ECONOMYNEXT – Sri Lanka’s alleged 88 percent tax which has been used by President Donald Trump to slap a 44 percent discounted reciprocal tax appeared to have been arrived at by dividing the trade deficit.
Flexport, a supply chain consultany, which has ‘reverse engineered’ the reciprocal tax has found that the in many countries that ‘tariffs’ said to be charged on the US seems to be the trade deficit, divided by exports to the US.
According to the Office of the US trade representative, Sri Lanka has exported 3.0 billion dollars of exports to the US, and imported only 368 million dollars, Udeeshan Jonas, Chief Strategist at CAL, a Colombo based investment bank said.
Free trading countries like Singapore, which had a trade surplus, according to US trade data in 2024, still got hit by a 10 percent tax.
Sri Lanka’s trade deficit with the US is therefore 2,632 million dollars, which is 87.77 of total exports to the US.
Trump has claimed that tariffs charged by Sri Lanka on the US ‘including currency and manipulation trade barriers’ was 88 percent.
Sri Lanka’s top exports to the US was 1,906 million dollars in apparel, followed by others like tyres, coconut products and cinnamon.
Sri Lanka’s Joint Apparel Exports Association is studying the tariffs, Secretary General Yohan Lawrence said.
Sri Lanka charged high protectionist taxes on imports including food items like maize and other grains which the US exports and the island could have potentially imported.
Trump is trying to reduce the trade deficit which he considers to be a bad thing. However economists have pointed out that trade deficits and current account deficits generally come from foreign direct investments or foreign borrowings.
The US is top recipient of FDI as the country has free trade, favourable conditions for business, including good labour laws, or did before Trumps ad hoc tax hikes.
(Colombo/Apr03/2025)
Continue Reading
