Potential Trump tariffs could trigger 50,000 job losses initially, warns FTZMA

Sri Lanka’s economy is bracing for a potential shockwave, as the Free Trade Zone Manufacturers Association (FTZMA) warns that the proposed tariffs by President Donald Trump could lead to a loss of approximately 50,000 jobs in the initial stages and render the nation uncompetitive in the South and Southeast Asian region. 

The stark warning comes amid the ongoing, high-stakes negotiations between Colombo and Washington to mitigate the impact of a potential 44 percent tariff on Sri Lankan exports to the US.

FTZMA Chairman Dhammika Fernando voiced grave concerns over the looming threat, stating that around 20 percent of the nation’s trade income, primarily from foreign trade, is at risk. 

“In the initial stage, there is data that around 50,000 jobs will be lost,” Fernando cautioned. 

The US remains Sri Lanka’s largest single export market, with the apparel sector being the most significant contributor. The proposed tariffs, part of a broader “reciprocal” trade policy advocated by Trump, could decimate the competitiveness of Sri Lankan-made goods.

“We already have threats, especially from the regional products in our regional countries that are in competition with us,” Fernando explained.  

He pointed to nations such as Bangladesh, India, Vietnam, Laos and Cambodia, which currently enjoy more favourable trade terms with the US. 

“They are waiting to take the share that is broken off from us, just like how South Asia was waiting to take the share that was leaving China one time.”

The uncertainty surrounding the final tariff figure remains a significant concern for the industry. 

“We still don’t even know for sure if this 44 percent is just 44 or if it’s 54 with the base tax. There is no clarity on this yet,” Fernando lamented, highlighting the difficulty for the businesses to plan amidst such ambiguity.

While acknowledging that the Sri Lankan government has held approximately six rounds of discussions with the US trade representatives, the FTZMA is anxiously awaiting a favourable outcome. The association hopes for a negotiated reduction in the proposed tariffs, similar to the deal recently secured by Vietnam, which saw its potential tariffs significantly lowered.

In the face of these external pressures, Fernando stressed the urgent need for Sri Lanka to accelerate its economic diversification strategies. He outlined a two-pronged approach: “One is our product diversification. The government should encourage the country for that; the government must make an investment. The other is market diversification.” 

He suggested a more robust focus on markets such as the UK, European Union, Japan and China, to reduce over-reliance on the US.

Fernando also underscored the importance of technological adoption to enhance efficiency and competitiveness.