Solutions to Trump’s tariffs lie beyond negotiating tables

By Dhananath Fernando

Originally appeared on the Morning

We all hope that by 1 August, Sri Lanka will secure a better deal with the United States on the proposed tariffs affecting around 25% of our total exports. Continued engagement is essential, but we must recognise a hard truth: the real solutions go far beyond negotiations.

Even if we manage to win a 0% tariff deal with the US, that alone won’t fix our export problem. Our exports aren’t underperforming because of foreign tariffs; they are underperforming because we are not competitive enough. The problem lies at home.

While diplomatic efforts must continue, meaningful results will only come from bold, domestic trade and investment reforms. And those reforms must happen together, not in isolation.

Consider the recent India-UK Free Trade Agreement. It is expected to boost bilateral trade by $ 34 billion. The UK will cut average tariffs on Indian goods from 15% to 3%. Tariffs on whisky and gin will fall from 150% to 75%, and down to 40% within 10 years. Car tariffs will drop from over 100% to 10%. On the other hand, 99% of Indian exports to the UK, including textiles, food, and footwear, will enter tariff-free.

What does this mean for Sri Lanka? Simply put, Indian products will now have a significant edge in markets we once competed in. Even though Sri Lanka benefits from the UK’s new Developing Countries Trading Scheme (DCTS), India’s preferential trade access will make its goods more competitive than ours.

India isn’t stopping there. Trade agreements with the European Union (EU), Chile, the Gulf Cooperation Council, New Zealand, the European Free Trade Association (EFTA, comprising Switzerland, Norway, Iceland, and Liechtenstein), and ASEAN are all underway. Each deal pulls the rug further from under our feet.

Unlike India, Sri Lanka is not a large market. We don’t have the leverage to bring global powers to the table. Beyond basic-level conversations with Bangladesh, China, and Indonesia, we haven’t shown much interest in trade deals. The agreements we have signed – with Singapore and Thailand – are gathering dust. The long-stalled Comprehensive Economic Partnership Agreement (CEPA) with India remains a missed opportunity.

Let’s be honest. Competing with India in terms of price, scale, and often even quality is becoming increasingly difficult. That’s why the rational path forward is clear:

1. Integrate deeper with India

2. Unilaterally reduce trade barriers

3. Use this openness to attract investment

India’s aggressive trade strategy gives its exporters – and its value chains – a global advantage. If Sri Lanka can position itself as a reliable partner within India’s export ecosystem, we can gain by being part of its value chain. But to do that, we must get our house in order.

Currently, all our focus is on negotiation tables. But investment will not come unless we fix our own fundamentals. That means reforms in land use, labour laws, and industrial zones. Investors are not waiting for handshakes and smiles; they are looking for reliable, efficient, and reform-oriented partners.

Meanwhile, new regulatory pressures are emerging in our traditional markets too. The EU’s new Corporate Sustainability Due Diligence Directive (CSDDD) will reshape how businesses operate. 

This law requires large EU companies – and by extension their global suppliers – to actively prevent human rights and environmental violations across their operations. Without flexible labour regulations and well-functioning industrial zones, Sri Lanka risks losing even the markets we already have.

So here we are, caught between slow internal reforms and an aggressive global trade race.

The opportunity is still within reach. Deeper integration with India, along with smart reforms, can turn Sri Lanka into a competitive, attractive export and investment hub.

One year ago, Parliament passed the Economic Transformation Bill. One year later, we are still talking, not doing. That alone proves that solutions to US President Donald Trump’s tariffs – and many of our economic woes – won’t be found across negotiation tables. They begin right here, at home.

Patriotism isn’t protectionism

By Dhananath Fernando

Originally appeared on the Morning

Ask any Sri Lankan what we should do to develop the country, and most will say we need to improve our exports. The same majority will also suggest that we must cut down imports to achieve this. While the need to grow exports is true, the belief that reducing imports is the way to do it is where things start to fall apart.

Many Sri Lankans even see boycotting imported goods and shifting to locally produced alternatives as an act of patriotism. The logic is simple: buying local helps local producers generate a surplus, which can then be reinvested to expand internationally. 

It is an emotional argument, but one that is deeply flawed when translated into policy. This sentiment often influences governments to raise import tariffs or impose outright bans on products that can be locally produced, believing that this will encourage domestic industry and, over time, boost exports.

But this approach misunderstands how exports work. Take the Donald Trump administration, for example. It also embraced this worldview, failing to recognise a basic economic truth: the ability to export doesn’t come from blocking imports, it comes from being competitive in price and quality. 

When we restrict better quality and lower-priced imports, we don’t support patriotism; we harm it. We shield local industries from global standards, stifle innovation, and force both consumers and other businesses to bear higher costs, weakening their global competitiveness in the process.

From an economic theory standpoint, protecting one sector of the economy often comes at the cost of others that are already competitive globally. 

Here is a simple example to illustrate this fact. Suppose Sri Lanka produces 100 coconuts a month. We consume 80 and have 20 left to export. But if we allow coconut substitutes or cheaper imported coconut oil for industrial use, we might reduce domestic consumption to 70, freeing up 30 coconuts for export. Better still, we could use imports for industrial purposes and reserve our highest-quality coconuts for premium export products like virgin or desiccated coconut.

All that we import is not final consumer goods. In fact, most of our imports are intermediary or investment goods. For instance, if the price of steel is high due to protectionist policies, it increases costs across all industries that rely on steel, from construction to manufacturing. The resulting job losses across those industries far outweigh the jobs ‘saved’ in the protected steel industry. 

In Sri Lanka’s case, nearly 80% of our imports are intermediary or investment goods. When we restrict these, it doesn’t help the economy – it hurts it. This is yet another reason why protectionism is not patriotism, but quite the opposite.

If we block these types of imports, domestic consumption remains high, and we are left with fewer coconuts – or fewer resources in general – to export or reinvest. This is the irony of protectionism; it reduces our export potential. 

We do a triple disservice: first, we make our exports uncompetitive, second, we increase the burden on local industries and consumers, and third, we create long-term dependency where protected industries lobby to maintain their privileges, making it politically costly to remove trade barriers even when they no longer make sense.

This is why governments find it so difficult to roll back import restrictions. Once protection is in place, it breeds cronyism. Protected industries band together, fund political campaigns, and perpetuate a cycle where economic power is concentrated in the hands of a few politically connected elites. In the name of ‘patriotism,’ we end up creating an unproductive, anti-competitive economy.

Another key misconception is the belief that a negative trade balance is caused by high imports. At face value, it seems logical since the trade balance is calculated as the difference between exports and imports. But in reality, imports and exports are not opposing forces; they are interconnected. Blocking imports hampers exports.

Let’s return to the example of coconuts. If we produce 100 coconuts, consume 80, and export 20, we might choose to invest 10 of those coconuts in planting new trees, increasing future production and export capacity. But we can only save and invest if we consume less. And we can only consume less if we have access to cheaper or more efficient alternatives, often through imports.

In economic theory, the trade balance is ultimately the difference between national savings and investment. Consumption is determined by the price of money – interest rates. This is why artificially lowering interest rates to stimulate growth can be disastrous. It increases consumption, and with it, imports, but without the productive capacity to match. 

When the situation inevitably unravels, we blame imports and turn to protectionist measures, instead of recognising that the true culprit is excessive consumption and insufficient savings.

The result? We reimpose import restrictions, raise tariffs, worsen the situation, and end up back at the International Monetary Fund (IMF) for a bailout. Then we repeat the same cycle, creating a class of politically connected cronies who thrive not by being competitive but by being protected.

And again, we tell ourselves we need to boost exports by cutting imports. It’s a tragic loop, reinforcing the very problems we claim we want to solve.

This is why protectionism is not patriotic. In fact, it is the exact opposite.