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In the heart of India’s diamond hub, in the western city of Surat, orders have been paused, gem-polishing machines silenced and fears of more damage and job losses are high.
That’s because as of Wednesday, the export tariffs on Indian goods heading to the United States sit at 50 per cent.
“The entire industry is in trauma,” Kirit Bhansali, chairman of India’s Gem and Jewelry Export Promotion Council, told CBC News.
The tariffs, one of U.S. President Donald Trump’s most punitive, are levelled at a country with strong ties to the United States. The new tariff rate includes an additional 25 per cent duty on Indian exports to America, which Trump called “a penalty” for India buying Russian oil at a discount.
“Even the [initial] 25 per cent was very difficult to digest,” Bhansali said, because the gem industry only has small profit margins, hovering between six and eight per cent.
“It’s a very sad day for India’s gem and jewelry sector.”
U.S. President Donald Trump’s doubling of tariffs on imports from India to as much as 50 per cent is now in effect. Trump says the additional tariff is meant as punishment for buying Russian oil.
Bhansali said some 175,000 diamond and jewelry workers would be directly affected by the steep new tariff, as the U.S. is the single-largest buyer of India’s precious stones, accounting for more than 30 per cent of exports — just shy of $10 billion US in the last fiscal year.
The acute pain rippling through India’s gem and diamond industry is also hitting the South Asian country’s shrimp exporters, clothing manufacturers and carpet makers — all of which have a high number of American buyers.
About half a million shrimp farmers risk losing their livelihoods as a direct result of the new steep tariffs, India’s Seafood Exporters Association estimates.
India ‘perplexed’
Bhansali said he didn’t see any reason for optimism that the tariffs will ease soon.
Trade talks between India and the U.S. are not in a good place, even though India’s foreign minister has halfheartedly insisted they haven’t broken down completely.
“Negotiations are still going on, in the sense that nobody said the negotiations are off,” Subrahmanyam Jaishankar said Saturday at an event in Delhi. Yet a U.S. trade delegation cancelled a trip to India’s capital that was planned for this week.
Indian officials have repeated they won’t compromise on protecting the country’s agricultural sector and dairy market, a longstanding bone of contention in trade talks with the U.S.
Prime Minister Narendra Modi has spoken of the need for Indians to focus on “Made in India” and self-reliance in the weeks after Trump announced the new tariff rate.
Mingled with the worry across the country is confusion — that India is even tangled up in Trump’s tariff crusade in the first place, let alone facing such extreme tariff rates, given the South Asian country’s geopolitical importance.
American administrations have grown increasingly close to India as an important trade partner in the Indo-Pacific and, crucially, as a counter to China’s aggression in the region.
The U.S. and India have signed technology-sharing agreements and defence co-operation pacts. Their space agencies are collaborating on research and satellite missions.
But now, the two countries are at odds over punitive tariffs that seem to have thrown Indian officials off guard.
“We are not the biggest purchasers of Russian oil. That is China,” Jaishankar told reporters earlier this month, adding that India was “very perplexed” at the logic behind the U.S. move.
A changed relationship
When Trump was re-elected, there was an expectation in some quarters that India could handle the president. It was a feeling of confident but “irrational exuberance,” said Harsh Pant, vice-president of foreign policy at the Delhi-based think-tank Observer Research Foundation, borrowing a term popularized by U.S. economist Robert Shiller.
Many, Pant said, felt that Trump’s friendly rapport with Modi would secure a trade reprieve, despite the fact that the American president had long railed against India’s protectionist tendencies, calling the country a “tariff king.”
The U.S. President has promised to roll out reciprocal tariffs on India on April 2, repeatedly calling out the high tariffs India has long had in place. CBC’s Salimah Shivji breaks down India’s tariffs, what industries would be affected, and the problems with Trump’s math.
Pant believes the present troubled relationship and “tumultuous atmosphere” will continue in the short term, because Trump wants a trade win and India is not in a strong position to give him one.
“The public mood [in India] has hardened against Mr. Trump and [his] administration,” Pant told CBC News.
This shift solidified after Trump repeatedly tried to take credit for single-handedly ending the conflict between India and Pakistan in May, after the two nuclear-armed countries traded strikes over the contested Kashmir region. (Both countries claim Kashmir in full, and have for nearly 80 years, but only control parts of it.)
Indian officials denied Trump’s claim, which, in turn, irked the American president.
“There is so much contradiction in his own approach to India,” Pant said, and it’s causing damage to the diplomatic relationship, as well as the trade one.
“All the hard work that had been done in the last few years” to build stronger ties between the two countries “is now dissipating,” Pant said.
As the relationship with the U.S. has soured, India has turned its diplomatic efforts east, to China, in a renewed effort to restore ties that stalled after a deadly clash five years ago along the countries’ shared border.
China’s Foreign Minister Wang Yi was warmly welcomed in New Delhi earlier this month. Modi will also be in China next week, for his first visit to the country in seven years.