US tariffs could still cost SL’s exports US$ 634mn, thousands of jobs - IPS study

• Wearing apparel sector faces a projected 12.1%  decline in U.S. exports, valued at US$ 220.8 mn
• Rubber industry could see a 42% drop
• The economic shock expected to eliminate an estimated 15,908 jobs in the apparel industry, disproportionately affecting its majority-female workforce

A new study by the Institute of Policy Studies (IPS) warns that recent U.S. tariffs could slash Sri Lanka’s total export income by US$ 634 million and lead to significant job losses, particularly in the apparel and rubber industries. 

The findings, presented by IPS Research Fellow Dr. Asanka Wijesinghe, underscore the economic challenges ahead as Sri Lanka navigates a new era of higher U.S. tariffs.

The analysis estimates a severe impact on the nation’s export revenue due to a 20 percent reciprocal tariff imposed by the United States. The total projected loss of US$ 634 million stems from declines across several key sectors.

The apparel sector is projected to lose US$ 220.8 million in export revenue, corresponding to a 12.1 percent decrease in its exports to USA.

The rubber industry faces an even more drastic contraction, with projected losses of US$ 141.6 million, representing a steep 42 percent decline in U.S.-bound exports.

This downturn is a direct result of the U.S. trade-weighted effective tariff rate for Sri Lanka jumping to 29.9 percent from 10.20 percent in April 2025, eroding the competitiveness of Sri Lankan goods.

The projected decline in export-oriented production is expected to have a direct and severe impact on the labour market. The IPS model estimates that the tariffs could lead to the loss of thousands of jobs.

The wearing apparel industry, a major employer, is forecasted to shed 15,908 jobs, with unskilled female workers being disproportionately affected. The rubber sector is also expected to see a reduction of 1,711 workers. 

The study highlights that shocks to major export sectors are transmitted to the labour market, affecting wages and overall employment.

While the outlook is challenging, the IPS study suggests that the negative impacts are not inevitable. Dr. Wijesinghe pointed out that further negotiations could provide substantial relief. 

The analysis shows that securing a lower reciprocal tariff rate of 15 percent could eliminate the net losses to the economy and even lead to a 0.038 percent expansion in real GDP. This provides a strong economic incentive for policymakers to pursue further trade dialogue with the U.S. to protect the nation’s export income and safeguard employment.