Sri Lanka's Exposure to US Tariffs: Analysis of Impact and Implications

Strategic Insights -

The United States' trade policy, particularly under the Trump administration, has introduced significant changes to the global trade system, including the imposition of 'reciprocal tariffs' and Section 232 tariffs. These measures, aimed at reducing trade deficits, have had a profound impact on Sri Lanka's exports to the US. As of 2024, 95.6% of Sri Lanka's imports are subject to reciprocal tariffs, with a 90-day pause, applying a 10% global tariff. Additionally, 4.2% of Sri Lanka's imports are subject to Section 232 tariffs on steel, aluminium, and auto parts. The exemptions to these tariffs are limited, with only 0.2% of imports from Sri Lanka being exempted.

Key Takeaways:

  • Sri Lanka's exports worth USD 2.93 Bn are subject to a 10% global tariff, with an additional 26.65% average tariff for the apparel sector since April 05.
  • The fabricated metal sector faces a weighted average tariff increasing to 6.7% from 0.6%, due to the calculation of tariffs based on the value of aluminium and steel content.
  • The auto tariff imposed by the US on March 26 and enacted on April 03 has increased the effective weighted average tariff for motor vehicle sector exports from Sri Lanka to 19.66% on May 03.
  • Exporters from Sri Lanka face significant challenges in meeting reporting requirements, including declaring the country of origin of steel and aluminium used in derivative products to avoid 200% tariffs.
  • The exemptions to tariffs have little implications for Sri Lanka, as all countries receive the same exemptions, eliminating any relative price advantage.

Statistics:

  • 95.6% of Sri Lanka's imports are subject to reciprocal tariffs (2024 data)
  • 4.2% of Sri Lanka's imports are subject to Section 232 tariffs on steel, aluminium, and auto parts
  • 0.2% of Sri Lanka's imports are exempted from new tariff measures
  • Sri Lanka's exports worth USD 2.93 Bn are subject to a 10% global tariff
  • The apparel sector faces an average tariff of 26.65% since April 05
  • The fabricated metal sector faces a weighted average tariff of 6.7% (calculated based on the value of aluminium and steel content)

Sources:

  • US Trade Expansion Act of 1962, Section 232
  • US Customs and Border Protection (CBP) notice, April 12
  • Annex-II of the US Executive Order on reciprocal tariffs
  • World Trade Organisation (WTO) principles
  • Sri Lankan trade data (2024)