Last Call For Negotiations: President Trump and The Most Beautiful Word in Dictionary
Photo courtesy of RNZ News
US President Donald Trump’s bid to rewrite global trade has reached a crucial stage as the July 9 deadline looms large for countries worldwide to sign trade deals with the US to lower the tariff base and establish a sound trade relationship with the world’s largest economy. President Trump commented that he had no intention of extending the deadline but some reports suggest the window could well extend beyond the July 9 deadline.
The US will start sending letters to countries starting from July 7 stating the amount of tariffs they would face in the due course. However, President Trump’s comment of different amounts of money paints uncertainty in his position with tariff negotiations.
Sri Lanka was among the first set of nations to start negotiations with the US as the country was slapped with a 44% tariff rate that would dampen exports and trade competitiveness if enacted without any changes.
Sri Lanka’s negotiations with the US
On May 30, Deputy Minister of Economic Development Professor Anil Jayantha said that Sri Lanka was the only country in Asia to hold discussions with the officials in the US to strike a better deal with a mutual understanding in trade. Cabinet Spokesman Nalinda Jayathissa reiterated that Sri Lanka could receive a favourable response that would not impact its exports and economy.
The US is an important export destination for Sri Lanka, where export figures go up to $3 billion annually, which represents a significant share of total exports within a year. Apparel and textiles is by far the largest export sector to the US, covering over 70% of total exports. A high tariff rate would shift orders elsewhere in the world, which would drastically impact revenues and employment in the apparel sector, where over 300,000 people are employed. A diversion of trade might push Sri Lankan companies to look beyond their shores and establish factories in countries where tariff rates are much lower. Unemployment would surge due to the loss of jobs in the sector.
In addition to textiles, Sri Lanka also exports rubber-based products and premium tea to the US. A 44% tariff rate would hamper the competitiveness of rubber-based exports such as rubber gloves and solid tires, which may prompt foreign buyers to search for alternative rubber producing countries such as Thailand and Malaysia. Key exports such as tea and cinnamon would also be hit by a high tariff rate while challenges in logistics and shipping might harm the country’s position in the global supply chain.
A disruption in the broad macroeconomic picture would alter the path to economic recovery and prosperity. The IMF in its recent report specifies that Sri Lanka’s GDP could lose 1.5 percent due to a high tariff rate. A decline in foreign reserves might impact its chances of raising official reserves to $13 billion (IMF target) by end of 2027. A spillover effect could be seen in lower remittances and tourism revenue. A loss in merchandise exports might need to be facilitated through external financing options.
Therefore, it is important that Sri Lanka renegotiates its tariff rate below the 44% threshold, and the need for a change in the country’s export structure is clear, with vulnerabilities in global trade.
How other countries have negotiated so far
Vietnam, a direct competitor for Sri Lanka’s apparel industry, recently struck a trade deal with the US where it would face 20 percent tariffs for its exports. The UK negotiated tariff rates on certain goods, which included a 10 percent tariff for a minimum of 100,000 cars exported to the US. The two countries are yet to reach an agreement on steel products.
The US-China trade escalation took a swift turn in early May when the two countries agreed on a truce in the tariff war. The US imposes a 30 percent tariff on all Chinese imports while the Chinese maintain a 10 percent levy on all US imports.
Negotiations with India have not materialised so far despite the latter’s intention to lower tariffs on certain imports. Key trade partners, the EU and Japan, have struggled to find a consensus and President Trump has expressed disapproval for driving too hard to bargain.
Last month, he said he was negotiating with 200 nations. But the US is said to be actually having ongoing negotiations with over 170 nations.
The final call
As far as Sri Lanka is concerned it is important that the country negotiates a fair rate with the US that keeps exports in a competitive position with other nations. Industry experts have different perspectives in this regard. Some suggest a rate below 25 percent would put Sri Lanka in contention with regional competitors while a few believe the US would not go below 30 percent. The government should play its cards carefully. It should emphasise that the country is in an ongoing IMF deal and has little room to manoeuvre over a high tariff rate. Favourable rules in the existing trade structure might paint an image that Sri Lanka is ready for reasonable trade with the US.
For the world, the drama still unfolds. President Trump has said that he would begin sending letters, which called take it or leave it offers, to 12 countries starting from Monday. White House insiders believe some rates could go beyond 60 percent or 70 percent, higher than the rates announced previously. The rates are expected to take effect from August 1.
President Trump is a man of uncertainty. His bid to rewrite trade might be near its completion by the end of this week or is it just a self-imposed landmark in his theatrical show of Trump and the most beautiful word of his dictionary? The world awaits.
