"World Bank Warns That Trump's Tariffs Will Hurt Sri Lanka's Garment Industry", 21 October 2025

The World Bank warned...that the Trump administration's 20 percent "baseline" tariff on all freight from Sri Lanka as of Aug. 7 could shrink the South Asian nation's garment exports to the United States by as much as 12 percent, imposing pressures on employment that could disproportionately affect the livelihoods of tens of thousands of low-skilled workers and women...

The parity in tariff rates with garment-producing rivals such as Bangladesh, Cambodia and Vietnam suggests "limited possibility" for trade diversion, Obeyesekere said. Conversely, given the limited overlap with India's export base, it's unlikely that Sri Lanka would reap much benefit from the 50 percent tariff on India..

"Sri Lanka's primary exports to the U.S. are undergarments, performance wear and higher-end clothing, which are relatively price inelastic," he wrote in the report. "According to industry experts, Sri Lanka does not compete on price but rather on quality, better labor standards, sustainability, traceability and compliance, suggesting that buyers of Sri Lankan exports may be less price sensitive. Even so, manufacturers operate on very thin margins (2-5 percentage points) and would be unable to absorb the entire additional 20 percent tariff."

Other challenges that could diminish Sri Lanka's export competitiveness include the modest size of its workforce, a dearth of domestically raw materials and intermediate products, and high construction and electricity costs.

If garment exports tumble by the International Finance Corporation's projected $220 million, Obeyesekere said, the jobs of as many as 16,000 people could be put at risk, particularly when coupled with cascading effects from a global slowdown...

Despite the World Bank's detailed macroeconomic perspective, however, it failed to "capture the lived realities of workers whose real wages have been eroded by inflation," said Abiramy Sivalogananthan, regional coordinator for South Asia at the Asia Floor Wage Alliance, a workers' rights group...

"Wage reforms must go beyond fiscal efficiency and place workers' dignity, economic security and the right to a living wage at the center of policy discussions," Sivalogananthan said.