Shakespeare’s Ides of March, Trump’s tariffs and Modi’s visit

As April dawns, Lanka is faced with an Ides of March situation. US President Trump has imposed a 44% tax on Lankan exports to the US. Worse, the US is the largest export market for Lanka. In 2024, Lanka exported nearly US$ 3 billion in goods to the US. The steep increase in tariffs could have grave consequences for our fragile economy. In turn, this could result in our goods becoming noncompetitive in the US market and result in a sharp drop in income.

In 2023, Lanka exported approximately $2.98 billion worth of goods to the United States. Key exports included women’s undergarments ($ 455 million), tea ($1.4 billion) and precious stones ($196 million). Trump’s unexpected move is akin to a terrorist attack on our economy, still teetering from the after-effects of the economic bankruptcy of 2022. 

The increase in tariffs could throw thousands of local workers, especially in the apparel trade, out of employment when the rise in prices (following enhanced tariffs) leads to a drop in demand for Lankan goods.

It was in this backdrop that Premier Modi’s arrival in the country yesterday takes on an even greater significance. India, during our economic crisis of 2022, played a huge role in helping our country avert economic collapse. It also enabled the import of essential goods via the extension of credit line of US$ 4 billion dollars at a time all other financial institutions blacklisted the country. . The IMF 4-year Extended Fund Facility (EFF) arrangement came long after we received the Indian credit line. 

The ‘Hindustan Times’ reported “a framework agreement on defence cooperation, marking the first refresh in ties in this sector since the Indian Peace Keeping Force (IPKF) intervention in the 1980s, and measures to support Sri Lanka’s economic recovery will be among the centrepieces of Prime Minister Narendra Modi’s visit to the island nation next week”. 

What exactly the defence co-operation agreement involves, the public does not know. It seems the wheel has turned full circle. The last time the Lankan government signed a defence co-operation agreement with India, its contents were not revealed. It led to an armed uprising against the deal. 

Fortunately, this time around, the new agreement comes with the blessings of our President, who was involved in the drafting of the agreement during his visit to India. Rather unfortunately, this time too, none of the political parties in parliament, the military establishment, or the people of this country have the least idea what the contents of the agreement are. 

It prompted former Defence Secretary, Austin Fernando, to raise the question, whether the country was faced with a defence threat? 

A state of conflict between India and the country too does not exist. The question that arises, therefore, is why there is a need for a defence treaty? 

Today, due to Trump’s imposition of an 88% tariff on our exports, and the need to avoid another default on loan repayment, we need India’s support more than ever before. Just as in 1980, therefore, Lanka will have no option but to sign the defence agreement. 

For what it is worth, India has signed a defence co-operation agreement with the US. 

The terms of that agreement cover the supply of defence equipment. The deal seeks to open business opportunities for Indian companies in the US. We can only hope the present agreement, which will be signed by our President and Premier Modi, will include a similar clause creating business opportunities for Lankan companies.

With the increase in tariffs on Lankan goods in US markets, Lanka will need the Indian government to help push local exports into the Indian market. The action of the US reveals the danger of focusing on particular markets and highlights the need to diversify trading targets. 

India, China and South Asia have large populations, it is time to look for opportunities in new emerging markets. We also need to become part of the global chain, producing parts of a final product rather than concentrating only on finished products.

The actions of the present US government are overturning existing trade patterns. Our country’s trade policy needs to change to meet new demands.