Trump Proposes Replacing Income Tax with Tariffs in 2026 Address 📈

U.S. President Donald Trump, in his 2026 State of the Union address, doubled down on a protectionist agenda, claiming tariffs will eventually replace the modern income tax system to "take the burden off Americans." • New 15% Global Tariff: Following a Supreme Court ruling that struck down previous emergency duties, a new 15% import surcharge has been signed under Section 122 of the Trade Act. This "temporary" measure (valid for 150 days) takes effect almost immediately. • Impact on Sri Lanka: The U.S. remains Sri Lanka's largest export market (US$ 2.8–3.0 Bn annually). While the new 15% rate is lower than the 20%–44% levels negotiated or threatened in 2025, it still disrupts stable market access for local exporters. • Apparel & Textiles: This sector is most vulnerable, accounting for nearly 40% of Sri Lanka's U.S. exports. Industry experts warn that even a 15% duty keeps local garments more expensive than regional rivals like Vietnam or Indonesia, risking a volume drop of 10%–15%. • Key Sectors at Risk: • Rubber: Previously projected to see a 40%+ export decline under high-tariff scenarios. • Tea & Coconut: Facing increased pricing pressure in a critical hard-currency market. • Economic Outlook: Based on provisional 2026 data, the U.S. trade-weighted effective tariff rate remains at historic highs. Sri Lankan officials continue to lobby for reciprocal "deals" to avoid long-term diversions of orders to competing hubs.