Sri Lanka’s trade dynamics in 2025 reveal a significant realignment, with China overtaking India as the country’s largest trading partner, driven largely by a surge in imports. Data from the Central Bank of Sri Lanka indicates that total trade with China rose to $5.5 billion, narrowly surpassing India’s $5.4 billion. This marks a reversal of the pattern observed between 2021 and 2024, when India consistently led. The United States remained a major partner at $3.5 billion, and together, these three countries accounted for over 40% of Sri Lanka’s total merchandise trade.
At the heart of this shift lies the rapid increase in imports following the easing of restrictions that had been imposed during Sri Lanka’s economic crisis. As conditions stabilized, demand for previously restricted goods rebounded strongly. Among these, motor vehicles particularly electric and hybrid models emerged as a dominant factor. China’s established role as a leading supplier of such vehicles positioned it to benefit disproportionately from the policy changes.
The evolution of trade flows over the past five years underscores the impact of import controls and their subsequent relaxation. During the peak of the crisis in 2022 and 2023, stringent restrictions led to a contraction in trade with both China and India. However, the decline was notably steeper in the case of China. This was largely due to the nature of its exports, which are concentrated in sectors such as machinery and construction materials categories deemed non-essential during the period of austerity.
India’s trade relationship with Sri Lanka proved more resilient under these constraints. Its export portfolio, dominated by essential goods like fuel, pharmaceuticals, and intermediate inputs, ensured a steady flow of trade even during the most restrictive phase. This resilience allowed India to maintain its leading position until the recovery phase began.
From 2024 onward, the rebound in trade has been driven predominantly by imports. The reintroduction of high-value goods, especially vehicles, played a central role in boosting trade volumes. China, as a key supplier of electric and hybrid vehicles, experienced a faster recovery in trade with Sri Lanka compared to India, ultimately enabling it to take the lead.
However, this shift has also brought challenges. Sri Lanka’s trade deficit with China expanded sharply, reaching $4.9 billion in 2025. The increase was fueled by higher imports of vehicles and construction materials, while exports to China remained limited. A similar, though less pronounced, trend was observed in trade with India, where the deficit also widened due to increased vehicle imports.
In contrast, Sri Lanka’s trade relationship with the United States continues to provide a counterbalance. With a trade surplus of $2.5 billion, largely driven by apparel exports, the US remains a crucial destination for Sri Lankan goods. This highlights the importance of maintaining diversified trade partnerships even as import-driven growth reshapes the country’s economic landscape.