Business

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

Published

1 year 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

New policy framework for stock market deposits seen as a boon for companies

Published

21 hours ago

2026/01/14

Sahan Weerasooriya

Eardly Kern: ‘CSE experiencing strong revival

The government’s new policy framework to allocate a maximum interest rate for stock market deposits would pave the way for companies and investors to plan their future business activities, a senior stockbroker said.

‘Accordingly, the Colombo Stock Exchange (CSE) has entered a period of strong revival, supported by economic stabilization and rising investor confidence while significant market reforms would support the new policy framework on interest, Assistant Vice President Softlogic Stockbrokers, Eardly Kern, told The Island Financial Review.

He said that the imposition of maximum interest rates for stock market deposits would prevent the interest rates from moving upwards, thus paving the way for investors to invest in stocks with a lot of confidence.

Kern added: ‘The CSE outlook would provide expanding opportunities for investors as Sri Lanka positions itself for market-led investor platforms.

‘Improving macro fundamentals, such as lower interest rates, rising corporate earnings and historically attractive valuations, have been key catalysts in driving investment into the equities market.

‘These tailwinds, together with ongoing economic reforms, have helped re-establish confidence among both local and foreign investors.

‘Over the past two years, the number of CDS accounts has surpassed 949,000, with digital on-boarding through the CSE mobile app driving the latest surge.

‘Further, foreign inflows for 2024 amounted to USD 66.5 million, while Rs 175 billion was raised through capital market activity, including 16 new listings. With a target of 20 IPOs on the horizon, the CSE anticipates several new companies entering the market by early 2026.

‘The All Share Price Index (ASPI) delivered an impressive 49.7 percent return in 2024, ranking the CSE as the second-best performing market in Asia for the year. By November 2025, the index had risen a further 45.65 percent amounting to an extraordinary two-year return of approximately 95 percent.

‘The S&P SL20 Index recorded a parallel recovery, gaining 58.5 percent in 2024 and 31.84 percent so far in 2025.

‘ Despite the rally, the CSE continues to trade below its 10-year average PER and valuations remain significantly more attractive than in regional markets, such as, India, Malaysia, Vietnam, and China.

‘ Turnover has surged to Rs 1.06 trillion in 2025 (as of mid-November), nearly doubling the figure recorded in 2024. Market capitalization grew 34 percent n 2024, despite only around 40,000 active investors capturing most of the gains—highlighting the potential for broader participation.

‘ Corporate earnings have also strengthened markedly. After generating Rs 686 billion in earnings during 2024—a 50% year-on-year increase—listed entities are projected to deliver between Rs 775–800 billion in 2025. Earnings for the first half of 2025 have already grown 57 percent year-on-year.’

By Hiran H Senewiratne

Business

Dialog reinforces commitment to heritage through Kelaniya Duruthu Festival

Published

21 hours ago

2026/01/14

Sahan Weerasooriya

Dialog Axiata PLC, Sri Lanka’s #1 connectivity provider, has reinforced its enduring commitment to preserving national culture by sponsoring the Kelaniya Duruthu Festival, aligning long standing patronage with purposeful community engagement to honour religious heritage, support cultural continuity, and strengthen shared values.

The annual Kelaniya Duruthu Festival, one of Sri Lanka’s most significant religious and cultural observances, was held on 8th, 9th and 11th January 2026, marking a congregation of thousands of devotees and visitors at the historic Kelaniya Raja Maha Vihara. As a long-term patron, Dialog continues to provide sponsorship support, enabling the seamless organisation of the festival while uplifting traditions deeply rooted in the nation’s cultural identity.

Through its continued support of the Kelaniya Duruthu Festival, Dialog underscores its role as a responsible corporate citizen dedicated to safeguarding Sri Lanka’s cultural and religious heritage for future generations. This commitment is further reflected in Dialog’s long-term patronage of national events such as the Kandy Esala Perahara, Nawam Maha Perahara at Gangaramaya, Katharagama Esala Perahara and Gatabaru Esala Perahara. Complementing these efforts, Dialog has also undertaken heritage preservation initiatives including the construction of the vestibule at Dimbulagala Aranya Senasanaya, the launch of a website and directory of Amarapura Maha Nikaya Temples, and the restoration of the Anuradhapura Maha Vihara Sannipatha Shalawa.

Business

Sri Lanka launches its first-ever Smart Bus Ticketing System

Published

21 hours ago

2026/01/14

Sahan Weerasooriya

Advancing public transport with digital bus ticketing — CBA, in partnership with SLTB and Nimbus Venture.

A National Breakthrough in Public Transport Digitalization Powered by Ceylon Business Appliances with Nimbus Ventures.

Sri Lanka has taken a historic step forward with the launch of its first Smart Bus Ticketing System, enabling passengers to pay fares using contactless cards, digital wallets, and QR payments. This advancement places the country among global leaders in smart mobility.

The initiative was made possible through collaboration with the Government of Sri Lanka, leading banking partners, and the technology leadership of Ceylon Business Appliances (CBA) and Nimbus Ventures, who serve as the Technology, Software, Hardware, and Operational Partners behind the nation’s first Open Loop Transit Payment System.

For decades, CBA has been at the forefront of Sri Lanka’s digital transformation efforts—bringing modern, global-standard technologies that have strengthened the nation’s digital infrastructure.

Speaking to the media at the launch, Sardha Fernando, Managing Director of CBA, stated:

“This is not just a ticketing upgrade—it is a complete digital evolution of public transport in Sri Lanka. For years, CBA has been committed to introducing advanced technologies to the country, and today, we are proud to bring a globally recognized, secure, and seamless smart transit solution to our people. With every tap, we are enabling convenience, transparency, and a more connected future for all Sri Lankans.”

He added:

“This milestone reflects our ongoing mission: to help build a digitally empowered Sri Lanka that is ready to embrace the technologies shaping the world.”

‘Ruwath Fernando, CEO/Director of CBA, highlighted:

“This project demonstrates that Sri Lanka is ready to adopt and operate on par with global smart mobility technologies. Our commitment has always been to bring the world’s best software systems and innovations into Sri Lanka—solutions that are secure, scalable, and built to international standards.”

He continued:

“By introducing a state-of-the-art open-loop transit payment platform, we are proving that Sri Lanka can not only embrace but also successfully operate advanced digital ecosystems. This is a defining moment in positioning the country as a technology-proof nation prepared to trial and adopt global digital advancements.”

CBA extends heartfelt congratulations to the banking partners who trusted this vision—

Sampath Bank, Commercial Bank, Bank of Ceylon, People’s Bank, and DFCC Bank— on the successful launch of their new ticketing application.

This application integrates seamlessly with the PAX A910S ticketing device, powered by a robust CBA– Nimbus ventures software solution, engineered for scale, reliability, and national deployment..