Sri Lanka at the Crossroads: Navigating Geopolitical Shifts, Trump's Return, and the Path to Economic Reform

Undoubtedly, AKD has established himself as a master of emotional and power politics. He maintains stronger ties with the United States, Western nations, and deep-state institutions than any other current Sri Lankan leader, including Ranil Wickremesinghe. His party, particularly its JVP faction, operates in a manner similar to a deep state, with key individuals maintaining a reserved public presence while avoiding unnecessary entanglements. These individuals are the primary forces operating behind the scenes, and AKD maintains a firm grip on this influence network.

Following the election on the 14th, it appears that the NPP's influence has been somewhat sidelined, while the JVP's framework of governance has expanded across the country. This development might actually prove beneficial, as several developed and rapidly growing nations, such as Vietnam, Indonesia, and Singapore, incorporate deep-state elements that assist in managing their governance discreetly.

The new cabinet clearly reflects the dominance of JVP members over NPP elements. While Dr. Harini serves as Prime Minister, most cabinet positions are held by core JVP members. For instance, despite the availability of experienced agricultural experts, JVP member Lalkantha received the agricultural ministerial position. The appointment of individuals like Wasantha Samarasinghe has raised questions. However, this arrangement reflects the people's mandate, as they have chosen a left-wing party to govern during this critical situation.

The JVP/NPP government's foreign policy will likely be significantly influenced by Trump's second administration. The party's deep-state-like element concentrates power in a central, somewhat authoritarian structure. Under the previous government, Indian and Russian companies secured a 30-year management contract. However, complications arose when the U.S. Treasury sanctioned India-based Shaurya Aeronautics Private Limited for providing dual-use technology to Russia, including radar apparatus and radio navigational aid equipment. Despite these sanctions, the previous government proceeded with the agreement. The newly elected AKD government's pledge to review this agreement now faces additional challenges due to U.S. sanctions on both companies involved.

While AKD initially pledged to halt the Adani wind project, Minister Vijitha Herath later announced they were "reconsidering" the project, particularly after India offered 60 projects as grants following Dr. Jaishankar's visit. This situation must be analyzed within a broader context. During Trump's 2015-2019 term, the U.S. established military and security agreements with India to counter China's influence in the Indian Ocean, particularly in the Ladakh region. The U.S. provided India with high-altitude satellite information systems, and joint military exercises were conducted. Although China and India have recently reached an agreement on border issues, marking a significant geopolitical shift in northern South Asia, establishing an understanding regarding the Indian Ocean remains challenging. This process will take time, as the Indian Ocean involves multiple stakeholders, including France, Australia, the UK, Japan, and the United States.

The border dispute settlement between China and India has the potential to significantly alter the Washington-Delhi relationship. For Sri Lanka, understanding these changing dynamics is crucial. There appears to be a secret understanding between Delhi and Beijing regarding their approach toward one another, evidenced by substantial Chinese investments in India, particularly in the startup sector. Companies like Tencent have invested in Indian startups such as Byjus, Hike, and Flipkart. During Modi's government in 2016, these investments grew to 8 billion USD, though the numbers have officially declined since 2020. Chinese companies like Huawei and Oppo continue to maintain a significant presence in India's mobile device market.

Sri Lanka must learn from these developments that its traditional Non-Aligned Movement foreign policy is no longer viable. Continuing this approach risks inviting other players to the region. AKD needs to understand these new dynamics and align not with individual countries but with regions, particularly the Global South. Sri Lanka's economic and political effectiveness cannot be achieved by isolating itself within South Asia; instead, it must engage more broadly with the Global South.

The ?return of Trump to the presidency brings additional considerations. His likely appointment of Marco Rubio as Secretary of State would be significant, as Rubio is a pro-Indian Republican senator who strongly opposes China. Rubio advocates for treating India on par with Japan and South Korea while supporting the blocking of aid to Pakistan. This appointment would be viewed by China as a strategic move to counter their influence. Under Trump's Beijing strategy, closer ties with India are expected, potentially leading to increased US FDIs and military industrial installations in India. The existing agreement between Tata and Lockheed Martin to build Hercules aircraft in India exemplifies this trend, which is likely to expand under Trump.

Trump's foreign policy is characterized by its directness and transactional nature. He approaches international relations as "deals," seeking concrete benefits from US relationships. This was evident in his approach to NATO, where he demanded increased financial contributions from member countries, leading to Germany's military modernization efforts. Similarly, Japan has begun building naval ships despite previous agreements, demonstrating the impact of Trump's "transaction diplomacy." While Modi and Trump maintain a strong relationship, India's trade surplus with the US could become a point of contention, as Trump has indicated India should increase its purchases from the US. This approach could affect Sri Lanka as well, potentially leading to tariffs on Sri Lankan goods and services.

Trump's economic policies are expected to be protectionist, aimed at creating greater efficiency in American industry through tariffs. However, this approach could prove challenging for the US economy, which relies heavily on cheaper imports from South America and China. The US has evolved into more of a consumer economy than a production economy. If increased tariffs are imposed on Chinese products, alternative supply markets will need to be found, potentially benefiting India and East Asian countries like Thailand, Malaysia, and the Philippines. This shift could create opportunities for Sri Lanka, but only if the country opens its markets appropriately.

Sri Lanka currently ranks among the top 10 countries with extensive import subsidies and maintains one of Asia's largest governments. Comprehensive reforms are needed not only in politics but especially in the economy. Government deregulation and reforms could enhance Sri Lanka's ability to benefit from any spillover effects of Trump's protectionist measures. However, with the EU and US as Sri Lanka's biggest trade partners, Trump's trade barriers could create significant challenges, particularly in accessing EU markets.

To mitigate these challenges, Sri Lanka must align with the Global South while implementing economic and governmental reforms. The AKD government faces several dilemmas, having voted against the ETA, IMF, and Central Bank act. With their recent acquisition of a two-thirds majority, their approach to these issues requires quick resolution. The government's decision not to reform Sri Lankan Airlines and CEB has already raised concerns among investors. The fundamental question remains whether a left-wing party can effectively implement right-wing policies.

A practical approach for Sri Lanka would be to pursue Free Trade Agreements with Indonesia, Singapore, Malaysia, and China. Several of these agreements remain in discussion, particularly with China and Singapore. Additionally, Sri Lanka must focus on relationships with Bangladesh and India. The country's aging population and increasingly expensive labor force have led to an influx of workers from Bangladesh, Pakistan, and India for labor-intensive work. The government needs to develop productive agreements with these countries while also viewing India as a crucial market opportunity.

The tourism sector requires strategic development. While the government claims growth in tourist numbers, revenue remains stagnant due to an focus on budget travelers. Sri Lanka needs to attract higher-spending tourists from America, Europe, Japan, Arabia, and China. This requires moving beyond traditional attractions of waterfalls, seas, and beaches by inviting global tourism investors. The current tourism model shows signs of unsustainability, with negative effects already visible in the south and other regions.

In conclusion, while Trump's administration may not prioritize Sri Lanka directly, the country must position itself strategically within the broader context of AUKUS and QUAD relationships. The evolving world political dynamics require Sri Lanka to align with regional partners, particularly the Global South, rather than individual countries. Through appropriate political and economic reforms, along with strategic restructuring, Sri Lanka can enhance its position both economically and geopolitically, potentially breaking free from the Indo-US strategic constraints. The success of these initiatives will depend largely on the government's ability to implement necessary reforms while maintaining balanced regional relationships.