How India's US-dependent diamond industry shrivels under Trump tariffs

India Today

7 days ago

With the United States being India's single-largest market for gems and jewellery, accounting for over 30 per cent of exports, the recent decision by US president Donald Trump to hike tariffs to a punishing 50 per cent threatens to cripple the industry, which is already reeling under Ukraine-Russia war-driven sanctions and cheaper lab-grown diamonds flooding the market. The recent tariff hike is a combination of a reciprocal tariff imposed by the United States in early August and an additional 25 per cent tariff, effective August 27, levied in response to India's continued imports of discounted Russian oil amidst the war in Ukraine. This escalation from a 10 per cent baseline tariff in April to the current 50 per cent has sent shockwaves through the industry, leaving many exporters facing an existential threat.advertisementIndustry leaders, such as Kirit Bhansali, chairman of the Gem and Jewellery Export Promotion Council (GJEPC), warn that a 50 per cent tariff is simply unsustainable and will make Indian diamond products uncompetitive in the US market. This is especially concerning as competitors like Turkey, Vietnam and Thailand benefit from significantly lower tariffs of 15 per cent, 20 per cent and 19 per cent, respectively.'This move would have far-reaching repercussions across India's economy—disrupting critical supply chains, stalling exports and threatening thousands of livelihoods,' says Bhansali.
For India, the United States accounts for over $10 billion (around Rs 87,500 crore) in gems and jewellery exports, nearly 30 per cent of the industry's total global trade. 'There is significant dependency on the US market, as 85 per cent of exports from the SEEPZ Special Economic Zone, which provides 50,000 jobs, is directed there. For cut and polished diamonds, half of India's exports are US-bound. With revised tariff hike, the entire industry may come to a standstill, placing immense pressure on every part of the value chain—from small-time workers to large manufacturers,' adds Bhansali. Owing to the war, slowdown in Chinese and Hong Kong markets, and the influx of lab-grown diamonds, the cost of natural diamonds has slumped by around 30 per cent in the past two years as there is a glut of the precious stones in the international market. Diamond exporters and polishers have reduced the production of polished diamonds to recover prices. The United States accounts for approximately 25 per cent of India's total revenue from diamond polishing. With a 50 per cent tariff, the already tight margins in the loose diamond trade would be effectively eliminated. Small and medium-sized diamond polishing units in Gujarat's Surat and towns of Saurashtra, which handle a significant portion of the cutting and polishing for larger companies, have been severely impacted. Meanwhile, the lab grown diamond sector, initially seen as a potential avenue for employment for displaced workers, is also facing uncertainty. The United States is a significant market for lab-grown diamonds, and the imposition of a 50 per cent tariff could severely impact this growing segment as well. This raises concerns about the long-term employment outlook for the industry as a whole. The diamond polishing industry employs at least 800,000 artisans in Surat, Ahmedabad and towns of Saurashtra.advertisementExpectedly, Indian diamond exporters are scrambling for alternatives. Tapping into the domestic Indian consumer market has emerged as a top priority, with resources poured into marketing and creating awareness about natural diamonds as against the lab-grown variety. Boosting trade to other countries is also being explored with focus. For instance, GJEPC targets increasing exports to the UAE by 20 per cent. Some are considering rerouting products through countries with lower tariffs, such as the UAE (which has a 10 per cent tariff) or Mexico (25 per cent). However, this involves additional costs and logistical challenges. The UAE's established gold trade infrastructure and logistics could make it an attractive option, but concerns about shortage of skilled labour remain.The industry has urged the Indian government to prioritise bilateral trade negotiations with the United States to address the tariff disparity and has requested support through measures such as duty drawback schemes, interest subsidies and expedited Goods and Services Tax (GST) refunds.The GJEPC has proposed a targeted reimbursement mechanism to partially offset the tariff impact for US-bound exports until December 2025. 'Lending institutions may be permitted to allow a deferment of interest of six months, from August 1, 2025 to January 1, 2026, as was done during the COVID-19 period,' the GJEPC has requested the government. advertisementWith the Christmas season approaching, the uncertainty surrounding US tariffs casts a long shadow over India's diamond sector. The urgent need for a resolution to mitigate the economic impact and protect the livelihoods of hundreds of thousands of workers in this vital industry cannot be overstated.Subscribe to India Today Magazine- EndsTune InMust Watch