By Upul Siriwardene, PRMI in Sri Lanka. 15 April 2025.
US President Donald Trump raised the tariff on Sri Lankan exports to the US to 44 percent on 2 April. After the news, the Sri Lankan stock market’s overall price index fell by 349.84 units on 3 April, by 254.25 units on the 4th, and by 712.90 units on the 7th. The total decrease in those three days is 1,316.99 units. The impact of this American decision on the country’s economy is considerable.
The total value of goods exported by Sri Lanka to the United States in January 2025 was $346 million. The value of goods purchased by Sri Lanka from the United States in that month was $26 million. Accordingly, Sri Lanka exported $321 million more goods to the United States than it purchased from the United States during that month. This is the trade deficit that the United States experienced in the trade transactions between the two countries in one month. Sri Lanka exported goods worth $3 billion to the United States in 2024.
Targeting countries with trade surpluses
Trump has argued that the large trade deficit with some countries in import and export trade has contributed to the economic downturn and economic crisis in his country. Therefore, he argues these countries should create a system in which they buy more American goods. Trump’s focus on trade imbalances as a primary cause of economic crisis is flawed; not only it won’t address the underlying structural issues in the US economy, like the massive income inequality or long-term industrial decline —it will also unleash a storm of economic devastation on millions of poor and working class people the world over.
The new import tariffs introduced by Trump recently are intended to send a shock message to countries that are trading in a way that leaves the United States facing a large trade deficit. Accordingly, he has taken steps to impose very high tariffs on goods exported to the United States from countries with a trade surplus.
As mentioned above, Sri Lanka has taken a leading position among the countries that export a large amount of goods to the United States and buy very few goods from it – not in absolute terms, but relative to the size of its economy. With a trade deficit of 2.5 billion dollars annually, it has become a big problem even for a small country like Sri Lanka. This is because although the United States is Sri Lanka’s main export market, there has been no significant change in the amount of goods bought from that country in the past period.
Sri Lanka has entered into various agreements with many countries to promote bilateral trade relations. However, such agreements or discussions regarding the promotion of bilateral trade with the United States have not taken place at a productive level. Similarly, although the quantity of goods imported by Sri Lanka from the United States is small, there is no evidence that the United States has exerted any special influence on Sri Lanka to increase them.
In the past, US imperialism had most often worked to ensure that international trade was free from restrictions. Therefore, the government promoted policies that favored the so-called ‘free markets’ and minimal barriers to trade. Many of the leaders of the World Trade Organization, which oversees international trade, have stressed the importance of allowing international trade to be determined by market forces such as supply and demand, with minimal intervention from the state.
Other measures have been taken when there is a large trade deficit with countries such as Japan, the European Union and China. However, Trump argues that some countries are acting unfairly in this process, and that as a result, the US economy is in crisis.
Sri Lanka among hardest-hit
According to Trump’s new tariff plan, Sri Lanka has been ranked fifth among the countries that have imposed the highest tax burden (yet this classification has been arrived at by a completely misleading and discredited calculation). The United States is the main buyer of Sri Lanka’s exports. The second buyer is the European Union. Although countries like India, China, and Japan are the main suppliers of goods to Sri Lanka, those countries do not buy a significant amount of Sri Lankan products in return. The United States and the European Union are key buyers of Sri Lankan clothing.
In such a situation, it should be clear that having to pay a 44 percent tax on Sri Lankan exports to the US would lead to a major economic collapse for the country.
Although Trump’s administration has imposed high tariffs on many other countries, those countries have not recently faced an economic crisis of the scale that Sri Lanka went through. Sri Lanka has barely started to recover from the economic crisis; while it formally exited sovereign default status last December, its debt remains a huge burden on its resources – which Trump’s increased tariffs will make even more difficult to service.
After the establishment of export zones under the ‘free economic policy’ introduced in 1977, the textile and apparel industry became our main export sector. The garment manufacturing industry grew significantly under the garment factory program introduced by President R. Premadasa in 1991. At the time of the establishment of the garment industry, unemployment in Sri Lanka was high and wages were low. Sri Lanka was able to make its products competitive in the world market, which was largely a labor-intensive industry. However, while wages in Sri Lanka rose over time, countries such as Bangladesh, Vietnam, Cambodia, and Laos – with access to cheaper labor – have since become more competitive in that market.
Sri Lanka has still managed to survive in the garment industry and has become a major export sector, notably due the high-quality of its garments. However, it is questionable whether Sri Lanka, which is facing intense competition in international trade, could compete under a high tariff of 44 percent. It is telling that the government did not pay even a little attention to this issue until Trump imposed this tariff, despite the existence of a Ministry of International Trade.
Departments and corporations established specifically for the export process are functioning under it. The responsibility of drawing attention to international trade and its future prospects has been assigned to those institutions. At the same time, there are many institutions for fundamental and economic affairs that advise the government on changes taking place in the international financial and trade sectors. There are also embassies under the Ministry of Foreign Affairs in those countries to keep abreast of the economic and social changes taking place in those countries. However, it does not seem that any of those institutions raised the alarm in time. Their inaction reveals not just inefficiency or negligence but structural incapacity to confront —let alone anticipate— a crisis driven by imperialist pressures on an economically dependent country.
Political leaders offer no solutions
At the same time, former President Ranil Wickremesinghe and Opposition Leader Sajith Premadasa have highlighted the economic risks that lie ahead under this situation and have stressed the need for immediate action. Yet, these are figures who have long upheld the neoliberal policies and dependency on foreign powers that deepened Sri Lanka’s economic vulnerability in the first place. Their approach remains locked within the same failed framework — offering no real break from austerity, debt dependency, or imperialist trade structures.
Another issue is what has happened to US Ambassador Julie Chang, who has repeatedly stated in the media that she will ‘come to the aid’ of Sri Lanka in any issue it faces. If Julie Chang, who has shown great rhetorical commitment to human rights and the economic crisis we are facing, had the kind of genuine sympathy she pretends to have for Sri Lankan people, this intervention could have been seen as significant. Yet it is evident that as the real ambassador of the US bourgeoisie, she does not come forward to solve the economic crisis of Sri Lanka.
Sri Lanka has faced such crises time and again. In August 2010, the European Union cut off the GSP+ (Generalized Scheme of Preference) concessions that had been granted to Sri Lanka until then. During the Covid pandemic, maintaining the garment industry became a big problem, but the government took steps to keep them closed and sustain the sector. The garment industry was restructured to meet the huge demand for some garment products in the global market due to the Covid pandemic.
It is important to emphasize that no parties, whether in government or opposition, have a real alternative to counter the imperialist super powers. Instead of that, the present Sri Lankan NPP (JVP) government convened a so-called All Party Conference to take future measures. But the President did not reveal his stance regarding the US tariff policy. It is clear that no capitalist leader has any viable programme to face Trump’s tariffs, US superpower and imperialist forces in general. Until Sri Lanka breaks free from the shackles of world capitalism, its future will remain at their mercy.