US Trade with Sri Lanka 8-3-25

Recent US trade actions have significantly impacted Sri Lanka's trade relations with the United States.  

Key developments

·       Tariffs: In April 2025, the US announced a 44% reciprocal tariff on Sri Lankan exports, based on existing trade deficits.

·       Negotiations: Following negotiations and a temporary suspension of the tariff until July 8, 2025, the US reduced the tariff rate to 30%, effective August 1.

·       Continued Discussions: Sri Lanka is continuing discussions with the US, aiming to further reduce the tariff, citing concerns about its impact on the nation's key apparel exports and economic recovery.

·       US Offer: The US has reportedly offered 0% duty on 70-80% of Sri Lankan exports, encompassing 1,161 products including apparel and 42 agricultural products, according to Adaderana.

·       TIFA: The US and Sri Lanka have a Trade and Investment Framework Agreement (TIFA) aimed at promoting bilateral trade and investment, notes the USTR.

·       GSP: The US Generalized System of Preferences (GSP) program, which provides duty-free treatment for eligible products, expired on December 31, 2020. However, imports continue to be identified as GSP-eligible in case the program is reauthorized with a retroactive refund clause. 

Impact

·       The US is a significant market for Sri Lankan exports, particularly apparel, and the imposition of the new tariff, even reduced, has raised concerns about competitiveness, job losses, and the country's economic stability.

·       Sri Lanka's central bank and the IMF are monitoring the situation and its potential impact on the economy. 

In short, while the initial high tariff rate has been reduced through negotiation, the trade relationship remains dynamic, with ongoing discussions and potential shifts in import strategies, such as considering importing crude oil from the US to address the trade imbalance. 

US trade agreements and relations with Sri Lanka (July 2025)

The trade relationship between the US and Sri Lanka is currently navigating a period of significant change and ongoing negotiations, particularly concerning recently imposed US tariffs on Sri Lankan exports. 

Here's an overview of the key aspects as of July 2025:

1. US tariffs on Sri Lankan goods

·       The US has implemented a 30% reciprocal tariff on all Sri Lankan exports to the US, effective August 1, 2025.

·       This tariff is a result of a broader US trade policy aimed at addressing trade imbalances with countries having significant surpluses with the US.

·       Sri Lanka's garment, footwear, and travel goods (GFT) sector is particularly vulnerable, as it accounts for approximately 90% of Sri Lankan exports to the US.

·       However, Sri Lanka has managed to secure a reduction from an initially announced 44% tariff to the current 30% through negotiations, according to Fact Crescendo Sri Lanka.

·       Sri Lanka continues to actively negotiate with the US to potentially further reduce these tariffs before the August 1st deadline. 

2. Investment and development initiatives

·       Despite the trade challenges, the US remains committed to supporting Sri Lanka's economic development and stability.

·       The US International Development Finance Corporation (DFC) is providing significant financing ($553 million) for the development of the West Container Terminal at the Port of Colombo, notes the U.S. Department of State.

·       The US also actively encourages private sector investment in Sri Lanka and supports efforts to combat corruption and address food insecurity.

·       USAID continues its long-standing development work in Sri Lanka, focusing on areas like market-driven growth, environmental sustainability, and good governance, says the U.S. Embassy in Sri Lanka. 

3. Other areas of cooperation

·       The US and Sri Lanka maintain a strong partnership, as highlighted in a joint statement from the Fifth Session of the United States-Sri Lanka Partnership Dialogue in July 2024, reports the U.S. Department of State.

·       Cooperation extends to areas such as security, education, anti-corruption, and combating climate change.

·       Discussions are ongoing to explore new opportunities to enhance market access, bilateral trade, and tourism. 

In essence, while the newly imposed tariffs present a challenge for Sri Lankan exports to the US, both nations are actively engaged in discussions and initiatives aimed at navigating these complexities and fostering a mutually beneficial long-term relationship. 

https://www.google.com/search?q=us+trade+agreements+with+Sri+lanka+july+2025

Fertilizer ban's role in Sri Lanka's government changes

While the ban on chemical fertilizers (including nitrogen) and pesticides imposed in April 2021 by President Gotabaya Rajapaksa sparked protests from farmers and contributed to economic difficulties, it wasn't the sole reason for the government's eventual downfall. The economic crisis that intensified in 2022 and led to widespread protests had multiple underlying causes: 

https://www.google.com/search?q=did+sri+lanka+fire+their+government+because+it+banned+nitrogen

In 2024, the United States experienced a trade deficit with Sri Lanka. Based on available data from the United States Trade Representative, the goods trade deficit was reported as $2.6 billion. Sri Lanka's total trade deficit in 2024 was $6.07 billion,

In May 2025, Sri Lanka had a trade surplus of $180 million with the United States, with exports of $205 million and imports of $25.3 million. 

In May 2025, Sri Lanka imported $25.3 million worth of goods from the United States. This figure represents an 11% decrease compared to May 2024. The main imports from the US included soybean meal, metallic yarn, and raw tobacco.

In the first six months of 2025, Sri Lanka's exports to the United States saw a 3.82% increase in April, reaching $190.38 million, with cumulative exports for January to April totaling $965.97 million, a 7.94% increase, according to Adaderana Biz English. Overall, Sri Lanka's exports to the US are a significant portion of its total exports, with the US being its largest export destination.  

Sri Lanka is a large island at the southern tip of India. Nominal GDP is estimated at $100 billion in 2025. Population is 23 million. Food security remains unstable. Land Area is 25,332 sq miles.

Food exports made up 27.25% of Sri Lanka's merchandise exports in 2024.

Food imports represented 15.29% of merchandise imports in 2024. 

In 2025, the primary goods imported to the U.S. from Sri Lanka include knit gloves, women's undergarments, and used rubber tires. Additionally, other textile articles, sets, and worn clothing are also imported in significant quantities. Sri Lanka also exports items like coffee, tea, spices, cinnamon, and various apparel items to the United States. 

Here's a more detailed breakdown:

·       Knit Gloves: These are a major import category for the U.S. from Sri Lanka. 

·       Women's Undergarments: This category, including both "Other Women's Undergarments" and items like lingerie, is also a significant import. 

·       Used Rubber Tires: These are another key import item from Sri Lanka. 

·       Textile Articles: This encompasses a range of made-up textile articles, sets, and worn clothing items. 

·       Apparel: This includes various types of clothing like men's and women's undergarments, outerwear, and sportswear. 

·       Other Imports: This category includes items like coffee, tea, spices, cinnamon, and potentially other made-up textile products. 

Comments

The US will reduce the Trade Deficit with Sri Lanka. The US is not dependent on apparel imports.

Norb Leahy, Dunwoody GA Tea Party Leader