Impact of U.S. Tariffs on Jewellery Sector

The Economic Tremor of U.S. Tariffs on India's Jewellery Exports

₹69,000 crore: that's the approximate revenue India generated in 2024-25 from diamond and studded jewellery exports to the United States. As of September 2025, this lifeline is fraying rapidly under the weight of unprecedented U.S. tariffs — 50% on cut and polished diamonds and up to 57% on studded and non-studded gold jewellery. For an industry employing 8.2 lakh highly skilled artisans, the implications are economic devastation, unless the policy gears shift drastically.

The Policy Instrument: U.S. Tariffs Versus Indian Competitiveness

At the heart of the crisis are the punitive tariffs imposed by the United States. These tariffs, designed ostensibly to protect domestic industries, have effectively priced Indian jewellery products out of global competitiveness. Rivals such as Turkey, Vietnam, and Thailand offer similar products but often face substantially lower tariffs. Worse, low-tariff countries like Mexico, Canada, UAE, and Oman are emerging as alternative suppliers, threatening to erode India’s decades-long dominance in this high-value sector.

Domestically, the response has been uneven. The Central Government lowered the customs tariff on jewellery from 25% to 20% in the Union Budget 2025-26—a relief aimed at bolstering the domestic market rather than neutralising export shocks. Other government initiatives, like permitting 100% foreign direct investment (FDI) under the automatic route and signing trade agreements such as the Comprehensive Economic Partnership Agreement (CEPA) with the UAE in March 2022, appear insufficient against the tsunami of tariffs imposed by the U.S.

The Case For Urgency: Why Immediate Relief is Vital

The numbers underscore the magnitude of the threat. India’s export-oriented diamond and jewellery sector contributes nearly 10%-12% to the country’s overall merchandise exports. The livelihoods of 8.2 lakh workers—many concentrated in Surat's diamond-processing hubs—hang in the balance. Industry veterans argue that extending export obligations from 90 to 270 days, allowing SEZs to sell in the domestic market without import duties, and permitting reverse job work could prevent debilitating factory closures.

Short-term financial interventions also merit serious consideration. Monetary tools such as interest subvention, targeted export subsidies, and emergency worker assistance programs could sustain the sector while longer-term renegotiations with the U.S. unfold. The argument is straightforward: without an immediate and multi-pronged rescue plan, India risks forfeiting not just market share but its global reputation as the 'jewellery workshop of the world.'

The Case Against: Structural Vulnerabilities and Global Competition

However, the optimism of bailout demands obscures deeper fault lines. First, India’s gem and jewellery sector has over-relied on one major buyer—the United States. This creates vulnerabilities that are magnified when geopolitical pressures, such as protectionist trade policies, emerge. Diversification of export markets has been sluggish, with competitors such as Turkey and Vietnam already making inroads into high-demand economies like the EU and East Asia.

Additionally, industry advocates overstate the feasibility of immediate relief measures. For instance, extending export obligations or loosening SEZ restrictions could face WTO scrutiny, as these provisions might conflict with existing trade rules. Meanwhile, government support measures risk being constrained by fiscal limitations, especially as other sectors—agriculture, MSMEs—compete for post-pandemic recovery funds.

Finally, the notion that government-led interventions alone can counterbalance competitive disadvantages ignores broader market dynamics. High gold prices, volatile metal markets, and fluctuating global demand for luxury products make this a sector uniquely susceptible to external shocks. Tariff negotiations with the U.S., an uncertain and long-drawn process, may not produce the desired results swiftly enough.

International Comparison: Mexico's Trade Diversification

Mexico offers a compelling counterpoint for India’s predicament. While Mexico faced similar tariff barriers with key trading partners, it pursued aggressive market diversification strategies alongside targeted trade agreements. Notably, Mexico leveraged its geographical proximity to the U.S. under the USMCA (United States-Mexico-Canada Agreement) to retain access to critical markets. By lowering operational costs and expanding production into tariff-friendly categories, Mexico blunted the worst of U.S. protectionism. The result? Mexico preserved its export share in crucial sectors while maintaining workforce stability.

It’s a model India can study closely—prioritising both market diversification and rationalising production costs through innovation-led policies.

Where Things Stand: Balancing Domestic and Export Priorities

As of now, India's jewellery export industry faces an existential crossroads. While domestic demand during festive and wedding seasons offers some relief, such episodic booms cannot compensate for the near-collapse of export revenues. The government’s response to date, though proactive in segments like reducing import tariffs and promoting FDI, lacks the scale necessary to address the structural shifts imposed by U.S. policies.

The strategic risk here isn’t limited to tariffs—it’s the larger question of whether India retains the agility to recalibrate sectors heavily dependent on a single dominant market. Much depends on whether short-term relief measures can be delivered while a broader, more diversified export strategy is charted.

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