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Sri Lanka must heave a collective sigh of relief following the announcement that U.S. President Donald Trump has reduced the reciprocal tariffs on Sri Lankan exports to 20%, down from the previously punishing rates of 44% and 30%. While still steep, this reduction marks a significant diplomatic victory and provides much-needed breathing space for an economy that has been struggling to recover from the devastating financial crisis of 2022.

For a country already reeling from soaring debt repayments, social strain, and IMF-imposed austerity, the original tariff shock in April 2025 landed like a body blow. As part of Trump’s broader strategy to impose steep “reciprocal tariffs” on trading partners that he accused of running persistent trade surpluses with the United States, Sri Lanka was among several countries targeted in an unprecedented tariff regime that bypassed World Trade Organization (WTO) norms. These measures were justified by the Trump administration on the grounds of “economic sovereignty” and national security — but political motives are just as apparent.  

Against this challenging backdrop, the Sri Lankan government’s decision to maintain open and consistent engagement with Washington has paid off. The reduction to a 20% tariff rate will allow a large segment of Sri Lankan exports — particularly from the apparel and textiles sector — to retain competitiveness in the U.S. market.

Sri Lanka’s private sector, especially the export-heavy apparel industry, has welcomed the decision. With the United States being Sri Lanka’s largest single export market, retaining access was vital to avoid catastrophic job losses and capital flight. As one private sector source remarked that while 20% is still a significant burden, it is far better than being priced out entirely.

More noteworthy, however, was the rare moment of political bipartisanship that the outcome had inspired. Both the Samagi Jana Balavegaya (SJB) and the United National Party (UNP) have publicly commended the government’s sustained efforts. SJB leader Sajith Premadasa called on the government to push for further tariff reductions, while Treasury Secretary Dr. Harshana Suriyapperuma has confirmed that additional rounds of negotiations are already being planned.

The UNP, meanwhile, also drew attention to the phrasing in Trump’s Executive Order reducing tariffs to 20%. The order noted that some trading partners “have agreed to, or are on the verge of agreeing to, meaningful trade and security commitments with the United States.” The UNP has requested that the government disclose any promises or concessions made in return — a fair request, given that other countries granted tariff relief, such as Indonesia and Vietnam, obtained such concessions only after making significant economic and geopolitical commitments.

The Sri Lankan government would be wise to heed the lessons from Indonesia and Vietnam. Both nations achieved tariff leniency — but at a cost.

Indonesia secured tariff relief only after allowing the United States access to its strategic copper reserves and agreeing to billions of dollars in procurement commitments. Vietnam, meanwhile, relaxed its domestic market protections, removed non-tariff barriers, and opened new sectors to U.S. exporters.

If Sri Lanka has agreed to similar concessions — or is in negotiations to do so — the government must be transparent with Parliament and the public. What markets are being opened? Have there been promises made on military, diplomatic, or economic cooperation? The public has a right to know whether the 20% tariff comes with strings attached that could compromise Sri Lanka’s sovereignty, long-term economic planning, or foreign policy.

Even as the country welcomes this relief, the broader lesson from this episode is clear: overdependence on a single export market or a narrow band of products is an existential risk.

For too long, Sri Lanka’s export basket has been overly concentrated — with garments, tea, and rubber accounting for the lion’s share of earnings. The U.S. alone absorbs over 25% of Sri Lanka’s total exports, mainly apparel. The Trump tariff shock — which bypassed multilateral frameworks and was driven partly by political whim — proves that such dependence is unsustainable.

This is therefore the moment to act. Diversification is no longer a developmental aspiration; it is a national security imperative.

While the reduction in tariffs may appear to be a straightforward victory, the political consequences are likely to be complex and lasting.

First, Trump’s tariff policy has not followed traditional patterns of multilateral diplomacy. His administration has shown itself willing to wield trade policy as a tool of political pressure — even against allies. Canada, for example, found itself frozen out of trade talks over its intention to recognize a Palestinian state. India — once dubbed a “strategic partner” — was slapped with 25% tariffs with the United States President expressing displeasure over the former’s trading relationship with Russia. Trump derided both India’s and Russia’s economies as “dead.”

With the tariff relief comes the inevitable challenges for Sri Lanka. Any perception of foreign policy deviation, or resistance to future U.S. demands — whether related to China, military basing, or UN votes — could see the tariffs reinstated or increased again. Washington under Trump has become an unpredictable partner.

Second, the domestic political climate could become more polarised if concessions made to the U.S. are not clearly communicated. The government’s legitimacy could be questioned if tradeoffs involve strategic sectors, labour rights, or sovereignty over economic policymaking. Any hint of secret deals or unilateral commitments could fuel suspicion and unrest.

It is therefore essential that the executive branch work closely with Parliament to formulate a united, transparent strategy. Engaging the opposition and civil society in discussing the longer-term economic path — and the risks of dependency — can help build consensus and trust.

The Trump tariff episode is not just a trade dispute. It is a geopolitical test. For Sri Lanka, a small island nation navigating post-crisis recovery while balancing between great powers, this is a moment that requires wisdom, caution, and vision.

The reduced tariffs provide a lifeline — not a solution. This is the time to take bold steps in economic transformation, strategic diplomacy, and domestic transparency.

The government deserves credit for mitigating the effect of Trump’s decisions , but that credit must now be matched by long-term planning and public accountability. As the world becomes more fragmented, protectionist, and politically charged, Sri Lanka must adapt — not just to survive, but to thrive.

Sri Lanka can indeed be relieved that the most punishing elements of Trump’s tariff regime have been rolled back. The government can be satisfied that its efforts bore fruit by securing this outcome through diplomacy and persistence. But this is also a clarion call to reset the country’s export strategy, diversify its trade partners, and prepare for the political consequences of an increasingly transactional and unstable global order.

What the country does next — not what it just survived — will determine whether this relief is merely temporary or a turning point in Sri Lanka’s path toward resilient, people-centered economic development.

(javidyusuf@gmail.com ).