Sri Lanka’s Left in the Tariff Trap
Sri Lanka’s new left-wing government has already been tested by tariff shocks and IMF pressure. Either it can radically reform a broken export-led model, or else give up on the promise it offered to working people.
Sri Lankan prime minister Harini Amarasuriya delivers a speech in Colombo, Sri Lanka, on January 19, 2025. (Wu Yue / Xinhua via Getty Images)
“Katunayake FTZ workers skip travel home to vote due to high bus fares” reported a Sri Lankan news outlet on the morning of Monday, May 5, one day before local government elections. The headline captured in just a few words the quiet crisis unfolding in the country’s Free Trade Zones. One young garment worker put it plainly: “We just can’t afford the bus fare to go home and vote. So, we’re staying back in the dormitories.”
Alongside her are hundreds of others — predominantly women — who have made the same choice, not out of political apathy, but due to sheer economic constraint. Their absence at the polls is not just a story of personal hardship. It’s a powerful symbol of how economic vulnerability is now silencing low-income Sri Lankans’ political voice, and how the country’s export-led growth model has reached a breaking point.
Lost in the headlines about great-power trade wars is the real collateral damage: the devastating toll they take on fiscally constrained, export-dependent economies like Sri Lanka, where tariff shocks threaten not just trade flows but the very viability of national economic strategies. Donald Trump’s announcement of the so-called “Liberation Day” tariffs marked a dramatic escalation in global trade tensions. Sri Lanka — heavily reliant on ready-made garment (RMG) exports to the United States — was among the hardest hit, facing an initially proposed 44 percent tariff. This posed a potentially crippling blow to an industry that employs around 15 percent of the country’s industrial workforce, most of them women, and remains a pillar of GDP and export earnings. Although the implementation of this tariff is scheduled for July 9 following a ninety-day pause announced by the Trump administration, this episode has highlighted the fragile dependency of small, export-oriented economies on the unpredictable decisions of distant superpowers. The danger has not disappeared but simply been postponed.
This volatility underlines a deeper, structural crisis in Sri Lanka’s economic architecture. First, the country is dangerously exposed to external shocks, including currency and trade fluctuations that undermine balance of payments stability. Second, Sri Lanka relies on foreign exchange from exports to service its sovereign debt and sustain essential imports, which means that any disruption in trade flows tightens fiscal constraints. Third, the model is fundamentally extractive. Built on low wages, minimal value addition, and rigid labor discipline, it offers little real improvement in living conditions for workers. The fact that garment workers cannot afford to travel home to vote — after decades of being held up as the backbone of the country’s “success” in global markets — exposes the emptiness of that narrative.
For a left-wing government like the National People’s Power (NPP) — elected last fall on promises of redistribution, social justice, and economic reform — the current moment presents a profound political dilemma. It came to power on the back of widespread public frustration against corruption, elite mismanagement, austerity imposed by the International Monetary Fund (IMF), and the economic collapse triggered by the previous regimes. Yet, despite its oppositional rhetoric, the NPP has largely upheld the IMF-backed orthodoxy of export-led recovery and fiscal consolidation, continuing the very macroeconomic trajectory it once critiqued.
Rather than transforming Sri Lanka’s historic dependency on volatile export markets, the NPP government now finds itself attempting to fund public services and maintain legitimacy in the eyes of its supporters while operating within the same structural constraints it had promised to dismantle. Ironically, this continuity has only made the model’s underlying fragilities more visible.
The imposition of sharp US tariffs serves as a warning: in a world increasingly shaped by trade barriers and shifting geopolitical alignments, countries like Sri Lanka cannot build a stable or sovereign development path while relying on such a vulnerable and externally driven economic foundation. Voices — and silences — of FTZ workers at the local government elections are a sobering reminder that economic models must be judged not by abstract growth statistics, but by the lives they are meant to improve.
When the Ladder Is Kicked Away
Trump’s tariff war does more than harm Sri Lanka’s export economy — it exposes the deep structural vulnerabilities embedded in the country’s IMF-guided neoliberal development model. As South Korean economist Ha-Joon Chang has argued, the industrialization of wealthy nations like Britain and the United States was historically built on protectionist policies and robust state intervention. However, these same countries have since pressured developing economies to adopt free-market orthodoxy, effectively “kicking away the ladder” that enabled their own growth. This critique, sharpened by heterodox and left-leaning economists, emphasizes that sustainable development in the Global South has not emerged from unfettered liberalization, but rather from a pragmatic combination of import substitution, public investment, state-owned enterprises, and policy space to manage external shocks.
In Sri Lanka, this critique holds particularly true. The IMF’s policy prescriptions continue to perpetuate this system, with a focus on fiscal austerity, tight monetary policy, and liberalized trade. These conditions not only widen inequality but also undermine domestic industries, reinforcing a global double standard: while advanced economies use stimulus and monetary expansion during economic downturns, developing nations like Sri Lanka are forced to cut spending, raise interest rates, and maintain fiscal discipline.
Sri Lanka’s current budgetary strategy mirrors this double standard. The 2025 Budget, prepared by the NPP government, is based on overly optimistic assumptions of export recovery — particularly in the apparel sector — to fund public services and meet IMF restructuring requirements. According to the latest projections, Sri Lanka aims to earn US$18.2 billion in annual export revenue by 2025, with apparel accounting for US$5.2 billion.
However, these projections are already under severe strain due to the imposition of a 44 percent tariff on Sri Lankan apparel exports — currently remaining at 10 percent during the suspension period — which threatened to shut Sri Lanka out of its largest apparel market. This episode highlights a key argument long made by critical economists: development models reliant on volatile global demand and mobile capital are inherently unstable and subordinated to the interests of wealthier states.
The “Liberation Day” tariffs thus expose more than just a trade dispute. They reveal the fragility and dependency of Sri Lanka’s entire development trajectory. True recovery cannot come from chasing volatile export markets or relying on foreign loans. Instead, it requires a fundamental shift toward rebuilding economic sovereignty through food and energy security, domestic production, and democratic control over fiscal and industrial policy. The tariffs should serve as a wake-up call for the NPP government: unless it breaks with the orthodoxy of its predecessors, it risks reproducing the very inequalities and dependencies that fueled its own rise to power.
Caught Between Main Street and Wall Street
In a global moment where left-wing electoral victories have been rare, NPP’s success last fall was a notable exception: a left-wing party elected through mass democratic mobilization, promising to rebuild the economy around social justice, sovereignty, and the needs of ordinary people. Prime Minister Harini Amarasuriya highlighted this in her May Day speech, “Let us commemorate the 139th International Workers’ Day in a year marked by progress and under a government that represents the will of the people, putting an end to a painful chapter in history where the working class endured hardship, sacrifice, and struggle marked by blood and sweat.”
Yet, when Sri Lanka’s largest export market abruptly imposed tariffs on its garment sector, triggering a crisis with major economic consequences, the government’s response revealed a sharp contradiction between its stated values and its actual practice. Soon after the tariffs were announced, Sri Lanka dispatched a high-level delegation to Washington, DC, to negotiate potential exemptions. President Anura Kumara Dissanayake himself engaged in formal correspondence with Trump, marking a clear attempt to resolve the matter through traditional state-to-state diplomacy.
This was complemented by the establishment of an “Action Task Force” and an Economic Impact Assessment Committee, both largely composed of academics, policy experts, and private sector representatives tasked with formulating responses to the crisis. The NPP government has also convened an All-Party Conference to discuss strategic planning, including trade agreements like the Economic and Technology Co-operation Agreement (ETCA) with India and regulatory harmonization. Moreover, a series of forums with business elites and industry representatives were organized by the Finance and Foreign Ministries to chart a path forward.
However, this is where a critical disjuncture becomes visible: none of these engagements have involved the working class or the trade unions that claim to represent them. In what can only be seen as a glaring omission for a party rooted in a left-wing tradition, the government’s consultations have been exclusive to capital — local industry leaders, multinational corporations, and technocrats. Where are the workers in this process? Where is the engagement with trade unions, cooperatives, or informal sector organizations that would bear the brunt of any economic fallout from a contraction in export demand?
Furthermore, the government has announced its commitment to reducing both tariff and non-tariff barriers in trade with the United States and is currently drafting a comprehensive National Tariff Policy and new Customs Act. These moves, along with continued alignment with the IMF’s Extended Fund Facility program, signal a shift toward liberal trade facilitation, repeating the strategies of previous neoliberal administrations. The IMF has already identified the tariffs as a risk to Sri Lanka’s economic recovery, reinforcing the narrative that economic reform must cater primarily to export competitiveness and investor confidence.
This raises uncomfortable questions about the NPP’s political economy in power. While their rhetoric emphasizes redistribution, people-centered development, and democratic planning, their response to this crisis has so far been limited to measures that any centrist or even right-leaning government might have undertaken. By privileging the voice of capital and largely sidelining labor, the NPP government risks hollowing out its ideological foundations in the name of administrative efficiency and diplomatic appeasement.
A Call for Transformative Change
As economic nationalism and protectionism reshape the global landscape, Sri Lanka cannot afford to cling to a model built on fragile export dependence and IMF orthodoxy. What’s required now is not mere policy tweaking, but a profound shift: a new development framework rooted in justice, sustainability, and economic autonomy.
A leftist government is not simply expected to manage crisis — but to reimagine the very foundations of development. The kind of development that places people at the center, not the market. This means prioritizing domestic production to meet local needs, strengthening labor rights, and embedding workers in the heart of economic decision-making. Yet, that transformative vision has so far remained out of sight!