Trade is a powerful diplomatic tool in a heavily interconnected world. While exports and imports often dominate the conversation about trade, it is important to note that trade is far more complex than that. Trade is not a stand-alone activity; it contributes to a country’s economic resilience, national security, strategic positioning, and several other aspects. Given its ability to shape global power dynamics, even minor policy shifts can trigger far-reaching consequences. The tariff measures imposed by the Trump administration, for example, sparked intense debate about how quickly shifts in major economies can ripple across the world.
In such scenarios, smaller states that depend heavily on support and access to markets in the West become the ones who bear the highest portion of the burden. This reminds the necessity for smaller states to cultivate diverse trade relations rather than relying on singular markets. As a developing nation, Sri Lanka depends significantly on exports to sustain economic growth. While the country has a far-reaching history of exporting goods, it became more prominent towards the latter part of the 1970s with economic liberalization. Although current export flows are diverse, they disproportionately rely on a few key markets like the United States, the United Kingdom, and India. This concentration may cause potential risk due to economic vulnerabilities; therefore, Sri Lanka must tap into alternative markets. In this regard, New Zealand stands out as a promising alternative market offering multiple avenues to strengthen bilateral trade relations.
Overview of Sri Lanka-New Zealand Trade Relations
Since joining the Colombo Plan, both Sri Lanka and New Zealand have demonstrated a shared commitment to promoting economic and social development. With the introduction of economic liberalization under President J. R. Jayewardene in 1977, Sri Lanka adopted an open-market model that facilitated growth in export-oriented ventures. While New Zealand was not among the top markets for Sri Lankan goods, the two nations developed a steady bilateral trade relationship ever since. Over the years, New Zealand began exporting more dairy products, while Sri Lanka continued to export tea, rubber, and garments.
While the trade relations grew at a modest pace, they marked some notable milestones after 2010, following the signing of the Dairy Cooperation Agreement in 2013. The agreement was signed as a result of bilateral talks between President Maithripala Sirisena and the New Zealand Prime Minister, John Key, whose visit to Sri Lanka also served to revitalize trade relations between the two countries (Eurasia Review, 2016). This agreement set the tone to uplift sectoral engagement between the two countries, specifically in the dairy and agricultural sectors. When bilateral trade commenced to indicate an increased diversification into areas like education services, machinery, and processed foods, the two countries came into discussion for a Free Trade Agreement in 2016. This agreement was proposed following the discussions between New Zealand Trade Minister Todd McClay and Sri Lankan Prime Minister Ranil Wickremesinghe; the officials considered a framework to boost economic ties, considering the complementary economies between New Zealand and Sri Lanka (Reuters, 2017). While these discussions paved the way to potential opportunities to strengthen bilateral trade relations, the FTA did not come to force. There is no precise reason why the FTA did not come into reality, but the asymmetry in trade volumes, less need for strategic lobbying, and Sri Lanka’s occasional domestic instability could be considered as possible causes.
Potential to strengthen the bilateral trade relations between Sri Lanka and New Zealand
Certain trade initiatives between the two countries did not materialize; nevertheless, there is still room to enhance them. In fact, the countries have not completely cut off trade relations, and gradual improvements are underway. For instance, Sri Lanka’s exports to New Zealand have increased by 12.85% in 2024 compared to 2023 (Sri Lanka Export Board, n.d). According to the Sri Lanka Export Board (2024), in terms of exporting goods, Sri Lanka mostly exports tea, made-up textiles, gloves, mittens, undergarments, pneumatic and retreaded rubber tyres, coco peat, fiber pith, and moulded products to New Zealand. On the other hand, Sri Lanka’s main imported products from New Zealand in 2024 include meat, fish and dairy produce, wood and wooden products, live animals, fruits, products of base metal, sugar confectionery, and bakery products. Although current exports are mostly conventional, there are several other products and even services that hold potential for trade between Sri Lanka and New Zealand.
It is high time for the two countries to explore ways to diversify the options. Speaking of trade diversification, this can be pursued by finding innovative uses for goods already being traded and exploring untapped opportunities. To elaborate, tea remains one of Sri Lanka’s in-demand exports in New Zealand. It ranks among the top Sri Lankan products exported to New Zealand, with strong demand driving continued trade, making it essential to maintain and strengthen supply efforts. Dilmah Ceylon Tea Company, for instance, has adopted innovative strategies to meet consumer demands by specifically tailoring its offerings to the preferences of the New Zealand market. Going beyond its traditional gourmet Ceylon tea, Dilmah has identified emerging trends and consumer insights to develop a new range of iced teas, low-sugar carbonated tea sodas, and premium tea mixers exclusively available to New Zealand (Estate, 2023). Thanks to the customer-focused approach, Dilmah has been voted New Zealand’s most trusted tea brand for five straight years in the People’s Choice awards, and generates significant revenue via the New Zealand market (Dilmah News, n.d).
While optimizing current exports remains important, unlocking new trade opportunities is also vital. Several unexplored goods and services present a chance to diversify trade between Sri Lanka and New Zealand. In terms of goods, food products (processed or preserved), spices, and synthetic textiles have been identified as promising export options from Sri Lanka to New Zealand (Export Development Board Sri Lanka, 2025). However, exports are no longer confined to goods alone. Due to changes in global trade patterns, service exports, particularly those rooted in knowledge-based production, play a notable role in deepening economic ties.
Countries transitioning from resource-based economies to competitive knowledge-driven models are seeing more resilient and diverse exports; advances in IT, digital systems, and R&D have transformed sectors like logistics, business operations, and education, making knowledge-intensive services a growing force in international trade (Seneviratne, 2025). Sri Lanka holds strong potential to expand its knowledge-based exports, specifically in IT, Software, and BPO sectors. With a skilled talent pool and a rapidly growing IT sector, Sri Lanka can provide services such as cloud solutions to the New Zealand market. This is a win-win situation for both countries, delivering a strong revenue stream for Sri Lanka and cost-effective solutions for New Zealand. In addition, Sri Lanka can further diversify its service export base by developing niche markets such as wellness tourism, maritime logistics, and shipping-related services into broader, sustainable sectors.
The establishment of the New Zealand High Commission in Sri Lanka in 2021 significantly advanced bilateral cooperation across multiple sectors, including trade. Reflecting this growing partnership, Sri Lanka opened a High Commission in New Zealand and the first resident High Commissioner presented credentials at the beginning of 2025. These steps indicate that Sri Lanka and New Zealand have great potential to strengthen and maximize their trade relations. While New Zealand may not currently be Sri Lanka’s top export destination, or vice versa, there remains significant potential and multiple avenues to deepen and diversify bilateral economic engagement.
Importance of strengthening the bilateral trade relations between Sri Lanka and New Zealand
Trade is a volatile factor, and primarily engaging with larger economies often carries complexities. Given that global trade faces increasing threats from geopolitical instability, bilateral economic partnerships should not be limited to the West or traditional major markets. Expanding trade ties to regional and nontraditional markets significantly provide diversified options, helping to reduce exposure to external trade shocks. At present, Sri Lanka’s export strategy is concentrated on a handful of markets that are particularly susceptible to global disruptions. Recent data shows that 23% of Sri Lanka’s exports, valued at $2.79 billion, go to the United States, standing as Sri Lanka’s largest export market; the United Kingdom and India take the second and third spots (Trend Economy, 2023). While the United States remains Sri Lanka's top export destination, Sri Lanka's shipment data for 2024 has recognized India and China as the biggest import partners; The Central Bank noted growth in exports, especially food, coconut-based, and manufactured items alongside a moderate rise in imports, helping reduce the trade deficit (Central Bank of Sri Lanka, 2024).
To avoid the bottlenecks and economic strains, Sri Lanka must adopt broader trade strategies that do not heavily depend on one market. Global economic fluctuations inevitably impact smaller nations like Sri Lanka, and this underpins the need to seek opportunities in emerging markets. Sri Lanka’s economic growth notably depends on the export sector. Strengthening the export sector is key for Sri Lanka’s economic recovery and future resilience. Efforts must focus on diversifying products, improving quality, supporting small and medium enterprises, exploring new markets, and forming trade partnerships that contribute to reducing tariffs, improving market access, and enhancing trade relations (Ceylon Public Affairs, 2024).
Under Annex 1 of the Country Reciprocal Tariffs (2025), the US has imposed a 44% tariff on Sri Lankan exports, which is a far higher tariff rate in comparison to other competing countries, and this largely diminishes the value of Sri Lankan exports in the US market. With the US as Sri Lanka’s primary export market, this shift, driven by the ‘America First’ policy, presents a major long-term risk to the nation's economy. Cost competitiveness was a challenge for Sri Lanka even before the Trump tariffs, and the added uncertainty is likely to reduce buyer confidence and investment activity; moreover, as tariff policies continue to shift in response to both US and foreign actions, global trade tensions are likely to arise (Abeysinghe & Arangala, 2025).
Under these circumstances, Sri Lanka must move beyond traditional markets and pursue diversified trade avenues. New Zealand, as noted in this article, presents a strong opportunity. Although it may sound challenging initially, expanding solid trade partnerships with new markets helps reduce reliance on limited markets and drive initiatives such as product diversification, quality improvement, and the formation of strategic trade partnerships. Despite limited strategic leverage, Sri Lanka and New Zealand remain vital players in the Indo-Pacific region. Given their complementary economies, there is significant potential to pursue a bilateral trade agreement. While improving primary exports, there’s room to tap into specific sectors such as agriculture, which can mutually benefit both countries, particularly as New Zealand seeks high-standard, reliable agricultural imports (Economy Next, 2025). These diverse and strong trade relations often spill into other areas like education, tourism, and cultural exchange, which support a deeper economic partnership in the long run.
Expanding trade ties between Sri Lanka and New Zealand present a valuable opportunity to enhance regional stability in the Indo-Pacific. As a region often shaped by strategic tensions due to the presence of major powers like China and India, strengthening relations among smaller and middle powers offers a more balanced dynamic. Cooperation between countries like Sri Lanka and New Zealand helps to minimize overdependence, reducing the risk of dominance by any single power. Theoretically speaking, to avoid external trade shocks or any geopolitical tensions for that matter, smaller states opt to use hedging as a Foreign Policy strategy. Simply put, hedging refers to an insurance-seeking behavior that reflects a rational calculation, maintaining diversified partnerships as a safeguard against future geopolitical shifts (Kuik, 2021). In comparison to major powers within and beyond the region, neither Sri Lanka nor New Zealand can pick one side or can afford to be drawn too deeply into great power rivalries. Applying this to the trade aspect, it helps both countries to reach out to diverse trade options while maintaining their independent foreign policy under minimum risks.
Way Forward
While entering new markets poses challenges, it remains crucial in a shifting global environment. Relying on singular markets in terms of trade comes with great risks. Sri Lanka has been experiencing it, and taking action has become more important than ever. Taking proactive steps to diversify trade has become a must to avoid future threats and sustain national economies. Despite hurdles, building strong trade relations between Sri Lanka and New Zealand continue to be optimistic. Such a partnership supports a rules-based economic cooperation and contributes to sustainable, inclusive economic development.
References
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