The
United States is Sri Lanka’s largest export destination, and 23 percent of
total export revenue in Sri Lanka was received from the United States.
Approximately 70 percent of Sri Lanka’s exports to the United States were
garment products. The garment industry is very sensitive in Sri Lanka’s economy
because of its contribution to employment generation, the development of the
rural economy, exchange rate management, and the economic growth of the
country. In addition to that, the garment industry in Sri Lanka is a vulnerable
industry due to its high dependence on external inputs and higher cost of
production.
However,
the effect of imposing a 30 percent new reciprocal tariff on US imports from
Sri Lanka is ambiguous. Although there is a possibility of a trade creation
effect on Sri Lanka from Vietnam, Bangladesh, Cambodia, Malaysia, and Thailand,
the existing tariff rate for India is lower than Sri Lanka's. US tariff rates
on India may be further reduced significantly with the finalization of the
ongoing trade deal between India and the United States. In that context, a
higher possibility is observed to reduce Sri Lanka’s garment exports
significantly to the United States in the future.
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