• Economists suggest looking at ‘high-risk, niche’ Asia for new markets
• Say tariffs might be beneficial for certain export segments catering to other markets 
• Govt.  ‘positive’ of negotiating reduction, plans to persuade by explaining SL’s status 

Sri Lanka’s United States (US) Dollars ($) 4.7 billion apparel export sector has no viable alternative to the US as a primary market, according to the Joint Apparel Association Forum (JAAF) Secretary General Yohan Lawrence.

“We have no other alternate market that we can possibly target instead of the US,” Lawrence told The Daily Morning, referring to the 44% tariff imposed on Sri Lankan exports by the US President Donald Trump on Wednesday (2). The US remains the single largest export destination for Sri Lankan apparel, generating $ 1.9 billion in export revenue last year (in 2024).

The newly-imposed tariff was introduced under what Trump referred to as “discounted reciprocal taxes”, citing Sri Lanka’s existing trade barriers on US imports. The 44% rate, calculated as half of what the US claims is Sri Lanka’s average import tariffs on American goods (88%), is likely to be a grave blow to the billion-$ local export segment.

With no comparable market capable of absorbing such a large volume of exports, the apparel industry is now bracing for potential disruptions in production, orders, and employment unless diplomatic or structural relief measures are introduced.

Despite earlier predictions and warnings of high tariffs, the Government was seemingly taken by surprise by the move.

Frontier Research (Private) Limited Senior Macroeconomist Thilina Panduwawala told The Daily Morning that the worries of local apparel manufacturers were well founded, as the segment’s growth and innovation in the past few decades relied on the preferences of the US and European markets. “A lot of the high-value apparel items that we have been handling have been geared to the US and European Union markets, which is why such a large share of Sri Lanka’s apparel is exported to those markets.”

He suggested that targeting Asia as an alternative market would be of high risk, considering the diverse array of markets within the region that the sector would have to target in order to make up for the lion’s share of American exports that are likely to be affected. “Targeting Asia would be difficult due to the different strategies that may be needed to be employed in targeting these different markets. Asian markets may even be quite niche at the moment for most manufacturers, given the kind of models that they have been working on with the US, focus-wise.”

Panduwawala added that he has no hopes in negotiations between Sri Lankan and US officials being remedial to the drastic tariff imposition. “The (Trump) administration is using a very standard equation to decide how much their taxes can earn by putting tariffs on countries. There seems to be an ideological belief behind the tariff, and it might not be prudent to think that negotiations will help us change that,” he said.

India, along with Vietnam has been among the nations that have pursued the Trump administration for more preferential tariff conditions in the past few months. “That doesn’t seem to have really affected the outcome, as the standard approach to calculating the tariff was applied to those nations too,” he said. “Unless the Trump administration itself comes up and says, look, we are willing to make concessions on these grounds, and are you willing to agree to these terms, there will be no change. The ball is in the court of the Trump administration, which is driven ideologically.”

Out of $ 12,705 million exports in 2024, $ 2,909 million or 22.9% were bought by US citizens. Sri Lanka is among the countries charged the highest Trump tariff. India has been charged 27%, Bangladesh 37% and Pakistan 30%. Myanmar (45%), Vietnam (46%), and Lesotho (50%) have drawn higher taxes.

The Sri Lankan Government is however positive on the prospect of pursuing further negotiations, as announced by Minister of Labour and Deputy Minister of Economic Development Dr. Anil Jayantha Fernando. “We have already held a few rounds of internal talks on what happened. These tariffs will come into effect on 9 April. We’re hopeful of negotiating and receiving a possible reduction of the tariffs through discussions,” he noted. He added that while Sri Lanka is in a beneficial trade deficit with the US, it is also moving ahead with a programme of the International Monetary Fund (IMF). “The country is in a state of rebuilding, and is in a hard position, still in the process of stabilising. So, we have space to explain this situation. This explanation will have to align with their (US) policy as well.” However, he acknowledged the possible negative impact that the tariff regime is going to have on Sri Lanka’s textile and food exports, drastically impacting the country’s export revenue.

On a slightly positive note, Panduwawala stated that though export segments such as apparel and rubber are likely to be irreversibly negatively affected, other export segments catering to other markets are likely to benefit from the tariffs, due to the effect that the regime is to have on the current account. “From a current account perspective, even while Sri Lanka may lose some of its export earnings from things like apparel and rubber exports to the US, other exporters would be paying less for things like fuel. That can have a balancing effect. While it might be negative that the exporters are going to have lower earnings with their orders cancelled, other importers might require less foreign exchange for their transactions.”