Business

US election outcomes and trade policy changes: What it means for Sri Lanka

Published

2 years ago

2024/11/15

By Dr Asanka Wijesinghe

Now that the United States (US) election has concluded, what direction will the US’s trade policy be headed? This is one of the burning questions that many of its trading partners are asking in the aftermath of the presidential election.

A costly trade war was the outcome of the tariff hikes in 2018 – under the first term of President Trump – which was followed by retaliatory tariffs from the US’s trade partners.

Elected for a second term, he is once again proposing significant tariff increases as trade policy measures. These potential hanges in US tariff policies will have a direct impact on Sri Lanka’s export industries. The US is the top individual export destination of Sri Lanka, accounting for 23.6% of its total exports (Figure 1).Market share of export destinations of Sri Lanka: 2023

The economic justification for a global tariff on imports and its efficacy in achieving the expected results – such as the reshoring of manufacturing employment to the US and price reduction – remains uncertain. This article mainly focuses on the adverse impacts of a tariff increase on Sri Lanka’s exports to the US.

Future of US Trade Policy

The consumer subsidy-based industrial policy, introduced under the Inflation Reduction Act by the incumbent US administration is expected to continue.

However, the effect of a tariff is more direct than a consumer subsidy. On the campaign trail, the US president-elect proposed 10 percentage points on US imports. This is understood as an additional 10% tariff, rather than a new minimum tariff. It implies that there will be an additional 10 percentage point tariff on the existing average tariff rate of 12.6% on the wearing apparel sector, for instance, if the proposed tariff is implemented

The precise rate of the tariff increase remains ambiguous, as a proposal for a 20% additional tariff was suggested later instead of the 10%. In addition, a 60% to 100% tariff is proposed on imports from China. Also, a more complex, country-specific retaliatory tariff schedule has been proposed to align US tariffs with the rates that the US products face in each country.

Effect of a US Global Tariff on

Sri Lankan Exports

An increase in the US tariffs is likely to reduce consumer demand for imported goods. Additionally, an economic downturn in the European Union (EU), triggered by a trade conflict between the US and its trading partners, could further suppress demand for Sri Lanka’s exports.

If an additional 20% tariff is applied on top of the existing average tariffs for all countries, estimates show that Sri Lanka’s exports to the US are expected to suffer a significant negative impact (Figure 2). For example, wearing apparel, Sri Lanka’s major export sector will experience a loss of USD 187.9 Million. As a percentage, this is a contraction of 8.1% from the base year, 2022.

According to the estimates, the proposed tariffs will severely impact Sri Lanka’s exports of rubber and plastic products, as well as other manufactured products like Christmas decorations, brooms and brushes (Figure 2).

As a percentage, about 90% of export loss can be expected in the chemical products sector which includes activated carbon, and essential oil.

If the US imposes a 60% to 100% tariff on imports from China, relatively high pricing on Chinese products could benefit countries like Sri Lanka from trade diversion.

However, the overall rise in import prices resulting from a broader trade war will drastically reduce the US demand for imports, limiting the gains from this trade diversion.

The US trade partners will retaliate with tariffs, similar to the China-US trade war in 2018. The proposed tariff is estimated to cost an average US household more than USD 2,600 a year, once retaliatory tariffs are factored into the analysis. Additionally, the slowdown of US growth, as a possible consequence of a tariff war, will further reduce the country’s import demand.

The spillover effects of tariff wars will also negatively affect Sri Lanka as the EU countries are expected to experience a substantial economic setback. It is estimated that the EU may see its GDP erode by 1.5%, or about Euro 260 billion.

An economic contraction in the EU will reduce the EU imports from Sri Lanka significantly. Thus, the estimated effects in this article can be considered only as the first-round effects.

Campaign Rhetoric or a Credible Threat? The ikelihood of Tariff Hikes and

Sri Lanka’s Options

A blanket tariff increase and an intense trade war between China and the US will drive up the domestic prices in the US, fuelling fear of inflationary pressure. Accordingly, it is unlikely that the proposed tariffs will be fully implemented given the significant impact of inflation on elections in the US.

As the protectionist measures target the US’s manufacturing sector, sub-sectors like light household equipment, decorations, metal products, and machinery may become more vulnerable to future tariff shocks.

These non-traditional exports of Sri Lanka play a major role in export diversification and are generally more complex and technologically sophisticated.

As a small exporting economy, Sri Lanka is susceptible to external factors that are beyond its control. Additionally, Sri Lanka’s limited role as a purchaser of US commodities limits its ability to negotiate lower tariffs. As a result, the toolbox of responses to future US tariff shocks contains only marginal adjustments.

These may include offering import tariff relief for raw materials and providing production subsidies, such as electricity subsidies, to support domestic producers in maintaining their competitiveness. A consultation with the producers in this regard will enable the government to determine the most effective policy measures.

In the medium term, given the global rise of protectionist and industrial policy measures in major export destinations, Sri Lanka will need to maintain preferential tariffs in other regions like the EU.

It will be vital for Sri Lanka to maintain the GSP+ preference and renewed attempts for increased cumulation to increase the GSP+ utilisation will benefit Sri Lanka.

As the expected high tariffs and the technical barriers in the US and the EU are probable in the future, Sri Lanka should maintain the trade policy reforms aiming to join regional trading blocs like the Regional Comprehensive Economic Partnership (RCEP).

Dr Asanka Wijesinghe is a Research Fellow at IPS with research interests in macroeconomic policy, international trade, labour and health economics.

He holds a BSc in Agricultural Technology and Management from the University of Peradeniya, an MS in Agribusiness and Applied Economics from North Dakota State University, and an MS and PhD in Agricultural, Environmental and Development Economics from The Ohio State University.

(Talk with Asanka – asanka@ips.lk)

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Business

Sri Lanka pitches Saudi investors for new investment partnerships

Published

22 hours ago

2026/09/29

Sahan Weerasooriya

Saudi and Sri Lankan dignitaries at the National Day reception.

By Ifham Nizam

Sri Lanka is pitching Saudi Arabia for greater investment and deeper trade ties, seeking to attract Saudi capital into new development opportunities while aligning bilateral economic cooperation with the Kingdom’s ambitious Vision 2030 agenda, Ports and Civil Aviation Minister Anura Karunathilaka, chief guest at Saudi Arabia’s 96th National Day celebrations in Colombo, said.

Addressing the National Day reception at ITC Ratnadipa, Karunathilaka said Sri Lanka was keen to identify new areas of economic cooperation with the Kingdom and create fresh opportunities for Saudi investors and businesses.

‘We look forward to creating new opportunities for the people of both countries by working in cooperation with Saudi Arabia’s Vision 2030 and its broader development initiatives, he said.

The minister said Sri Lanka wanted to move beyond its existing development cooperation with Saudi Arabia and build a broader economic partnership encompassing investment, trade and new development projects.

He noted that Saudi Arabia had already made a substantial contribution to Sri Lanka’s development. Since 1981, the Kingdom has provided concessional financing amounting to around Saudi Riyals 1.5 billion for 13 projects in Sri Lanka, supporting key sectors including energy, healthcare, education, drinking water and infrastructure.

Karunathilaka said Sri Lanka appreciated this support and was keen to build on the foundation created by those projects by opening further avenues for Saudi investment.

The minister’s investment pitch comes as Saudi Arabia advances its Vision 2030 programme, with the Kingdom seeking to diversify its economy and develop new international partnerships. Sri Lanka, meanwhile, is seeking to attract investment and expand economic opportunities through closer engagement with international partners.

Karunathilaka also highlighted the strong people-to-people links between the two countries, noting that nearly 250,000 Sri Lankans currently work and reside in Saudi Arabia.

‘They serve as an important bridge between our two countries and contribute significantly to strengthening the people-to-people ties between Sri Lanka and Saudi Arabia, he said.

He expressed appreciation for Saudi Arabia’s continued assistance to Sri Lanka and thanked the Saudi government for the facilities extended to Sri Lankan Muslims undertaking Hajj and Umrah pilgrimages.

Karunathilaka said Sri Lanka looked forward to working more closely with Saudi Arabia to strengthen political relations, broaden investment opportunities and enhance development cooperation.

Yaser Abdulrahman Al-Hazme, Chargé d’Affaires of the Royal Embassy of Saudi Arabia to Sri Lanka, said the embassy remained committed to strengthening bilateral relations by promoting political, economic and cultural communication between the two countries.

‘The embassy of the Kingdom of Saudi Arabia in Colombo has been keen during the past period to strengthen bilateral relations between the two countries by playing its role in supporting political, economic, and cultural communication, Al-Hazme said.

Al-Hazme also highlighted the embassy’s role in strengthening communication between Saudi and Sri Lankan institutions and following up on the interests of Saudi citizens in Sri Lanka.

‘On this precious national occasion, I extend my sincere thanks and appreciation to the government and people of the Democratic Socialist Republic of Sri Lanka for the attention and care given to relations between our two countries, and for the constructive cooperation that has contributed to strengthening the bonds of friendship and partnership between the Kingdom and Sri Lanka, he said.

Business

Sonali Rodrigo earns national recognition from Australia’s finance industry

Published

22 hours ago

2026/09/29

Sahan Weerasooriya

Sonali Rodrigo receiving the prestigious AFG Women on the Move Scholarship at the awarding ceremony held in Melbourne.

Australian finance professional Sonali Rodrigo has been recognised with the prestigious AFG Women on the Move Scholarship, presented by Australian Finance Group (AFG), in recognition of her leadership, industry contribution and impact spanning more than two decades in Australia’s finance industry.

The AFG Women on the Move program is dedicated to supporting and advancing women in the finance and mortgage broking industry, recognising individuals who demonstrate leadership, professional contribution, growth, impact and a commitment to empowering other women. The scholarship is supported by leading industry partners, including HSBC and Thinktank.

Sonali’s career spans more than 20 years in Australia’s finance industry, encompassing senior leadership, financial advisory and governance roles. Alongside her professional responsibilities, she has actively mentored and supported women in their career development, contributed to financial literacy, and helped individuals make more informed financial decisions. Her recognition reflects both her professional achievements and the broader impact of her leadership, particularly in creating opportunities and empowering the next generation of women in finance.

Business

Beyond the crisis: Sectoral paths to durable growth

Published

22 hours ago

2026/09/29

Sahan Weerasooriya

Institute of Policy Studies of Sri Lanka (IPS)

Continued From last Friday

Regional infrastructure improvements beyond the Western Province are essential to close market-access gaps and improve efficiency. The Western Province alone generates 42% of Sri Lanka’s GDP, but the dynamics of such agglomeration may also be highly underestimated. Officially, barely a fifth is deemed ‘urban’ in the province, but IPS re-estimates from the 2024 census using population density and infrastructure access, place the true figure at nearly 61%. The absence of strong secondary cities and industrial clusters outside the province reduces the potential gains from this agglomeration, thereby weakening incentives for firms to locate elsewhere or decentralise operations.

Fiscal incentives can promote decentralised corporate operations by offering tax rebates, lower property taxes, and land access in secondary cities like Kalutara and Gampaha, leveraging the connectivity of Southern and Colombo-Katunayake Expressways. The Hambantota seaport and airport, along with Koggala and Mirijjawela Export Processing Zones, can help develop the Southern Province through geography-based tax concessions.

Immediate measures, such as pricing vehicle entry into Colombo city will support regional agglomeration while tackling the acute problem of city congestion. Adopting a low-cost, technology-anchored free-flow method, similar to the Automated Number Plate Recognition (ANPR) currently used in commercial parking facilities for vehicles entering the city, is one such means. Installing high-mounted overhead ANPR gantries at key arterial entry points can operationalise congestion pricing without disrupting traffic speed. Fee collection can use a system like E-Tags electronic toll collection on expressways, integrated with digital payment gateways like GovPay and LankaQR for dynamic, time-of-day variable pricing.

The renewable energy transition is vital to drive competitiveness, external shock resilience, and green growth. Sri Lanka’s transition to renewable energy (RE) has advanced from a mere aspiration to tangible progress. Yet, the evidence suggests the transition is advancing faster on the generation side than the system built to absorb it. Transmission capacity, market design, financing channels, and digital infrastructure have not kept pace with capacity additions, and this gap is what will determine the pace of the transition through 2030.

Capital spending on transmission must be ring-fenced by legally, operationally, and financially separating the electricity grid (the transmission network) from the rest of the energy sector or by the broader government budget as a protected public investment within the medium-term budget framework. Funding should shift from general budget support to dedicated multilateral facilities, reinforced by sovereign guarantees for eligible borrowing. To safeguard public funds, this must be paired with a clear tariff pass-through mechanism that effectively limits open-ended Treasury exposure.

To build market trust, domestic budget funding should be earmarked for market-design technical assistance, signalling strong policy ownership rather than relying on external donors. Transparency too should be strengthened by publishing a firm implementation timeline in the Budget statement and fully disclosing long-term fiscal commitments from Power Purchase Agreements, capacity arrangements, and ancillary services.

(Concluded)