Possible effect of USA Reciprocal Tariff on garment product exports of Sri Lanka

 

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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