U.S. Imposes 44% Tariff on Sri Lankan Goods: Market Reactions and Implications

The United States has imposed a 44% tariff on Sri Lankan goods as a reciprocal measure against high taxes on U.S. exports. This decision affects a vital trading relationship, as the U.S. constitutes Sri Lanka’s largest export market. The tariff has caused declines in global stock markets and negatively impacted Sri Lankan apparel stocks.

The United States, under the direction of President Donald Trump, has introduced a significant 44% tariff on Sri Lankan goods. This action is characterized as a reciprocal measure against Sri Lanka’s existing 88% taxes and trade barriers affecting U.S. exports. This tariff decision emerges amidst the United States being Sri Lanka’s principal export market, contributing to 23% of the country’s total merchandise exports.

In 2024, trade figures indicate that goods exchanged between the United States and Sri Lanka reached a value of $3.4 billion. U.S. imports from Sri Lanka grew by 6.1%, totaling $3.0 billion, while exports to Sri Lanka also increased by 4.9%, reaching $368.2 million. However, the trade deficit between the two nations escalated to $2.6 billion, reflecting a 6.3% rise from the previous year.

The primary goods exported by Sri Lanka to the United States in 2023 included a variety of apparel items such as men’s and women’s undergarments, outerwear, rubber tyres, T-shirts, gloves, jerseys, motor vehicle parts, activewear, and baby garments.

The imposition of the tariff has sent shockwaves through global stock markets, with reports indicating a 4% drop in Japan’s Nikkei index and a 3% decline in South Korea’s Kospi. European markets also faced losses, with the UK’s FTSE 100 decreasing by 0.9%, Germany’s DAX slipping by 1.3%, and France’s CAC falling by 1.6%.

Although Trump’s tariff announcement occurred after U.S. markets closed, CNBC reported significant declines in stock futures, with futures associated with the S&P 500 falling by 3.6% and Nasdaq-100 futures plummeting by 4.5%. Renowned U.S. companies, including Apple, Nike, and Tesla, experienced a share price drop of approximately 7% following the announcement. Goldman Sachs raised its forecast for a potential U.S. recession to 35%, an increase from the prior estimate of 20%, emphasizing potential further losses on Wall Street.

In response to the announcement of the tariff, the Colombo Stock Market observed substantial declines in apparel stocks, which floundered with a drop of between 8 to 11%.

In summary, the recent imposition of a 44% tariff by the United States on Sri Lankan imports represents a significant retaliatory measure that has already impacted global stock markets and Sri Lanka’s apparel sector. With Sri Lanka’s exports heavily reliant on the U.S. market, the escalating trade deficit highlights the precarious nature of international trade relationships. The ripple effects of this tariff decision could lead to broader economic implications, particularly concerning potential recession forecasts in the U.S.

Original Source: sundaytimes.lk