First Capital forecasts apparel sector may lose $110–290 m from US tariffs

Monday, 28 July 2025 04:44 - - {{hitsCtrl.values.hits}}

Warns employment rate could reduce by 11% in apparel sector

First Capital Research (FCR) is forecasting a loss of $ 110 million to $ 290 million in the short-to-medium term for the export apparel sector on account of the high US tariff.

In a special report on the US tariff, FCR said according to industry experts, 60% to 70% of apparel exports are value-added products that require advanced skills and training. However, due to the simplicity of the sewing process, orders can be transferred within six months.

Relocating orders to cheaper countries may reduce apparel volumes by 10%-15%, with an apparel export loss of $ 290 million in the near term, FCR said.

It anticipates apparel and textiles exports may reduce by 5% due to the global economic slowdown by 2026, on par with the decline witnessed during the 2009 world economic recession. Accordingly, FCR expects a net export loss of $ 110 million in the short term.

“The impact of a 5% reduction in apparel exports due to the global economic slowdown and a 10% to 15% volume drop due to relocating in the US may impact GDP adversely by 0.6%, the merchandise trade deficit by 4.2%, and the employment rate could reduce by 11% in the apparel sector. In the short term, order relocations are expected to shift towards Vietnam and India due to several key advantages,” FCR said.

On 9 July, the US revised its earlier decision from 2 April by lowering the reciprocal tariff rate on imports from Sri Lanka to 30%, down from the initially imposed 44%. Despite this reduction, a 30% tariff continues to impose a substantial cost burden, as the post-tariff average unit selling price remains significantly higher than regional competitors.

FCR in its report outlines three possible tariff rate scenarios, with the 15% tariff rate scenario considered the most likely based on ongoing discussions with the US. The full report is available at https://firstcapital.lk/wp-content/uploads/2025/07/Economic-Update-Sri-Lankas-Apparel-Sector-in-the-Post-Tariff-Era-25.07.25.pdf.