Sri Lanka year-end review 2025: US tariffs test apparel resilience

Sri Lanka’s year-end review for 2025 reflects a year shaped by intense trade negotiations, mounting cost pressures, and rising labour tensions within its export-oriented apparel sector. The country’s engagement with the US over tariffs emerged as a defining theme, with Colombo navigating successive duty revisions to protect an industry that earns over $1.5 billion annually and underpins livelihoods for hundreds of thousands of workers. At the same time, the year exposed structural vulnerabilities. While tariff reductions offered partial relief, uncertainty over market access weighed on orders, profitability, and employment prospects. 

US talks bring relief, not certainty

Sri Lanka’s tariff negotiations with US began in April at a 44 per cent rate, half of the 88 per cent duty that Sri Lanka had levied on US imports. The discussion between both countries secured a reduction of 14 percentage points, the most significant cut till then. Sri Lanka’s apparel industry earns more than $1.5 billion from the US market and supports roughly 350,000 workers so even a reduced tariff of 30 per cent was a tall order, making the discussions continue. Beginning August, the US announced a revised 20 per cent tariff on Sri Lankan exports, to be effective from August 7, marking a 24 per cent reduction from the initial rate proposed in April. Despite this reduction, Sri Lanka continued the trade talks with the US, hoping to expand the preferential list of zero-rated export items to the US. In July, the US had offered a zero tariff on 80 per cent of 1,161 goods being exported to the US from Sri Lanka.

Sri Lanka’s year-end review 2025 highlights a turbulent year for its apparel-led export economy, dominated by prolonged tariff negotiations with the US and rising domestic pressures.
While successive duty cuts provided partial relief, uncertainty over market access squeezed margins and threatened employment.
Studies warned that tariff-driven cost pressures could put thousands of apparel jobs at risk.

Meanwhile, Sri Lanka’s Free Trade Zone Katunayake witnessed protests in September by garment factory workers against employers’ inability to provide several long-standing benefits, such as annual excursions, sports festivals, year-end get-togethers, employee uniforms, and the customary New Year’s Day gift exchanges, despite government’s earlier assurance. As the hiked tariffs would cause a rise in prices of goods exported to the American market, it will lead to reduced purchasing and lower sales, which in turn could result in factory closures. Meanwhile, a recent study showed that, as an ultimate consequence of the tariff policy, around 16,000 jobs in Sri Lanka’s apparel sector could be at risk owing to pressure on profitability.

Fibre2Fashion News Desk (SB)