Sri Lanka must navigate tariff turbulence with strategy: Expert

Monday, 11 August 2025 05:42 - - {{hitsCtrl.values.hits}}

Advocata Institute CEO Dhananath Fernando - Pic by Lasantha Kumara

Advocata Institute CEO Dhananath Fernando says if US pushes for zero tariffs on EVs to SL, countries like Japan, China and India will retaliate
Notes small, vulnerable economies like SL are often easiest targets to ‘send a message’
Opines greatest challenge for SMEs not higher tariffs, but uncertainty
Calls on Govt. to strengthen foreign services to manage relations with US, China and India, whilst pushing for better trade terms and boosting domestic reforms
Suggests SL should pivot towards Asian markets as its middle-class is projected to surpass 2 b by 2035, whilst asserting entering markets like China, India and Vietnam is 10-20 year effort

Advocata Institute CEO Dhananath Fernando recently said small and medium enterprises (SMEs) face heightened uncertainty as global trade tensions spill over into supply chains.

Speaking at the Rotary-AmCham SME Conclave 2025, organised by the Rotary Club of Colombo Port City and the American Chamber of Commerce (AmCham) Sri Lanka, he warned that tariff disputes between major economic powers could draw in smaller economies. “If the US pushes for zero tariffs on American electric vehicles (EVs), countries like Japan, China, and India will retaliate. Small, vulnerable economies like ours are often the easiest targets to ‘send a message’ in these scenarios,” he said.

Noting that Sri Lanka faces a new geopolitical triangle, Fernando said: “Earlier, it was about balancing the US and China or India and China. Now, with India drawn into tariff disputes, tensions grow, especially as US relations with Pakistan warm up. This puts Sri Lanka in the middle of multiple competing interests.”

With India now drawn into tariff battles, and US relations with Pakistan warming up, Fernando said Sri Lanka finds itself in the middle of overlapping geopolitical rivalries.

He said the greatest challenge for SMEs was not higher tariffs themselves, but the uncertainty they create. “Bad news can be absorbed, but uncertainty freezes decision-making,” he stressed, predicting many SMEs would delay expansion for the next few years till the trade environment stabilises.

Although Sri Lanka cannot directly influence US tariff policy, Fernando called on the Government to strengthen its foreign services to manage relations with the US, China, and India, whilst pushing for better trade terms and boosting domestic reforms.

He noted that the existing free trade agreements (FTAs) with India, Pakistan, Singapore, and Thailand are limited in scope, with the latter in inactive mode. Fernando said although FTAs can be costly for SMEs to comply with, they can be valuable if firms are part of supply chains linked to FTA partner countries.

In the long-term, he suggested that Sri Lanka should pivot towards Asian markets, with East Asia’s middle-class projected to surpass 2 billion people by 2035. However, he asserted that entering these markets, including China, India, and Vietnam, is a 10-20 year effort, requiring patient investment, thorough market research, and competitive pricing.

“We are entering a period where geopolitics and economics are inseparable. If we play our cards right, Sri Lanka’s strategic position could turn this turbulence into opportunity. If we play them wrong, we risk being sidelined,” he explained.

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