US trade court ruling eases pressure on Sri Lanka for now

By Shabiya Ali Ahlam

A surprise ruling by a US trade court blocking most of the steep tariffs announced by President Donald Trump may give Sri Lanka a much-needed breather, however, the country must not squander this window of opportunity, local economists said.
With bulk of Sri Lanka’s exports heading to the US, the proposed 44 percent reciprocal tariff poses a serious threat to the island’s export earnings. The trade court’s decision, delivered while a senior Sri Lankan delegation is in Washington to negotiate, offers a short-term relief. 
“This development offers some breathing space, but we must not lose momentum in becoming more competitive in global trade,” said Senior Economist Prof. Sirimal Abeyratne speaking to Mirror Business.

“Sri Lanka should not wait for the US to act. We must continue our own efforts to build an export-oriented economy and diversify our markets.”
Reflecting similar sentiments, Economist Talal Rafi said the development is a positive for Sri Lanka in the short term, but warned the government against letting its guard down. 
“The Sri Lankan government should not relax on this as the politics in America can result in Trump finding a way around this,” he said.
The ruling found that President Trump had exceeded his executive authority in imposing the wide-ranging levies, which had already sent ripples through global trade corridors. Financial markets responded positively, with gains led by chipmakers, automakers, and luxury brands. The US dollar also edged up on easing investor anxiety.
Still, questions remain about how long the relief will last given that there is still some uncertainty about what action might be taken.
Rafi, taking a long-term view, argued that the tariff threat acts as a catalyst for structural reforms. 
“Had Trump’s 44 percent tariffs been implemented on Sri Lanka, it would have been beneficial in the long term. We would have reduced our tariff rates on the US to negotiate and seeing that, other countries would have asked Sri Lanka to reduce Sri Lankan tariffs on their imports, which would have led to trade liberalisation,” he said.
Rafi stressed that Sri Lanka should eliminate para tariffs regardless of Trump’s tariffs being implemented or not as reducing non-tariff barriers is part of the IMF programme.
Meanwhile, in a research note, Goldman Sachs described the court ruling as a “setback” to Trump’s tariff strategy, but warned that the move may not change the final outcome for major U.S. trading partners.
“The administration could quickly replace the 10 percent across-the-board tariff with a similar tariff of up to 15 percent under Sec. 122,” Goldman noted, though such a measure would be temporary unless Congress steps in.
Other tools remain on the table. Trump’s team could revive Section 301 investigations, target sectors via Section 232 on national security grounds, or even test Section 338, which permits duties up to 50 percent on imports from nations deemed discriminatory toward the U.S.