Resounding wake-up call 

The recent announcement by the United States government of a steep 44% tariff on products originating from Sri Lanka is a jolt to the economy that cannot be ignored. With over $ 3 billion in goods exported annually to the US, its single largest export destination, the implications of such a move could be far-reaching, even if not immediately quantifiable. Whether the costs are borne by US consumers, who will likely face higher prices, or by US-based apparel brands that produce in Sri Lanka and may be forced to squeeze their margins, one thing is clear: Sri Lanka’s overreliance on preferential market access and trade concessions is no longer sustainable.

This new tariff aligns Sri Lanka with others in the region — Bangladesh, Vietnam, and Cambodia — who have faced similarly hefty US trade duties, some as high as 49%. Yet, unlike these countries, which have diversified and aggressively pursued competitive advantages beyond preferential access, Sri Lanka has remained entrenched in a defensive economic posture. This is not just a policy misstep; it’s a strategic failure. 

For decades, Sri Lanka has clung to protectionist trade practices and a risk-averse approach to globalisation. Free Trade Agreements (FTAs) and Economic Partnership Agreements (EPAs) are critical tools for gaining competitive access to global markets. Several of these vital tools have either been shelved due to domestic resistance or remain underutilised. Of the 7,000 product lines eligible for duty-free access to India under the existing FTA, the vast majority of Sri Lanka’s export basket is limited to a handful. The private sector has not endeavoured to seek opportunities, especially through the 35% value addition provision to enter this vast market. The agreement with Singapore lies dormant. Meanwhile, access to the European Union continues to rely heavily on the GSP+ scheme, a lifeline that could be withdrawn at any time due to political or rights-based concerns. 

This model of dependency is not only outdated; it is dangerous. The world is shifting toward trade realignments driven by geopolitics, self-sufficiency, and strategic interests. The US, facing inflationary pressure and a possible economic slowdown, is taking increasingly protectionist stances to shield domestic interests. Should consumer demand in the US falter due to rising prices, developing nations like Sri Lanka — heavily reliant on exports and foreign demand — will be among the first to feel the blowback. A global recession could spell disaster.

But in this challenge lies an opportunity. Sri Lanka must finally shed the cocoon of protectionism and embrace open, competitive trade. This means not only finalising but fully operationalising FTAs, rationalising tariffs, and streamlining customs and regulatory frameworks. It requires investing in innovation, productivity, and quality so that Sri Lankan exports are chosen not because they are cheap under a concession, but because they are the best in the market. It also demands a culture shift — away from complacency and toward strategic ambition.

The long-delayed Indo-Lanka Comprehensive Economic Partnership (CEPA) is a good point to start. Shedding protectionism Sri Lanka must embraced the opportunities that a burgeoning India economy presents in integrating trade and services. The US tariff should not be seen as an isolated setback, but as a wake-up call. Sri Lanka must recognise that in a global economy, protection is a privilege — and one that is quickly vanishing. The only viable path forward is to compete, innovate, and open up.