US tariffs could push total duties on SL garments to 40%: Hulangamuwa

Adviser to President Duminda Hulangamuwa

• Outlines Bangladesh, Vietnam and Cambodia as biggest competition to Sri Lanka’s apparel and textile exports
• Explains tariffs apply to FOB price, not retail price, thus impact on US consumers is limited
• Says US market cannot be replaced quickly, but diversification is still essential
• Notes trade agreement in just three months was Herculean task as opposed to typical FTA timelines
• Affirms Sri Lanka opts for cooperation over retaliation

Senior Economic Adviser to the President Duminda Hulangamuwa yesterday clarified that the newly proposed 30% tariff on Sri Lankan exports to the US is not a flat rate, but an additional levy applied on top of existing import duties.

Speaking to the media, he explained that the 30% tariff is layered on top of existing levies, which vary from 0% to 25% depending on the products' Harmonised System (HS) codes. 

“Currently, garments under HS codes are taxed between 0% and 25%. For the most popular items, rates typically range from 3.5% to 13%. The new 30% is a reciprocal tariff applied on top of the existing tariff. So, for example, if a garment currently attracts a 10% import duty, the new tariff would be 10% + 30% = 40%. This applies not only to Sri Lanka, but to many countries under the new US tariff adjustment,” he explained.

Hulangamuwa listed out India, Bangladesh, Vietnam, and Cambodia as the countries that give the biggest competition to Sri Lanka’s apparel and textile exports to the US market. 

Total exports to the US amount to over $ 3 billion, and of that, $ 1.2 billion come from garments alone. 

Noting that Sri Lanka’s garments fall within a niche segment, he said it extends some level of protection in terms of duty and pricing structure. “However, we still face stiff competition from those countries. That is why it is crucial for us to ensure that the tariff structure we negotiate is competitive, so that we can retain our position in the US market,” he stressed.

As per the latest US tariff adjustments, Bangladesh faces a 35% tariff, Vietnam is at 20%, and India is at 26%—all subject to change further depending on negotiations till 1 August.

“We have not stopped at the 30% rate that was proposed for Sri Lanka. Negotiations are ongoing on a daily basis,” he added.

Responding to a question on the real impact on US consumers, Hulangamuwa said the burden on the US consumer is expected to be moderate. “There was an interesting study done by an organisation, I believe it was Botany, about a month or two ago. They found that tariffs are levied on the free-on-board (FOB) price, not the final retail or selling price in the US,” he said. He pointed out that typically, there is a three to four times multiplier between the FOB price and the US retail price. 

“For example, a garment sells at $ 35 in the US—the FOB price from Sri Lanka might be just $ 6-7. So, the 30% tariff would apply only on that $ 6-7 value, not on the full retail price. Therefore, while the tariff may sound high, its direct impact on the US consumer is relatively modest when seen in the context of the full price they pay,” he explained.

When asked about market diversification, Hulangamuwa added that pivoting away from the US market is not a fix. “This is not a $ 300 million, but over $ 3 billion market. Buyers, agents, and retailers cannot simply switch sourcing countries overnight,” he added. 

However, Hulangamuwa insisted that diversification should still happen regardless of tariffs. “We hope this recent experience will push exporters to consider new markets and reduce over-reliance on any single destination; that shift will likely happen organically,” he stressed.

The Senior Economic Adviser to the President also acknowledged that negotiating such a trade agreement in just three months was a Herculean task. “A free trade agreement (FTA) may take 10 years or more to conclude. We are managing import-export tariff discussions within months, while balancing the needs of exporters, local industries, and consumers. The letter from the US is not the conclusion and negotiations are still ongoing,” he remarked.

Hulangamuwa also affirmed that Sri Lanka has no intention of retaliating with counter-tariffs on US goods. “Our goal is to secure the best possible deal. This is a balancing act. We are not seeking confrontation, we are pursuing collaboration,” he stressed.