Apparel sector must innovate and diversify

The recent decision by the United States to impose a steep 30% tariff on all imports has once again exposed the vulnerability of the garment industry. With the US accounting for nearly 40% of Sri Lanka’s apparel exports—worth approximately $ 1.9 billion in 2024—this move threatens not only a key source of national income, but also the livelihoods of the 300,000 people, mostly women, employed in the sector. 

Sri Lanka’s key exports—apparel, rubber products, tea, and IT services—have historically enjoyed relatively low tariff barriers to US markets under schemes like the Generalised System of Preferences. For decades, the apparel industry has flourished under the comfort of preferential trade concessions from both the European Union and the United States. These concessions allowed the industry to remain competitive without needing to substantially innovate or diversify. That era is now rapidly coming to an end. The newly imposed tariffs should be seen not merely as a challenge, but as a much-needed wake-up call.

Compounding the problem our competitors are adapting faster and benefiting more from new US trade alignments. Take Vietnam, for instance. Despite once being at a similar developmental stage, Vietnam has leveraged free trade agreements with the US and other major economies to attract foreign direct investment, scale up manufacturing, and secure tariff-free access for a wide array of exports. Similarly, Bangladesh—Sri Lanka’s close South Asian rival—has successfully kept costs low and product volumes high, allowing it to absorb tariff changes more efficiently and remain a preferred sourcing hub for US retailers.

Sri Lankan exports, on the other hand, are increasingly becoming less competitive. With rising labour costs, limited scale, and sluggish investment inflows, our industries are finding it difficult to match the price and volume advantages of regional peers. While Sri Lanka boasts higher ethical and environmental standards in sectors like apparel manufacturing, this added value has not yet translated into premium pricing or tariff exemptions in the US market.

To weather this storm and future-proof the industry, Sri Lanka must urgently shift from a low-margin, volume-based model to one driven by innovation, quality, and value addition. The key lies in branding—creating internationally recognised, ethically sound, and environmentally sustainable fashion labels that command premium prices. Sri Lanka has already laid the groundwork in ethical manufacturing and compliance with international labour standards and now is the time to leverage that reputation and build brands that stand on their own.

Simultaneously, the industry must diversify its markets. Heavy reliance on a few markets such as the US has left the sector vulnerable to geopolitical and economic shifts. Expanding into new regions—Asia, Africa, the Middle East, and Latin America—could reduce risk and unlock new consumer bases. Alongside market diversification, product diversification is critical. Moving beyond basic garments to technical apparel, athleisure, sustainable fabrics, and fashion innovation can help Sri Lanka stand out in a crowded global marketplace.

The Government, industry leaders, and stakeholders must collaborate to provide incentives for research and development, support small and medium enterprises (SMEs), and invest in technology and skills training. Institutions and universities should partner with apparel companies to foster innovation and creativity.

The US tariffs, while painful, offer a crucial opportunity to reset the sector’s trajectory. If the industry rises to this challenge with vision and determination, it can not only survive but thrive—stronger, smarter, and more self-reliant than before.