US Dashes India's Last Tariff Hopes
July 31, 25
Yesterday's news that US importers would have to pay a total of 35 per cent in tariffs on goods from India came as no surprise.
But for a diamond industry that has seen exports plunge to a 20-year low, there was little comfort.
Hopes of a last-minute deal to avoid the reciprocal element of the tariffs were decisively dashed with Trump's announcement on his Truth Social platform.
Not only that, but there was an unexpected sting in the tail. He singled out India, among all US trading partners, for an additional penalty, as yet unspecified, as a punishment for buying oil and arms from Russia.
It could take the form of an additional tariff, a complete ban on trade in certain sectors (likely to be Russia-related rather than diamonds) or sanctions.
But while we wait for details of any extra burden, let's roll back to 20 January of this year. Things were far from great - think Covid, lab growns, global economy - but at least US businesses were able to import diamonds from India with zero duty, as they had been doing for at least 40 years.
Then came President Donald Trump's executive order to begin a review of global trade practices and request recommendations for new tariffs.
This was the warning shot and it came out of a clear, blue sky. When things are going badly, it seems they can only get worse.
On 2 April, Trump announced the results of that review in his "Liberation Day speech", outlining new tariffs for virtually all US trade partners, in a move designed to boost domestic industry and "make America wealthy again".
There was a universal baseline tariff of 10 per cent, which was imposed with immediate effect, and which remains in force today.
In addition, as far as diamond exports were concerned, there was a 26 per cent reciprocal tariff on all Indian goods entering the US. This was a body blow - almost double the 13.3 per cent predicted by India's Global Trade Research Initiative.
A few days later, Trump hit pause on all reciprocal tariffs as a negotiating tactic. He then set a deadline of 7 July, which was subsequently extended to 1 August.
During that time the tariff on Indian diamonds, and indeed almost all other goods from all other countries, remained in force at 10 per cent.
Yesterday's news means all goods from India, which is by far the world's biggest diamond manufacturer, will now be subject to a 35 per cent tariff.
That's the 10 per cent baseline tariff, plus a 25 per cent reciprocal tariff - unlike most countries, where the baseline is "absorbed". Plus whatever extra penalty Trump decides to impose.
The 35 per cent total tariff formally comes into effect at 12:01am US Eastern Daylight Time (EDT) / 9:31am India Standard Time (IST) tomorrow, Friday 1 August.
Indian manufacturers won't pay the tariff, not directly anyway. The 35 per cent duty is payable by US importers when their goods have cleared customs.
But it will drastically increase costs for US buyers, and drastically decrease demand for Indian goods.
Manufacturers in Surat and elsewhere in India are already working on slim margins. They have laid off staff, cut working hours, diversified into non-diamond manufacturing and in some cases closed their operations altogether.
Adding 35 per cent to the cost of their goods in the US - their biggest single market - will put them at a huge competitive disadvantage at a time when polished diamond exports are shrinking month by month. In June they suffered yet another slump, down 23 per cent year-on-year to $779m.
It feels like a staggering setback after decades of zero-duty. But negotiations between the US and India are still taking place, regardless of yesterday's announcement and there are, historically, cases of tariffs being reduced or lifted when broader trade agreements are agreed.
Earlier this month Japan, South Korea, and the European Union all managed to negotiate more favorable tariff terms with the US, even after tariff rates had been officially signed off.
So in spite of all that has happened so far, there is a real, if narrow, window for adjustment, either via formal exemptions for certain goods (like natural or lab-grown diamonds), reductions for specific sectors, or even temporary suspensions while negotiations continue.
Have a fabulous weekend.