Impact to Sri Lanka from US tariff revision

Saturday, 5 April 2025 00:00 - - {{hitsCtrl.values.hits}}

On 02 April 2025, the President of the United States of America (USA), Donald Trump, announced a minimum of 10% reciprocal tariff on all imports to the USA effective from 9 April 2025. These new reciprocal tariffs are set to be implemented in addition to the tariffs already signed by Donald Trump in March 2025.

Accordingly, Sri Lanka has been imposed with a 44% reciprocal tariff, primarily due to the barriers and import tariffs imposed on USA imports by Sri Lanka has been estimated to be at 88%. It was also evident that a significant tariff was due to the trade imbalance between Sri Lanka and the USA, which accounted for a trade deficit of US$2.6bn as of 2024. Through this implementation, Sri Lanka finds its way into the top 10 highest countries with reciprocal tariffs.

Sri Lanka was also the highest affected in the South Asian region, whereas neighbouring countries like India and Bangladesh were imposed with tariffs of 27% and 37%, respectively, depicting a competitive disadvantage of Sri Lankan exports to the USA.

The USA remains the largest export market for Sri Lanka, accounting for 27% (US$3.0bn) of the total exports (US$ 12.8bn) as of 2024. Out of which Textile and Apparel exports accounted for 64% of the total exports to USA, meanwhile Sri Lanka also exports Rubber products and Chemical products to USA.

Impact on Apparel

The Sri Lankan apparel sector is going to be significantly affected by the tariff revisions, where Sri Lankan exports are to be significantly expensive compared to its regional counterparts (i.e., India and Bangladesh). Sri Lanka might not be able to attract any offloading from Vietnam or Cambodia primarily due to the difference in benefit being marginal.

Measures taken by the Government

As an immediate action, the President Anura Kumara Disanayake has appointed a committee, compromising of representatives from the largest exporters of apparel and other goods and services in Sri Lanka to evaluate the impact, which includes the Governor of Central Bank of Sri Lanka, Secretary to the Finance Ministry, Chairman of Sri Lanka Board of Investment, Chairman of Sri Lanka Export Development Board, and Director General of Economic affairs unit of the Foreign Ministry. Sri Lanka is expected to assess the impact and renegotiate with the officials for any relief in the near term.

Effect on Listed Entities

Companies such as MGT, TJL, HAYL, DIPD, HAYC, and HELA are expected to be affected by the tariff revision due to their significant exposure to the USA market. Companies with production facilities in lower-tariff regions are expected to mitigate the impact of tariffs by optimising their supply chain processes. This includes shifting production activities within their presence in different geographies to mitigate the tariffs.

(Source: CT CLSA Securities)

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