US Tariff cuts on Indian exports could hinder SL exports

The Indian exports received a significant boost last Monday when US President Donald Trump announced on his Truth social media platform that Washington would cut the main tariff on India from 25% to 18% apart from removing an additional 25% tariff it had imposed on New Delhi last summer in retaliation for its Russian oil purchases. In the posting, Trump had also remarked India would stop buying Russian oil and would purchase over $ 500 billion worth Energy, Technology, Agricultural, Coal, and many other products from America besides removing trade barriers with the world’s richest country.

The latest move by the White House as well as the recently finalised trade deal with the EU have provided a tremendous encouragement to India’s exports while solidifying the position of the world’s most populous nation in the global supply chain. The development comes after major global trading partners like the EU, India, China and Canada have signed their own trade agreements since the new year, leaving the US looking isolated. Under the Indian Premier Narendra Modi, New Delhi has emerged as a close ally of Washington. However, India’s persistent and enhanced purchase of oil from Russia angered the Trump administration, which led to Washington imposing a punitive tariff rate of 25% on the Indian imports to the US and thus attracting a prohibitively high 50% effective tariff rate on products sent from the Asian giant to the world’s largest economy.

The Indian business and industry leaders have expressed bullish sentiments following the announcement by Trump and it is felt that Indian exports are expected to witness an exponential rise in view of the favourable market access to both the EU and America. believe the decision will bring immediate relief to labour-intensive sectors of the South Asian state and strengthen its position in the US market. Total Indian exports to the US are estimated at around $ 80–90 billion annually, and nearly 50–60% of India’s exports to the US - around $ 50 billion—come from labour-intensive sectors such as textiles and garments, leather and footwear, fisheries, gems and jewellery, auto components, and engineering goods. Meanwhile, global investment banks have raised India’s GDP growth projections following the tariff cut announcement. Goldman Sachs has upgraded its 2026 real GDP growth forecast for upwards by 20 basis points to 6.9% year-on-year.

It is important to note the new 18% levy is lower than the tariffs faced by India’s regional competitors including Vietnam and Bangladesh, both at 20%—the rate which is also applied on Sri Lanka’s imports to the US. Further, the new rate is less than the comparable rate for Pakistan and Cambodia (both at 19%) as well as that of its regional rival China (34%) New Delhi believes the deal will create more jobs, spur growth and promote innovation in both economies. With favourable market access to both the EU and US, India is now poised to become a highly attractive place for investments, aided by its massive and youthful labour pool.

The decision by Trump would undoubtedly pose a challenge to Sri Lanka’s economy and could slow down the island’s ambitious export agenda—the Government intends to increase the value of exports to $ 36 billion by 2030 (both goods and services), as India now has a clear price advantage over products made in the island within the US market. The Indian companies who were hoping to establish manufacturing plants in Sri Lanka due to the 50% tariff are now likely to abandon those plans.

The Government needs to realise that achieving $ 36 billion exports by 2030 is quite unrealistic under the prevailing circumstances and should adopt a more realistic approach towards increasing exports by placing a special emphasis on service exports as Sri Lanka’s competitiveness in merchandise exports is under serious challenge.