As I write this, it’s 11 PM East Coast time, seven hours after President Trump launched what may be one of the most significant and potentially impactful economic initiatives in the history of the United States. As you might imagine, there are a number of Indian diamantaires, as well as Chinese and Thai jewelry manufacturers, whose anxiety levels are now highly elevated. Since yours might be as well, let’s look at what we know so far, and then speculate on what may come next, as well as discuss some strategic moves that you may want to make to safeguard your business.
Here’s what we know. The Executive Order issued on April 2, 2025 includes a 10 percent tariff on all countries for all products. There are also “Reciprocal” tariffs for sixty countries in addition to any other tariffs already in place. The levels of these reciprocal tariffs have been calculated by adding the tariffs charged by the sixty countries on US goods, plus a “fudge factor” taking into account additional economic barriers for our products and companies attempting to do business in each respective country, and then setting the reciprocal American tariff equal to roughly half that amount. The baseline 10 percent tariff will go into effect at 12:01 am on April 5, while the reciprocal rates will become effective at 12:01 am on April 9.
It seems reasonable to suggest that this new scenario will create turbulence in all economic sectors – especially in consumer products – as importers and manufacturers adjust and adapt to new sets of costs and supply routes. But in the jewelry business, these adjustments may be especially severe, owing to the fact that mass US jewelry production was generally exported to Asia in the 1990s, and over 95 percent of the diamonds sold in America are cut in India. Given President Trump’s stated level of new tariffs on Indian products at 26 percent, the disruption that this new tariff level will create may be significant.
Realize that we don’t know if different segments of imports from different countries will be treated in different ways. For example, might manufactured jewelry be treated differently than loose diamonds, as has been the case until now? We just don’t know, and won’t know with precision until the actual April 9 rates go into effect.
If you’ve read “The Art of the Deal” and watched President Trump’s prior negotiation tactics, you may recognize certain key elements of his approach. First, the 60 countries have not taken his tariff threats seriously, so his launch of what in some cases is an economic thermonuclear weapon will now finally get their attention. Also note the multi-stage implementation of the two different tariff levels. This appears to me to provide a possible exit ramp to countries that quickly capitulate, rolling back tariffs and/or barriers to US products. It will be interesting to see how the 60 targeted countries react.
There is every reason to believe that while foreign leaders will bluster and make a big deal about resisting the “evil” American President, I think you’re going to be seeing lots of capitulation behind the scenes as governments scramble to protect their economic interests. In the vast majority of instances, the asymmetry reflected in our trade deficits as well as the differential between our prior tariffs and those of the 60 targeted countries is so egregious, and creates such an incredible dependence of foreign economies on us as a customer, that there will simply be no choice but for most countries to cut a deal. Trump – and the US – hold all the cards.
In the meantime, what should you as owner of an independent jewelry store do? There is no question that the cost of the most important products that you sell is going to increase. We just don’t know how much. But the last time there was a truly significant sudden increase in the core components of what we sell occurred in the early 1980s, and I think there are lessons from that period that may apply here.
In just a two-year period, the price of gold rose from just $170 to over $850 per ounce. Simultaneously, the price of diamonds, especially high-grade ones, soared, as the price for one carat D FL stones hit $60,000.
The resulting compression of the supply chain was catastrophic. Until that time, independent jewelers generally bought from regional wholesale distributors, who in turn represented domestic manufacturers like Feature Ring and Plainville Stock. Business was relatively easy then, as the Majors and Big Box stores still had relatively small market shares, and internet retailing hadn’t even been imagined yet.
Consumers accommodated retail prices incorporating not only the high margins that retailers commanded at that time, but also the additional costs that were included in the wholesaler margins. But the rapid, massive increases in the price of core components, when compounded with the wholesaler margins (remember: the wholesalers worked at a 50 percent markup, so as diamond and gold prices rose, wholesaler prices skyrocketed), resulted in catastrophic increases in the ultimate retails of those products. And in quick order, the domestic manufacturers disintermediated their wholesaler customers, and began selling direct.
I suspect that a parallel scenario exists today, in which most of the “manufacturers” supplying independent jewelers are actually just wholesalers selling products imported from overseas manufacturers, again at roughly a 50 percent markup. So when core import prices go up, your prices will go up disproportionately more as the wholesaler supplier has to take an additional 50 percent markup on the price increase.
As these new tariffs emerge and impact supplier prices disproportionately, I urge you to evaluate your Supplier Ecosystem. Are you buying from true manufacturers, or just wholesalers in “manufacturing garb”? How high in the food chain are your diamond suppliers? And are you buying lab directly from growers, or from middlemen, compromising your price and service levels. It’s a simple fact: rapid significant changes in production prices will inevitably destroy players in the middle of the supply chain, inexorably streamlining it. So if you’re not buying directly from actual manufacturers, your capacity to offer competitive pricing is in jeopardy, and you’re going to need to take action quickly.
Speaking of lab, let’s assume that the 26 percent tariff on Indian products sticks. All diamonds will be impacted by the same proportion of price increase. But consider what will now happen to the actual price differential between LGD and mined diamonds. Take, for example, the 1 carat mined diamond that’s currently $3,200. The new tariff takes that diamond to over $4,000, a real price increase of $832. The 1 carat lab grown diamond, currently priced at $150 cost, now becomes $189, resulting in the same proportionate price differential, but a real price increase of just $39. Now apply retail margins, and see how the chasm that already existed between the mined and lab retail prices has now expanded exponentially. And this applies to every product category. Will this further accelerate the change in the proportion of lab vs mined sales in your store? I submit that it probably will.
I recall hearing, sometime in the mid-1990s, a well-known economist cheerfully stating that the American economy was shifting from being manufacturing based to being service based, as though this was somehow a wonderful thing. I remember thinking he was crazy, and the evident destruction of the American middle class in the years since confirms my reluctance to accept his analysis. Is it possible that President Trump’s moves in the area of tariffs will lead to an American manufacturing renaissance, in turn revitalizing the middle class? Only time will tell. But I do think we’ll see a fair amount of economic turbulence in the short to medium term. This would be a very good time to become hyper-focused on every element of your business.
Class Dismissed!
