Impact of 44% Tariff on Sri Lankan Goods: Market Reactions and Economic Implications

President Trump has imposed a 44% tariff on Sri Lankan goods in response to high trade barriers from Sri Lanka. As the U.S. remains Sri Lanka’s largest export market, this decision has led to significant declines in global stock markets, particularly affecting apparel stocks. Goldman Sachs has raised recession predictions, indicating potential financial instability.

On the backdrop of escalating trade tensions, President Donald Trump has enacted a 44% tariff on goods from Sri Lanka. This decision is framed as a reciprocal counteraction to what he claims is Sri Lanka’s 88% imposition of taxes and trade barriers on U.S. exports. Sri Lanka remains a significant trading partner for the United States, accounting for 23% of the nation’s total merchandise exports, reflecting trade worth $3.4 billion in 2024, with a considerable trade deficit growing to $2.6 billion compared to the previous year.

The primary exports from Sri Lanka to the U.S. in 2023 consist of garments such as men’s and women’s undergarments, outerwear, rubber tires, and activewear, along with baby garments and motor vehicle parts. The newly imposed tariff has instigated a negative reaction across international stock markets, with Japan’s Nikkei index falling by 4%, South Korea’s Kospi down by 3%, and various European markets also experiencing declines.

Upon release of the tariff news after U.S. markets had closed, stock futures plummeted significantly, with S&P 500 futures declining 3.6% and Nasdaq-100 futures dropping 4.5%. Major corporations like Apple, Nike, and Tesla reported approximately 7% losses in their share prices. In light of these developments, Goldman Sachs has raised the probability of a U.S. recession within the next year to 35%, from a prior estimate of 20%, warning of potential further downturns in the stock index.

Following this announcement, the Colombo Stock Market experienced a marked downturn, particularly in apparel stocks, which witnessed a decline ranging from 8% to 11% in response to these economic pressures.

The imposition of a 44% tariff by President Trump on Sri Lankan goods significantly impacts the nation’s economy, particularly its apparel sector, amidst an intricate web of international trade relations. This development has led to a swift response in global stock markets, showcasing the interconnectedness of trade policies and market stability. Furthermore, with heightened recession risks now projected by Goldman Sachs, the economic landscape appears increasingly uncertain for the United States and its trading partners.

Original Source: sundaytimes.lk