Lanka caught up in a whirlwind of tariffs and threats

The international economic scene is changing. More countries are moving away from the US dollar for trade. West Europe is using the Euro for financial transactions. The countries of the BRICS group are using their own currencies for trading

In April 2022, our government announced that it was defaulting, making it the first sovereign default. Our external debt for 2023 was 61.71 billion US dollars. The country was facing shortages of all basics from food and fuel to power. Blackouts were the order of the day.

However after throwing out a corrupt regime, with the help of a 4 billion dollar credit line from India and an International Monetary Fund (IMF) Extended Fund Facility (EFF), by end 2024 the country had steadied its economy and was taking its first steps out of its indebted situation. It was at this juncture -- 20 January 2025 -- this year Donald Trump was elected president of the US for a second non-consecutive term of office.

During his first term, President Trump had complained of a widening trade gap between the value of goods the US buys from other countries and those it sells  them to. Trump refers to this as a trade deficit.

During the initial months of his presidency,  however, Trump began his term slashing US government spending, ordering mass deportations, overturning international agreements and even defying Court orders (refusal to turn around a flight taking deportees to a third country). 

He also threatened to take over Canada, Greenland and the Panama Canal. He bombed Iran and says has deployed nuclear submarines capable of attacking Russia. In short, within a period of six months has taken the world a step nearer to a nuclear holocaust.

While the world watched aghast, he suddenly imposed huge tariffs on goods entering the US. A tax of 30 percent was to be imposed on Lankan goods, while goods from Vietnam, Cambodia and other countries were to be taxed at lower rates, making our exports to the US unmarketable and there was a danger of our losing that market altogether. 

What is worse is the fact the US is the biggest market for our apparel exports. Apparels bring in the second largest share of our foreign earnings. A loss in exchange earnings endangers our ability to repay our external debt. 

However after government delegations negotiated with delegates of the US administration, tariffs were lowered. But this comes with a cost –- Lanka too has to lower tariffs on US goods imported into this country. In turn this will likely hurt local producers and may see the closure of many local small and medium enterprises.

 There may be an even  bigger price to pay –- submission to US policy. The best example being that of Canada. The American president has threatened to raise tariffs on Canada if it dared recognise the state of Palestine! 

As yet, our government has not released the terms under which Trump and his administration agreed to lower tariffs on Lankan goods. We need to ensure we do not sell our sovereignty for a ‘mess of pottage’.

Local chambers of commerce, while welcoming the lowering of tariffs, are calling on the government to continue its efforts so as to receive further reduction from the US. However, rather than prostrating ourselves to US diktat, it would be more meaningful if these bodies seek markets outside the US, rather than sell our souls to the devil so-to-say.

This US President has not even stood by America’s closest allies in the NATO bloc. He even threatened to ask Russian President Putin to unleash his troops and bombs on those countries. Again he insulted India, refers to its economy as a “dead economy” and has raised tariffs on it, as India refuses to stop purchasing fuel from Russia.

The international economic scene is changing. More countries are moving away from the US dollar for trade. West Europe is using the Euro for financial transactions. The countries of the BRICS group are using their own currencies for trading.

Our own country needs to look for markets within our own region and with BRICS.  

Asia is in fact the biggest market –India with a population estimated to be around 1.46 billion, making it the most populous country globally and China with a population projected to be around 1,405,769,984 (estimates of UNICEF, World Bank).

It really is time to get out of our slavish colonial mentality. We need to aim for self-suffiency. Africa is a new market which is  opening up and we need to look to these two sources for mutual help and development.