-level meeting in Islamabad, Pakistan. Furthermore, Sri Lanka made it clear that it would not host the SAARC Summit scheduled later that year in Colombo. The Sri Lanka informed SAARC countries that the Summit could not precede in Colombo as long as the IPKF remained stationed in the country against its will (RavinathaAryasinha, 1997: 54)

After V.P. Singh of Janata Dal became Prime Minister of India in December 1989, the withdrawal of the Indian Peace Keeping Force (IPKF) from Sri Lanka was expedited. In contrast to Rajiv Gandhi’s position, I.K.Gujral, the External Affairs Minister in the Janata Dal government, stated that “Tamil security is an internal matter of Sri Lanka.” He expressed hope that the Sri Lankan government had learned from the lessons of history and would no longer deny the country’s ethnic minorities their due rights (Sunday Times, 29 April 1990).

However, the rescheduled Summit for Colombo in 1990 was ultimately not held there. The Maldives insisted on hosting the summit in Malé, coinciding with the 25th anniversary of it becoming a Republic. The failure of the planned 1990 summit in Colombo also reflects the complex regional dynamics at the time.

After the withdrawal of the Indian Peace Keeping Force (IPKF) in 1990, the Liberation Tigers of Tamil Eelam (LTTE) swiftly reemerged as a formidable military and political force in the North and East of Sri Lanka, setting the stage for the onset of Eelam War II in June 1990. In the 1990s, parallel to the expansion of Sri Lankan Tamil Diaspora, the LTTE’s international influence grew significantly.

Its front organisations in Western countries became increasingly active, openly fundraising, pressuring host governments on behalf of the LTTE, and even facilitating the transportation of arms and supplies to the conflict zones in Sri Lanka. This growing international network of support posed a substantial challenge to the Sri Lankan government. Moreover, the LTTE frequently framed its actions as a response to alleged human rights violations by the Sri Lankan government, using this narrative to justify its activities and gain international sympathy and support. The complexities of this issue—encompassing both military confrontations and political maneuvering—posed a formidable challenge that required a comprehensive strategy and sharp diplomatic acumen.

The Premadasa administration failed to fully recognise the growing significance of the international public sphere and the increasing prominence of international human rights frameworks. These were often dismissed as instruments of the LTTE’s propaganda. The Sri Lankan government held a largely negative view of Western countries that raised human rights concerns, perceiving these countries as supportive of the LTTE. This perception, coupled with a failure to distinguish between the LTTE and the broader ethnic conflict, impeded the government’s ability to formulate an effective strategy in response to international criticism.

Despite his unconventional approach, President Premadasa recognised that the Foreign Ministry was in disarray, lacking direction amidst the decisive challenges facing the country. In response, he established a Foreign Affairs Study Group, chaired by Dr. Gamani Corea, to address the situation (Dayan Jayatilleka, 2017). The group completed its report on restructuring Sri Lanka’s foreign policy and diplomatic missions, but before it could be presented, President Premadasa was tragically assassinated. Following his death, President Wijetunga, the caretaker president, assumed office but hesitated to take any new initiatives on the matter.

Change Vision and Restructuring under President Chandrika Bandaranaike Kumaratunga

The efforts to instill a new policy vision and reshape the Ministry of Foreign Affairs (MFA) began after the People’s Alliance (PA) assumed power in 1995 under the leadership of President Chandrika Bandaranaike Kumaratunga. By the time Kumaratunga assumed the presidency, the MFA was in disarray—lacking direction and burdened by excessive politicisation. To address this, President Kumaratunga appointed Lakshman Kadirgamar as Minister of Foreign Affairs. Drawing on his extensive experience as an international civil servant, Kadirgamar implemented reforms to streamline recruitment, promotions, and diplomatic postings, restoring some order to the MFA. At the same time, the government sought to bolster Sri Lanka’s democratic image on the international stage.

Strengthening the country’s credentials as a functional democracy was viewed as essential for garnering global support in addressing the LTTE military challenge. In this context, internal policy reforms were expected to provide strong backing to a foreign policy with a clear vision and direction.

The PA government marked a significant departure from the antagonistic stance of its predecessors towards international human rights bodies. Recognising the growing influence of the global public sphere on national policies, the PA government made a deliberate effort to engage with key international human rights organisations, such as Amnesty International, Human Rights Watch, and the United Nations. These engagements included open dialogues aimed at addressing concerns about Sri Lanka’s human rights situation.

The PA government’s commitment to international human rights standards and norms was demonstrated by its ratification of several major international human rights conventions. Additionally, the PA Government worked to strengthen domestic human rights institutions, particularly the Human Rights Commission of Sri Lanka (HRCSL), further solidifying its dedication to human rights both within Sri Lanka and on the international stage. These efforts were seen as essential for two reasons: promoting domestic reconciliation and enhancing Sri Lanka’s international credibility.

In light of the geopolitical implications of India’s strategic rise and changes in the South Asian geopolitical landscape, developing strong ties with India remained a key achievement of Sri Lanka’s foreign policy under the People’s Alliance (PA) government. After decades of mutual suspicion,

accusations, and tensions, both countries recognised the importance of normalising their relations. President Chandrika Bandaranaike’s new vision and foreign policy approach provided a significant opportunity for a fresh start towards rapprochement. The Indian government’s diplomatic shift, marked by the Gujral Doctrine introduced by External Affairs Minister I. K. Gujral in 1996, further paved the way for improved bi-lateral relations. Indo-Sri Lanka relations had not been as cordial for decades as they were under President Chandrika Bandaranaike Kumaratunga. A key testament to the South Asian policy of the Kumaratunga administration was the 10th SAARC Summit held in Sri Lanka in 1998. During this summit, informal discussions between India and Pakistan, initiated through the personal efforts of President Kumaratunga, marked a critical development in the regional strategic context.

Under President Premadasa, Sri Lanka’s relations with Western powers, particularly Britain and the United States, began to deteriorate rapidly. For a small country like Sri Lanka, which was grappling with a significant internal armed conflict with international Diaspora linkages, navigating the post-Cold War global strategic landscape became a critical challenge. Nearly two-thirds of Sri Lanka’s export market was tied to the West—primarily Britain, the United States, and the European Union. At the same time, the LTTE’s international headquarters operated from Western capitals. Given this, Sri Lanka paid a steep price for its adversarial stance toward these Western powers. In contrast, one of President Chandrika Bandaranaike Kumaratunga’s notable achievements was her efforts to foster better relations with the West. By implementing internal democratic reforms and adopting the PA’s approach to the ethnic crisis, she created a more favourable environment for diplomatic engagement. This foreign policy shift paid off: In 1996, the United States resumed arms sales to Sri Lanka, and the US “Green Beret” corps began offering advanced training to the Sri Lankan security forces. This military support included specialized training missions by the US Navy SEALs, the US Air Force Special Operations Squadron, and the US Army’s Psychological Operations Group. The proscription of LTTE as a terrorist organization by the United States in October 1997, followed by similar designations from the United Kingdom in 2000 and Australia in 2001, dealt a severe blow to the LTTE international operations.

The dynamics of the crisis, however, posed significant obstacles to the continued implementation of this policy. Negotiations with the LTTE, which began in October 1994, collapsed on April 17, 1995, when the LTTE withdrew from both the talks and the ceasefire after four rounds of discussions. The hope of achieving a negotiated settlement with the LTTE was dashed within six months. The conflict with the LTTE once again became the central focus of foreign policy, but this time, the government’s
approach shifted from defensive to more assertive.

With the onset of Eelam War III, the government launched the Reviresa operation in November–December 1995 and regained control of Jaffna from the LTTE. In September 1996, the government conducted the Sath Jaya operation, which led to the recapture of Kilinochchi. However, the situation began to change in 1998. The government’s attempt to establish a land route to Jaffna failed, resulting in heavy human and material losses. By late 1998, military camps in Kilinochchi, Mullaitivu, and Elephant Pass fell to the LTTE. Between 1999 and 2000, the Sri Lankan government forces suffered continuous setbacks on the military front.

Similarly, the proposal for the devolution of power, which had been incorporated into a draft of the new constitution, became entangled in political debates with the United National Party (UNP). The country had shown readiness to accept devolution through widespread public awareness campaigns, such as the Sudu Nelum movement. However, when the proposal was only presented to Parliament in August 2000, it was rejected by the UNP. As a result, the People’s Alliance (PA) government was unable to fulfill one of its key political promises to both the Tamil people and the international
community.

In 1999, another attempt was made to resume talks with the LTTE, this time with the prospect of third-party facilitation. President Kumaratunga explored the possibility of securing international involvement, with potential facilitators including France, a joint Commonwealth team, and the Vatican. By March 2000, the Government of Sri Lanka and the LTTE agreed on Norway as the mediator. With Norwegian facilitation, a Ceasefire Agreement was drafted between the Sri Lankan Government and the LTTE, scheduled to be signed on April 11, 2001. However, two days before the signing, the LTTE
unexpectedly declared that they would not proceed with the agreement, without providing any explanation for their decision.

(To be continued)

by Gamini Keerawella

The silver lining of US tariffs for emerging economies:

In a world that thrives on interconnectedness, the imposition of U.S. tariffs has been widely discussed through the lens of negativity—trade wars, disrupted supply chains, and market turbulence. However, this narrow view fails to account for the opportunities that arise from such disruptions. While it’s easy to focus on the immediate challenges—rising costs, retaliatory measures, and financial volatility—emerging economies, especially those in Asia and South Asia, are beginning to see a silver lining.

The very disruptions caused by U.S. tariffs can open up pathways for growth, innovation, and strategic realignment. Rather than being passive victims of global trade tensions, countries like Sri Lanka can leverage these moments of upheaval as catalysts for economic renewal, stronger international partnerships, and greater resilience in the face of future global shifts. The silver lining of U.S. tariffs, therefore, lies in how emerging economies can transform these challenges into lasting opportunities for economic development and regional integration.

Traditionally seen as a blunt economic tool, tariffs have made a comeback, especially during and after the Trump administration. While much attention has focused on the negative impacts of tariffs—such as trade slowdowns, retaliatory tariffs, and market volatility—this view overlooks some of the potential positive outcomes, especially in the longer term. This article will explore the opportunities created by U.S. tariffs, particularly for emerging economies like Sri Lanka.

What Are Tariffs and Why Are They Imposed?

Tariffs are taxes placed on imported goods, making them more expensive for consumers. The United States has used tariffs as a way to address trade imbalances, protect domestic industries, and assert its influence on the global stage. For example, tariffs on steel and aluminum were meant to safeguard American manufacturing jobs, while tariffs on Chinese goods were part of broader efforts to correct trade deficits with China and challenge unfair trade practices.

The Immediate Consequences

of U.S. Tariffs

When tariffs are imposed, the immediate effects are usually negative for global trade. Countries that rely on exporting to the U.S. face reduced demand for their goods, which can lead to financial losses. Markets may experience increased volatility, stock prices may drop, and inflation could rise, especially in countries dependent on global supply chains.

For instance, countries like China have retaliated with their own tariffs, leading to a “trade war” that has disrupted global supply chains. As a result, businesses face higher costs and reduced profits, which can also affect consumers who pay more for goods.

The Longer-Term Effects: Economic Reshaping

Although tariffs create challenges, they also lead to changes that could benefit certain economies in the long run. For example, trade wars often force countries to rethink their supply chains. In response to U.S. tariffs, many multinational companies started seeking alternatives to China for manufacturing. This shift, known as the “China +1” strategy, has led to countries like Sri Lanka, Vietnam, and India seeing a rise in foreign investment and a growing role in the global supply chain.

Sri Lanka, with its strategic location and competitive labor costs, has become an attractive destination for businesses looking to diversify their production outside of China. Sri Lanka’s exports, such as tea and apparel, have seen increased demand as companies move their operations to places less affected by tariffs. This shift creates opportunities for countries like Sri Lanka to boost their industrial sectors, attract foreign capital, and integrate into regional trade networks.

The Role of Financial Volatility

One of the immediate reactions to tariffs is financial volatility, as global markets try to adjust to the uncertainty caused by trade conflicts. While this often results in market instability, financial volatility can also serve as a catalyst for broader economic reforms. In times of crisis, countries may be forced to improve their fiscal policies, strengthen their institutions, and diversify their economies.

For example, countries in the emerging world may use the pressure from tariffs to undertake structural reforms that make their economies more resilient. They may improve fiscal governance, attract more investment, and create a more diversified and stable economy. Over time, this can reduce their dependence on any single trading partner and help them weather future economic shocks.

Opportunities for Emerging Economies

Although U.S. tariffs present challenges for emerging economies, especially those that depend on exports to the U.S., they also provide opportunities for strategic realignment. With companies looking for alternatives to China, emerging economies can reposition themselves as attractive investment destinations.

Sri Lanka, for instance, has benefited from this shift in the global supply chain. As businesses look for stable alternatives to Chinese manufacturing, Sri Lanka has seen an increase in demand for its exports, such as textiles and tea. Additionally, foreign direct investment (FDI) in Sri Lanka has been growing, with companies looking to set up production facilities in countries that are less affected by tariff measures.

This shift is not just about attracting investment but also about repositioning a country within regional supply chains. Sri Lanka has the potential to become a key player in the Indian Ocean region, connecting Asia with Europe and Africa. By improving infrastructure, such as ports and digital networks, Sri Lanka can better integrate into global value chains and increase its export capacity.

Sri Lanka’s Response

to Global Shifts

For Sri Lanka, the global effects of U.S. tariffs present both a challenge and an opportunity. The country is currently dealing with debt restructuring, fiscal deficits, and economic instability. However, these global disruptions can be leveraged as a platform for domestic renewal.

Sri Lanka’s response to these shifts includes diversifying its export markets. By increasing trade with other regions, such as Southeast Asia, India, and the EU, Sri Lanka can reduce its reliance on any one country or market. Regional trade agreements like the South Asian Free Trade Area (SAFTA) can help strengthen Sri Lanka’s position in the global market and protect it from the volatility of global trade wars.

Additionally, Sri Lanka has used these global shifts as an opportunity to undertake important fiscal reforms. These reforms, including improving fiscal governance and enhancing investor confidence, can help the country become more resilient in the long term. By addressing internal structural issues, Sri Lanka can better navigate global economic shifts and position itself for sustainable growth.

The Role of Technology and Digitalisation

Technology plays an essential role in Sri Lanka’s strategy to capitalise on global economic changes. The digital transformation of industries, driven in part by U.S. tariffs and trade disruptions, opens new avenues for economic development. For example, Sri Lanka’s growing IT sector, combined with advancements in e-commerce and digital infrastructure, allows the country to offer a variety of services to global markets, including financial services, software development, and education.

By investing in digital infrastructure and embracing new technologies like artificial intelligence and automation, Sri Lanka can position itself as a leader in the regional digital economy. This technological upgrade can help Sri Lanka integrate more deeply into global value chains, boosting exports and creating new economic opportunities. Possible benefits from US tariffs include,

Short-Term Benefits

*  Diversified Exports: Emerging economies gain market share by offering alternatives to Chinese products.

*  Increased Demand: Tariffs on China boost demand for products from other regions.

*  Boost in FDI: Countries attract more foreign investments as supply chains shift.

*  Lower Competition: Protectionist measures reduce competition for domestic industries.

Medium-Term Benefits

*  Industrial Upgrading: Local industries modernise, innovate, and become more productive.

*  Policy Reforms: Financial instability prompts improvements in governance and policies.

*  Supply Chain Integration: Economies join more resilient and diversified global supply chains.

*  Regional Trade: Strengthened trade partnerships with neighbouring countries and regional organisations.

Long-Term Benefits

*  Structural Growth: Policy changes create a more resilient and diversified economy.

*  Technological Advancements: Focus on innovation positions economies as leaders in new industries.

*  Geopolitical Influence: Adaptation to global changes boosts regional and international influence.

*  Better Positioning in Global Value Chains: Emerging economies align with evolving global demands, securing a stronger role in global trade.

A Turning Point for Emerging Economies

While U.S. tariffs initially cause economic disruption, they can also serve as a wake-up call for emerging economies like Sri Lanka. By diversifying trade relationships, investing in technology, and undertaking necessary structural reforms, countries can turn these challenges into long-term growth opportunities. The global shifts triggered by U.S. tariffs provide a unique opportunity for countries like Sri Lanka to reinvent their economic models, enhance their resilience, and position themselves as key players in the evolving global economy.

In this era of trade wars and economic realignments, smaller nations no longer need to simply weather the storm. With the right policies, proactive strategies, and a focus on innovation, countries like Sri Lanka can not only survive the disruptions caused by U.S. tariffs but thrive in the new economic landscape.

(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT University, Malabe. He is also the author of the “Doing Social Research and Publishing Results”, a Springer publication (Singapore), and “Samaja Gaveshakaya (in Sinhala). The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the institution he works for. He can be contacted at saliya.a@slit.lk and www.researcher.com)