While U.S. President Donald Trump’s trade war primarily targeted global economic heavyweights like China and the European Union, its ripple effects are being felt across smaller economies including Sri Lanka. Experts warn that Trump’s protectionist trade policies, particularly the imposition of tariffs and the “America First” doctrine, could significantly impact Sri Lanka’s export-driven growth model.
Global supply chains under pressure
One of the most immediate threats stems from the disruption of global supply chains. Sri Lanka’s key industries, including textiles, apparel, and electronics components, are heavily reliant on imported raw materials. The U.S. tariffs on Chinese and other foreign goods increased global production costs, leading to delays and price hikes that affect Sri Lankan exporters.
“These disruptions trickle down,” says an economist at the Central Bank of Sri Lanka. “Higher input costs and reduced access to affordable materials can hurt the competitiveness of our exports.”
Falling global demand hits exports
Trump’s tariffs contributed to broader economic uncertainty, weakening global trade and slowing growth. This downturn has lowered demand for Sri Lankan goods, particularly in Western markets. Apparel exports, which account for over 40% of Sri Lanka’s total exports and rely heavily on U.S. consumers, are especially vulnerable.
“As American retailers reevaluate their sourcing strategies, Sri Lankan garment manufacturers face increased competition from countries like Vietnam and Bangladesh, some of which benefit from more favourable trade agreements,” notes a trade policy analyst in Colombo.
Foreign investment and tourism at risk
The trade tensions also made investors more cautious, leading to a decline in foreign direct investment (FDI) in emerging markets. Sri Lanka, already grappling with high debt levels and political instability, may find it increasingly difficult to attract investment in its export-oriented industries and infrastructure projects.
Tourism, a vital source of foreign exchange, could also see knock-on effects. Global economic instability tends to reduce travel spending, which directly impacts Sri Lanka’s tourism sector.
Regional spillovers from China and India
China, a key trading partner and infrastructure investor in Sri Lanka, was one of the main targets of Trump’s tariffs. As Chinese economic growth slows due to reduced U.S. trade, its demand for Sri Lankan commodities and its ability to invest abroad could also decline. Similarly, any reduction in India’s economic engagement due to trade tensions with the U.S. may impact regional cooperation and investment flows.
Out of the trade bloc loop
Perhaps, more concerning in the long term is the global realignment of trade alliances. As the U.S. withdrew from multilateral trade deals and others like the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) gained momentum, Sri Lanka risks being left behind.
A wake-up call for trade policy reform
The indirect but significant threats posed by Trump-era tariffs underline the urgent need for Sri Lanka to diversify its markets, join new trade alliances, and upgrade its export infrastructure.
While the Trump administration, the shift towards economic nationalism and trade protectionism continues to influence global policy. Sri Lanka, as a small and open economy, must adapt quickly or risk falling further behind.
M. I. D Perera
Economist
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