Sri Lanka’s apparel industry has shown resilience in recent years, achieving steady growth despite global economic challenges. In 2025, export earnings surpassed $5 billion, with the United States alone accounting for approximately $1.9 billion. Exports to the European Union and the United Kingdom also strengthened, helping the sector maintain momentum.
However, new trade arrangements between the US and two of Sri Lanka’s regional competitors—Bangladesh and India—have introduced fresh uncertainty. Bangladesh secured a deal reducing reciprocal tariffs to 19% overall, with a zero-tariff clause on certain garment volumes made using US-origin cotton and man-made fibres. India, under an interim arrangement, is expected to receive an 18% baseline tariff and similar sourcing-linked benefits. Sri Lanka continues to export under a 20% tariff arrangement, which has not yet been finalised into a permanent agreement.
While the one- to two-percentage-point difference may seem minor, the Joint Apparel Association Forum Sri Lanka (JAAFSL) Secretary General Yohan Lawrence emphasised that the main issue is the lack of closure. “The problem for Sri Lanka is that it has still not finalised its deal,” he said. Though marginal tariff differences may not immediately shift orders, uncertainty over the final rate creates hesitation among buyers, who value certainty and stability.
The Bangladesh-US agreement, signed on 9 February, drew attention for its sourcing-linked zero-tariff provision, which applies to specific categories of garments made with US-origin materials. India’s interim framework is expected to offer similar benefits, according to Indian Commerce Minister Piyush Goyal.
Concerns have been raised that Sri Lankan manufacturers with operations in Bangladesh or India may expand there to leverage lower tariffs for US exports. However, Frontier Research Head of Macroeconomic Advisory Chayu Damsinghe noted that tariff changes alone are unlikely to drive relocation. Recent volatility in US trade policy and structural differences in production scale and costs mean that expansion into Bangladesh or India may be driven more by scale and cost advantages than by small tariff shifts.
The Export Development Board (EDB) acknowledged that Bangladesh’s formal deal affects Sri Lanka’s competitiveness. EDB Director of Policy and Strategic Planning Kumudunie Mudalige noted that manufacturers already operating in Bangladesh may scale up to export under the preferential tariff. She also highlighted sourcing patterns as a key factor, noting Sri Lanka’s reliance on Chinese inputs complicates rapid adaptation to the US market’s rules. The EDB plans to continue engagement with Washington to narrow the tariff gap and achieve clarity.
Sri Lanka’s apparel sector, unlike Bangladesh, has focused on higher-value, technically demanding products that require skilled labor and tight quality control, such as lingerie and performance wear. In 2025, the industry grew 5.42% year-on-year, reaching $5.02 billion in apparel exports and nearly $5.5 billion including fabric exports. While Bangladesh and India have advantages in low-cost, large-scale production, Sri Lanka’s strengths in compliance, sustainability, and niche products remain key to its competitive position.
For American buyers, tariffs are only one factor in sourcing decisions. Lead times, quality, compliance, and brand reputation also play major roles. A marginal 1–2% tariff difference may affect high-volume basic products but has less impact on specialized, high-margin items. Nevertheless, uncertainty over Sri Lanka’s final tariff arrangement may introduce friction into planning and procurement cycles, reinforcing the need for a concluded agreement.
US-Bangladesh Tariff Deal: Key Facts
Agreement name: United States-Bangladesh Agreement on Reciprocal Trade
Signed: 9 February 2026
Negotiation period: 9 months (started April 2025)
US tariff cap: Reduced to 19% on Bangladeshi imports (from 35–37%)
Zero-tariff option: For apparel/textiles using US cotton or man-made fibres
Volume limit: Tied to US inputs supplied to Bangladesh factories
VAT changes: Removes discriminatory taxes on US firms
Import easing: Fewer restrictions on US remanufactured goods
Labour rules: Strengthened worker rights enforcement
Other pledges: Better export controls, anti-duty evasion cooperation
Basis: Follows US Executive Order 14257 (April 2025)
Bangladesh goal: Boost RMG exports to US by over $5 billion
Impact: Improves market access for the world’s second-largest apparel exporter
