Impact of U.S. Tariff on Sri Lankan Goods: Economic Ramifications and Market Reactions

The United States has imposed a 44% tariff on Sri Lankan goods as a retaliatory measure against high taxes on U.S. exports. This policy change has resulted in a negative response from global stock markets and a downturn in Sri Lankan apparel stocks. Goldman Sachs has raised the likelihood of a U.S. recession, which could amplify market losses, with Sri Lankan stocks reacting adversely post-announcement.

The United States, under President Donald Trump, has instituted a 44% tariff on goods from Sri Lanka, which he termed a reciprocal measure against Sri Lanka’s current 88% taxes and trade barriers on U.S. exports. This decision follows the fact that the U.S. is Sri Lanka’s primary export destination, accounting for 23% of its total merchandise exports, amounting to a trade value of $3.4 billion in 2024.

In 2023, Sri Lanka’s leading exports to the U.S. featured a range of products, including undergarments, outerwear, rubber tyres, T-shirts, gloves, jerseys, motor vehicle parts, and baby garments. Following the tariff announcement, global stock markets experienced significant volatility, notably with Japan’s Nikkei index declining by 4% and South Korea’s Kospi falling by 3%, reflecting widespread investor concern.

The negative impact on stock markets reverberated through Europe, with the UK’s FTSE 100 decreasing by 0.9%, Germany’s DAX falling by 1.3%, and France’s CAC dropping by 1.6%. Although Trump announced the tariff after U.S. market closure, stock futures plunged immediately; S&P 500 futures fell by 3.6%, and Nasdaq-100 futures plummeted by 4.5%. Major companies such as Apple, Nike, and Tesla witnessed their shares decrease by around 7%.

Goldman Sachs has raised its forecast for a U.S. recession within the next year to 35%, a notable increase from the earlier prediction of 20%. This foreboding scenario generally results in further losses in the U.S. markets. Following the tariff announcement, Sri Lanka’s Colombo Stock Market reacted adversely, with apparel stocks dipping between 8 to 11%.

The imposition of a 44% tariff by the United States on Sri Lankan goods marks a significant escalation in trade tensions between the two nations. This measure impacts not only Sri Lanka’s export economy but also broadens the concerns across global markets, reflecting the potential for wider economic repercussions, including increased likelihoods of a recession in the U.S. Overall, both countries must navigate these heightened trade barriers carefully to mitigate negative consequences.

Original Source: sundaytimes.lk