US Trade Policy uncertainty highlights the need for diversification and value addition in Sri Lankan exports

Uncertainty in United States trade policy has underscored the need for Sri Lanka to strengthen relationships with more reliable trading partners and focus on higher value-added exports, according to industry experts.

The discussion comes against the backdrop of a recent US proposal to impose an additional 12.5% tariff on Sri Lankan exports, a move that has raised concern among exporters and policy analysts over increased volatility in international trade conditions.

Concerns over trade volatility

Chairman of the think tank LIRNEasia, Professor Rohan Samarajiva, said such policy shifts create significant instability for Sri Lankan exporters.

He noted:

“The main issue here is that it is impossible for exporters and a country to deal with this level of volatility and arbitrariness. The question is whether the United States is any longer a country worth trading with, because it keeps changing its mind and arbitrarily imposing these punitive levies.”

He further argued that recent US measures, including those linked to forced labour allegations, appear to have broader geopolitical motivations:

“The real issue here is they are talking about something called forced labour inputs. That means that everything these countries import is being questioned on the basis that it may involve forced labour inputs. They are not specifically saying that these countries are using forced labour directly, but that their inputs may be linked to it. Essentially, they are trying to harm China’s exports. That is the real agenda.”

He added that issues related to Xinjiang remain complex and unresolved, and described the broader direction of US trade rules as inconsistent and punitive.

Sri Lanka’s position and need for value addition

Former Chairman of the Sri Lanka Export Development Board, Suresh De Mel, said it is inappropriate to directly compare Sri Lanka with larger economies such as the European Union or Canada under uniform trade criteria.

He stated:

“Our manufacturing processes are fairly ethical. Our garment factories were among the first certified for ethical production. If this is being assessed from a raw material standpoint, a small country like Sri Lanka cannot produce its own raw materials.”

He further added that Sri Lanka should strengthen its positioning in niche, high-quality markets:

“Sri Lanka cannot explain its position except by saying that we are a small country and should not be placed in this category. Our production is fairly superior to many of our competitors. We should build on our reputation for ‘garments without guilt’ and negotiate based on our strengths.”

A wake-up call for export diversification

De Mel described the proposed tariff changes as a warning for exporters to adapt to changing global conditions.

He said Sri Lankan exporters must shift toward higher-value products:

“This is a message to all exporters to the US and around the world. They should focus on quality, innovation, niche markets, product diversification, and moving toward higher-end segments. If we target high-quality and niche markets, the American consumer will bear the additional cost. Competing with large-volume producers like Vietnam and Bangladesh is difficult, so we must move upmarket.”

He also emphasised the need for diversification beyond traditional markets:

“We must diversify into other markets and products. Sri Lanka should focus on high-quality, value-added exports instead of bulk shipping.”

Opportunity in Organic Agriculture

On value addition, the former EDB Chairman highlighted organic agriculture as a key opportunity for Sri Lanka.

He noted that products such as coconut and tea already have strong potential in organic markets:

“Coconut already has a significant organic export component. Tea also has potential, especially organic tea and agricultural produce, for the US and European markets. Sri Lanka is ideally positioned for organic production due to its natural environment and rainfall. There is no reason we cannot produce 100% organic products, and Sri Lanka already has a strong reputation for clean products.”

Pivot toward Asia

Highlighting the uncertainty of US trade policy, Professor Samarajiva stressed the importance of shifting Sri Lanka’s trade focus toward Asia.

He said:

“We need to fast-track the pivot to Asia. That means finalising the India–Sri Lanka trade agreement and working toward joining RCEP. Asian markets are growing faster, and there is strong demand that we have not fully tapped into.”

He added that Sri Lanka should prioritise more stable and predictable trade relationships:

“We need to focus on more reliable trading partners rather than depending heavily on the United States.”

Conclusion

Experts agree that recent developments in US trade policy, including the proposed 12.5% tariff on Sri Lankan exports, highlight the importance of strategic diversification. Strengthening value-added production, expanding into niche markets, and deepening trade ties within Asia are increasingly seen as essential steps for Sri Lanka’s long-term export resilience.