Fate of Sri Lankan exports amidst unpredictability of Trump tariffs

With just one week away from the reciprocal US import tariffs coming into effect, the state of the negotiations between Colombo and Washington for a trade deal is causing a great deal of anxiety and concern. The exporter associations have called upon the administration to negotiate with the US authorities to further reduce the revised 30% tariff rate applicable on Sri Lankan exports to America as Sri Lanka’s main competitors within the US market – ex: India, Vietnam, and Indonesia – have either secured or likely to secure tariff rates less than 30% for their exports to the world’s largest economy. 

Although the Government earlier announced a high-level delegation would depart for Washington to engage with the US authorities, the engagement got downgraded to virtual discussions between the two sides.

Last week, Labour Minister Prof. Anil Jayantha claimed that the Trump administration was willing to offer duty-free access to around 1,161 product lines from the island, including apparel and 42 agricultural items. Should it materialise, it would no doubt be a huge impetus to the country’s exports as well as the ongoing economic recovery. However, Jayantha had made blatantly false remarks over the nature of the deliberations between the two countries; hence, his statements would be viewed with mistrust by the observers. 

It is quite premature on the part of Jayantha to make headline-grabbing statements prior to the finalisation of a concrete deal between the two Governments. In contrast to the Labour Minister’s amateurish conduct, the Ministers of India who are involved in talks with the US have demonstrated a high degree of professionalism and maturity by not making unwarranted statements to the media. India’s highly regarded Commerce Minister Piyush Goyal was reported to have said recently that India does not negotiate trade agreements through the media.

According to an analysis by an Indian business/trade news website, India could pose stiff competition to Sri Lanka for nearly a fifth of its exports to the US based on the latest tariff rates announced. As per the findings of the said analysis, 21% or $ 618 million of Sri Lanka’s $ 2.98 billion exports to the US in 2023 could now face Indian competition, and the affected Sri Lankan exports include precious stones such as rubies and sapphires along with garments such as men’s shirts, nightwear, and jerseys. JAAFSL General Secretary Yohan Lawrence had recently pointed out that lower import duty rates imposed on exports of Vietnam and India – key competitors of Sri Lanka in terms of apparel products – by the US would pose a huge threat to the country’s largest export industry which provides livelihoods to around 1 million people in the country both directly and indirectly. 

Meanwhile, a leading coconut industry association had warned the revised tariff rate would wipe out Sri Lanka’s price competitiveness in the US market as competing suppliers – the Philippines, Vietnam, and India – have been granted favourable tariff arrangements compared to the island. The industry association had opined that many of Sri Lanka’s premium niche coconut exports such as desiccated coconut, virgin and refined coconut oil, coconut milk and cream, and activated carbon would be in serious danger due to the risk of US buyers shifting their sourcing to less-expensive destinations. Similarly, rubber, gem and jewellery, seafood industry bodies have shed light on the threats faced by their respective industries.

Reportedly, the Government is looking at the possibility of procuring US West Texas Intermediate crude oil in a bid to reduce the trade deficit between the two nations. The drastic move by the White House has caused obstacles to Sri Lanka’s economic recovery as well as the Government’s ambitious export agenda.

It is incumbent upon the Government to navigate this critical issue by pursuing a pragmatic and shrewd approach to safeguard the best interest of the economy. A more active engagement at the cabinet-level and top-level involvement from the Department of Commerce accompanied by comprehensive technical support from its technocrats would have bolstered the Government’s negotiations with the US.