Sri Lanka Faces New Tariff Threats Amid Shift to Asia 📈

Sri Lanka is navigating a precarious trade landscape as new 25% US tariffs target nations trading with Iran. The government is responding by fast-tracking trade diversification into Asian markets to mitigate dependency on traditional Western partners. • New Trade Risks & Tariffs The US has announced an immediate 25% tariff on countries doing business with Iran, threatening Sri Lanka’s single largest export market (approx. 25% of total exports). This follows a previously negotiated 20% tariff "shock" from early 2025, creating a potential double-blow for the apparel & textiles and tea sectors. Tea prices have already dipped at recent auctions due to the collapse of the Iranian Rial and heightening geopolitical pressure. • Sectoral Impacts & Diversification Tea: Iran remains a top 10 buyer; the industry faces severe risks if food exemptions are not clarified. Apparel & Textiles: High reliance on the US (US$ 3 Bn annual revenue) necessitates urgent market shifts. ICT/BPM: While services exports rose 2.79% in 2025, legal trade agreements (GATS+) are viewed as essential to protect private investors from "deal culture" risks. • Strategic Pivot to Asia Sri Lanka is prioritizing FTA negotiations with India, China, and ASEAN members (Thailand, Vietnam) to reduce "distant market" logistics costs. A specialist ministerial committee is currently reviewing all existing pacts to eliminate para-tariffs and streamline trade facilitation.