The U.S. announced a much more aggressive than anticipated tariff schedule on 60 nations which has sent shockwaves through the global economy that will undoubtedly affect the global diamond and jewelry market
The U.S. imposed a blanket 10% tariff on imports from 60 countries as of April 5. Starting April 9, countries with high trade deficits with the U.S. face higher “reciprocal tariffs” —including 26% on India, 20% on the EU and 34% on China (which is in addition to the existing 20% tariff).
As it pertains to diamonds, the origin is considered where it was “substantially transformed,” i.e. cut-and-polished.
The situation is complex and fluid, however, below are some initial thoughts on how this development could impact the U.S. as well as the global diamond and jewelry market:
1. U.S. wholesalers (or large jewelers with vertical integration) are on the front line and will likely be handling the brunt of the impact of the newly imposed tariffs. Wholesalers will have to strategically decide how to pass along the associated cost of the tariffs to retailers: by fully embedding the tariffs into the price of merchandise; or by negotiating with their own overseas suppliers to share the burden. Retailers will then have to decide how much to raise prices at the jewelry counter (at the sacrifice of their own margins).
2. In simple terms, a retailer’s top-line revenue could theoretically increase while profits remain unchanged —for example, if some margin is sacrificed (to reduce the impact of price increases for consumers) and/or higher prices result in some demand destruction, i.e. due to the price elasticity of demand. See scenario below:
3. Merchandise already in the U.S. should theoretically be worth a premium relative to the pre-tariff value as the market price for merchandise should now reflect the additional cost of the new tariffs.
3b. The value of consumer owned diamonds and jewelry should now theoretically be more valuable as well. This should benefit the second-hand market, i.e. recycled market, for diamonds and jewelry. Further, a “bid” in the second-hand market for diamonds in the U.S. could theoretically boost consumer sentiment towards diamonds as being a “store of value.”
4. Downstream, the relative price increase of lab-grown diamonds (LGDs) could be less than that of natural diamonds as the retail margins of LGD tend to be much higher than that of natural, and thus provide retailers with more price flexibility to accommodate consumers by limiting price increases. Relatively higher natural diamond prices, as well as a wider price spread between natural and LGD, could help further differentiate consumer perception of the two products and could theoretically make natural diamonds more appealing to luxury consumers, i.e. in the sense that it is a Veblen good.
4b. For further context, with a 26% tariff on a LGD imported into the U.S. from India, given the low nominal cost of LGDs at wholesale, the duty only translates to a few dollars, e.g. an unbranded, round 1-carat VS1-clarity, F-color, Triple-X-cut solitaire that is currently wholesaling for as little as $100 only attracts a duty of $26 —arguably inconsequential to a diamond buyer. Whereas, with an equivalent-quality natural diamond that is currently wholesaling for a few thousand dollars, the duty is hundreds of dollars.
5. The dynamics around selling “memo,” or consigned diamonds, could become malfunctional. The concept around a retailer not paying for merchandise until it is sold completely changes if a substantial tariff must be paid upfront.
Paul Zimnisky presenting in Mumbai, India in late-2024. Source: Bharat Diamond Bourse
6. Precious metal bullion, e.g. gold, imported into the U.S. is exempt from the tariffs, however rough diamonds are subject to the tariffs (even though the U.S. does not mine diamonds in any significant volume). This inconsistency complicates the incentive to manufacture jewelry inside the U.S.
6b. Natural diamonds beneficiated (i.e. manufactured in the same jurisdiction where they are mined) in Canada should theoretically benefit from the new tariffs as they are understood to be duty-free based on the United States-Mexico-Canada Agreement, i.e. the new NAFTA —albeit this represents a small portion of diamond supply. Diamonds beneficiated in Botswana, Namibia and Angola, for instance, could become significantly less competitive in the U.S. market depending on the magnitude of the tariffs imposed on these countries, e.g. 37% on Botswana, 21% on Namibia and 32% on Angola.
Update: On the afternoon of April 9, The White House announced a three month “pause” on all reciprocal tariffs that went into effect a few hours prior —the blanket 10% tariff (on all nations) that went into effect on April 5 remains. This only excludes China, in which the U.S. increased the tariff to a cumulative 125%.
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A press release that accompanied this report can be downloaded here.
Access more of Paul Zimnisky's tariff-related content here:
Paul Zimnisky interview with trade website Rough & Polished
Paul Zimnisky exclusive for GJEPC on U.S./India trade relations
Paul Zimnisky, CFA is a globally recognized independent diamond industry analyst and consultant based in the New York metro area. For regular in-depth analysis and forecasts of the diamond industry please consider subscribing to his State of the Diamond Market, a leading monthly industry report; an index of previous editions can be found here. Also, listen to the Paul Zimnisky Diamond Analytics Podcast on iTunes or Spotify for exclusive full-length conversations with special guests from the gem and jewelry industry. Paul is a graduate of the University of Maryland's Robert H. Smith School of Business with a B.S. in finance and he is a CFA charterholder. He can be reached at paul@paulzimnisky.com and followed on X @paulzimnisky.
Disclosure: At the time of writing Paul Zimnisky held a long equity position in Brilliant Earth Group and Newmont Corp. Paul is an independent board member of Lipari Mining Ltd, a publicly-traded Canadian company with an operating diamond mine in Brazil and a development-stage asset in Angola. Please read full disclosure below.