Apparel Industry Faces New Challenges with US Tariffs
The apparel industries in Cambodia and Sri Lanka, long dependent on the US as a primary export market, are grappling with significant hurdles following the recent imposition of steep tariffs. These countries have been key suppliers of clothing to major American brands, but new trade policies are threatening their economic stability. Reports indicate that Cambodia faces a tariff of up to 49%, while Sri Lanka is dealing with a 30% tariff set to take effect from August 1.
This shift in US trade policy has sparked concern among industry leaders in both nations. The US market accounts for a substantial portion of their export revenue, with Sri Lanka alone attributing 23% of its total merchandise exports to the American market. The tariffs, described as 'reciprocal' by US authorities, are seen as a response to perceived trade barriers in these countries, placing additional pressure on already vulnerable economies.
Economic Impacts and Industry Responses
The economic ramifications of these tariffs are profound. In Cambodia, garment workers are reportedly rushing orders while worrying about job security amid an already fragile economy. The industry, a cornerstone of national income, earned nearly $9 billion in the first three quarters of 2024, reflecting a 25% increase from the previous year, according to data from Cambodiaโs General Department of Customs and Excise. However, the looming tariffs could derail this growth trajectory.
In Sri Lanka, the apparel sector, one of the countryโs largest export earners, is bracing for a potential loss of market share. The Joint Apparel Association Forum (JAAF) has highlighted inconsistent government policies as a reason for Sri Lanka falling behind competitors like Cambodia, noting a lack of significant foreign direct investment since the late 1990s. Industry experts fear that the new tariffs could exacerbate existing challenges, with some predicting a drop in export earnings akin to the $1 billion slump forecasted in 2023 due to slowing global demand.
Exporters in Sri Lanka have voiced concerns over the competitive disadvantage these tariffs create. While the rate was reduced from a proposed 44% to 30%, offering a slight edge over competitors like Bangladesh at 35%, the overall impact remains detrimental. The Exporters Association of Sri Lanka has urged for strategic responses to mitigate the fallout from this policy shift.
Future Outlook for Apparel Hubs Amid Trade Tensions
Looking ahead, the future of apparel exports from Cambodia and Sri Lanka to the US remains uncertain. The tariffs not only threaten immediate revenue but also raise questions about long-term reliability of trade relationships with Washington. Industry stakeholders are pushing for policy consistency and diplomatic efforts to negotiate better terms or exemptions that could safeguard their markets.
Additionally, there is a growing emphasis on sustainability within Sri Lankaโs textile sector, with recent workshops organized by the Global Reporting Initiative and the Sustainable Development Council focusing on impact measurement and reporting. These initiatives aim to position the industry as a leader in ethical production, potentially offsetting some negative perceptions tied to trade disputes. However, without resolution on tariffs, such efforts may struggle to gain traction against immediate economic pressures.