US-China Trade War Shouldn't Hurt Diamonds

RAPAPORT... The global diamond and jewelry industry may have feltnervous about the US proposal earlier this month to place $50 billion-worth of tariffs on Chinese goods. The response from the People's Republic lastweek - threatening its own duty hike on imports from the US - raised the stakeshigher still.However, diamond traders need not worry yet, senior figuresin the sector have predicted. Precious stones and jewelry are not included ineither country's list of targeted products, and are unlikely to be the subjectof tariffs in the near future. President Donald Trump's actions focus on products that boththe US and China export in huge quantities, explained Colin Shah, vice chairmanof India's Gem & Jewellery Export Promotion Council (GJEPC) in an interviewwith Rapaport News Tuesday. Diamond cutting is such a small industry inthe US that the state will probably not bother sheltering it from foreignimports, Shah predicted. Of little importUS government figures show the nation shipped $21.62 billionof polished diamonds globally in 2017 - a figure dwarfed by, say, the $99billion aircraft trade, according to CNN. China only exported about $1.91billion of polished in 2016, according to the latest data from the ChinaCustoms Information Center. US imports of metal parts for jewelry are alsominimal. "The US government is trying to protect domesticmanufacturers," Shah said. "In the case of diamonds, the US doesn't produce[many] diamonds, so we don't believe there will be any tariffs." What's more, American consumers would be among the chiefvictims of any US duties on diamonds or jewelry, as prices would rise, hepointed out. Jewel duelTariffs on China would barely impact its diamond trade asthe country gets most of its diamonds from outside its borders, and doesn'texport many of them, noted Julius Zheng, vice president of the Shenzhen RoughDiamond Exchange. Still, any US tariffs on Chinese jewelry, however unlikely,would hurt the Asian country's export trade. China, especially the Guangdongprovince, has a large number of factories that manufacture jewelry usingsilver, gold or platinum for large US brands. "If the US imposed tariffs on jewelry, it will imposenegative effects on these factories, depending on the rate," according to Zheng. "Thetariff will also be transferred to US consumers." The main beneficiaries in that case would be Indianmanufacturers capable of filling the gaps in the market, Shah explained. India- and China at the moment - are both subject to a US duty rate of about 6% onimports of jewelry and jewelry parts, he said. Beijing's retaliatory tariffs do not currently includediamond- and jewelry-related goods, Zheng explained. If they were to in thefuture, the impact on US-China trade would be slight, he argued. Western brandsthat import some of their jewelry to China for local retailing would find itmore expensive to do so if tariffs were higher. However, this is a small sectorof the Chinese jewelry market, he noted. Most jewelry sold in China is manufactured domestically, whilemost diamonds come from India, Belgium or Hong Kong, he pointed out. What of Hong Kong? Hong Kong operates under a separate trade system, and itsfree port means it frequently benefits from high tariffs in other countries. Themunicipality, which often serves as a stop-off point in transfers of goodsbetween countries, could lose business if Chinese exports to the US decline asa result of Americans tariffs. However, given the small number of diamonds China produces,any tariffs would probably not damage the municipality's gem business,according to Lawrence Ma, president of the Diamond Federation of Hong Kong,China. Jewelry may suffer more, as a lot of Chinese-made items go through HongKong's port, Ma noted. Even so, this is mainly theoretical, as the chances of suchtariffs are low.Image:Humphery/Shutterstock