Sri Lanka’s tariff triumph: Cool President in hot crisis

Instead of rhetoric, President Disanayake chose to listen

How did he do it? Amidst the chaos and confusion he did not panic. Nor did he flounder. He did not shout in the press or scurry in panic. He focussed on what was in his control: understanding what we could do and putting in place the best negotiating team for Sri Lanka

Donald Trump’s tariffs shook the world. Financial markets around the world plunged. The US stock market registered its largest two-day loss in history. Businesses and politicians were in panic.

No one could understand what was happening or why.

Sri Lanka was one of the worst affected. The Trump tariffs would have increased the cost of Sri Lankan exports to the US by 44% overnight. Equally catastrophically, the tariffs imposed on other countries were lower. Our exports would have faced the sixth highest tariff in the world. India was at 27%, Bangladesh 37% and Pakistan 30%. Sri Lanka’s hard earned recovery was about to be reversed. Tens of thousands of jobs were in jeopardy.

Sri Lanka’s cards were weak, very weak. We export far more to the US than we import. We have some of the highest effective tariff rates in the world. Unlike China we do not have rare earths. Unlike the EU we do not have a large market to threaten retaliation.

And the poker table was a complex one, where players’ chips were not only the standard currency of trade deals. This negotiation encompassed all aspects of high politics and high economics. It was fast paced, personal and transactional. There was no rule book to follow.

Enter the man from Thambuttegama. He had never negotiated a trade-deal before. He had never handled a global crisis. His cabinet was the least experienced in Sri Lankan history. But the man knew how to play as well as any of the masters. Instead of a 44% tariff, Sri Lanka today faces a 20% tariff. This makes Sri Lanka’s exports no less competitive than its peers and is actually better than India’s.

How did he do it? Amidst the chaos and confusion he did not panic. Nor did he flounder. He did not shout in the press or scurry in panic. He focussed on what was in his control: understanding what we could do and putting in place the best negotiating team for Sri Lanka.

Instead of rhetoric, President Disanayake chose to listen. He was not a know-it-all. Instead he sought out the wisest advice. He summoned the best civil servants, the most sophisticated businessmen and the brightest academics. He heard each and every one of them. Meeting them again and again to ensure he truly understood the situation Sri Lanka was facing and what it could do.

He then set-up a team to solve the problem. Having kept the Weerasinghe-Siriwardene duo, he had a core advisory team in place. He had also appointed the competent Vimalenthirajah to the crucial commerce ministry which is in charge of trade negotiations. Duminda Hulangamuwa provided a private sector perspective. The President brought all these talents in and then placed the new Treasury Secretary, Harshana Suriyaperruma, in charge.

This was critical. The new Treasury Secretary not only commanded his full confidence but had a deep rapport. He was able to brief him continuously on the tough calls he would have to make in the negotiation. The President sought counsel and pondered, but he did not flinch from the tough calls and the tougher negotiations. He stayed abreast of all the developments but also let his team get on with the job and supported them to the hilt. The team worked hand-in-glove with the private sector to ensure Sri Lanka made the best possible moves.

As a result, Sri Lanka’s tariffs today are much lower than initially expected. They are identical to our competitors. President Disanayake has proven that he can do more than just not make mistakes. He can actually get into the ring and win. In some sense we should not be surprised, after all here is a man who took his party from 3% of the vote to a two-thirds majority.

We can only hope the best is yet to come. For though the tariffs are comparable to others, they are not low. Our exports to the US will be affected. We still have the fundamental work of making our exports competitive and creating new export products to reduce our dependence on a few products and markets. Eliminating para-tariffs, signing FTAs, reducing border red-tape and building a world-class trade negotiating team are hard work. But with President Disanayake’s Tariff triumph, we can now hope with confidence.