Tariffs: What We Know Right Now

Editor’s Note: Hours after the higher tariffs took effect Wednesday, President Donald Trump announced a 90-day pause on reciprocal tariffs for most countries, dropping the tax rate to 10 percent across the board. However, the higher tariff on Chinese goods remains in place and has been increased to 125 percent. 

Last week, President Donald Trump announced a sweeping slate of reciprocal tariffs (taxes levied on goods imported from other countries) that have understandably roiled the jewelry industry.

The reciprocal tariffs—which are applied in addition to existing tariffs—went into effect today and include a 27 percent tax on imports from India, where the majority of the world’s diamonds are cut and polished.

For Thailand, it’s 37 percent; Botswana, 38 percent; Vietnam, 46 percent; Switzerland, 32 percent; the European Union, 20 percent; and China, 104 percent.

While there are a lot of questions about how the tariffs will apply to jewelry (which I attempt to answer below), there is also the broader question of, will the tariffs remain in place and, if so, for how long?

While I do own a deck of tarot cards (Cat Tarot, of course), I cannot tell you.

On Monday during a webinar organized by Jewelers of America, guest Jon Gold, the National Retail Federation’s vice president of supply chain and customs policy, said from what he’s heard in Washington, D.C., the Trump administration is resolute that the tariffs will stand as currently levied.

But on Tuesday, U.S. Trade Representative Jamieson Greer told the Senate Finance Committee that the goal of the tariffs is to incentive negotiations.

He said about 50 countries have reached out to the administration in the hopes of negotiating a new trade agreement.

We will continue to report on this issue as it develops and we get the chance to talk to people in more sectors of the industry.

In the meantime, if you have any questions or comments, please reach out: michelle.graff@nationaljeweler.com

I will respond or try to get your question answered.

How ‘Substantial Transform’ Applies
On the JA webinar, many of the questions submitted by attendees stemmed from the complex nature of the jewelry industry’s supply chain. Gemstones are often sourced from one place and then cut in another, with the precious metal coming from another location entirely.

So, everyone wants to know, which tariff applies when, say, a diamond is mined in Botswana (38 percent tariff) and cut in India (27 percent tariff)?

As noted in the JA webinar, here, substantial transform applies. Many of you have heard this term before, as it has come up repeatedly in regard to sanctions on diamonds from Russia.

A legal principle that originated from a 1940 U.S. Court of Customs and Patent Appeals ruling, substantial transformation says that if goods are comprised of components from several countries, the products’ official country of origin is the country where its form, appearance, nature, or character was fundamentally altered, i.e., substantially transformed.

That means in the example above that if a diamond mined in Botswana and cut in India then the diamond’s country of origin is India and it is thereby subject to a 27 percent tariff. 

However, if a diamond is mined in Botswana, cut in Botswana, and exported to the U.S., its country of origin is Botswana and it is subject to a 38 percent tariff.

Another question that came up during Monday’s webinar had to do with colored stones.

One attendee asked, What if I buy a cut and polished colored gemstone in the United States—for simplicity’s sake, let’s just say it’s a Montana sapphire—and then send it to Bangkok just to be set? Does the tariff levied on goods of Thai origin (37 percent) apply?

My initial thought was yes, because the product is substantially transformed in Thailand—it goes from being a loose gemstone to a ring, an alteration of its character—but the answer is more nuanced than that.

According to Jewelers Vigilance Committee President, CEO, and General Counsel Sara Yood, there are a couple different scenarios that could play out in this instance.

If the Montana-mined sapphire is cut and polished in the U.S., exported to Thailand, and set into a Thai-produced ring, it changes the product categorization and it becomes a product of Thailand and is thereby subject to the 37 percent tariff.

However, if the Montana-mine cut sapphire is exported to Thailand along with a precious metal ring for setting that was made in the U.S., it is still a product of the U.S. and the reciprocal tariff applies only to the value-add in Thailand (the cost of the labor involved in setting the ring).

Yood also noted that if the Montana-mined sapphire is exported rough to Thailand and cut and polished there, it will be the same as the diamond scenario described above. 

The sapphire is considered to be substantially transformed when it is cut and becomes a product of Thailand; it is thereby subject to the 37 percent tariff.

What About Finished Jewelry?
According to information that JA Director of Public Affairs & Education Susan Posnock presented on Monday’s webinar, casting is considered the origin-conferring process, even if subsequent manufacturing takes place elsewhere. 

So, if your jewelry is cast in Thailand, for example, it will be subject to the 37 percent tariffs on Thai goods. 

She also noted that raw precious metals, including bullion, are currently exempt from tariffs, though that could change.  

Is There Any Chance the Tariffs Will Change?
Posnock asked Gold what the NRF was hearing in Washington in terms of any potential changes to the tariffs.

He said, “At this point, the administration is pretty firm on the tariffs as they are.”

However, as noted above, the messaging from U.S. Trade Representative Greer on Tuesday was, there is room for negotiation.

Among the countries looking to strike a trade deal with the U.S. is India, a move the country’s main jewelry trade organization, the Gem & Jewellery Export Promotion Council, supports.

In a statement issued last week immediately after the tariffs were announced, GJEPC said it “understands the U.S. administration’s intent to address trade and tariff imbalances through reciprocal tariffs,” but it “urges the U.S. to uphold the spirit of the long-standing trade partnership between India and the United States, which has been built on mutual respect and shared economic interests.”

The statement concludes, “We urge the Government of India to progress the bilateral trade agreement between India and the U.S., as it would be crucial in navigating the tariff issues and securing long-term interest of the [gem and jewelry] sector.”

What Is the Industry Doing About It?
In a Q&A distributed following Monday’s webinar, which you can access here, JA said it is working with its legislative counsel in Washington to advocate for reducing the impact of tariffs on the industry.

“While we support holding trading partners accountable and restoring fairness for American businesses, this should be accomplished without implementing sweeping tariffs that unduly burden American consumers and businesses and create widespread economic uncertainty,” the organization said.

During the webinar, Posnock encouraged JA members to reach out to her directly, as she is incorporating comments from jewelers and other JA members to help with the organization’s messaging.

On Monday, the American Gem Trade Association issued a statement that it has reached out to elected officials in the Senate and House of Representatives requesting that the tariffs on loose gemstones be eliminated.

Regarding finished jewelry, the AGTA told members of Congress that the tariffs would “decimate” both U.S. retailers and wholesalers.

“AGTA will provide a weekly update to its membership and will keep the industry at large informed of AGTA’s actions. AGTA will also be working with the other members of the U.S. Jewelry Council on the tariff issue in a combined effort to defend the industry,” the statement concludes.

What Can I Do About It?
I personally don’t have a lot of faith in elected officials, and I think there is a dire need for term limits for both members of the House and Senate in this country.

But perhaps you feel differently, or you’ve cultivated a positive relationship with your local House representative or your state’s senators. If so, now is the time to share your thoughts on tariffs and how they could impact your business. 

In its Legislative Action Center online (accessible to JA members only), JA has a form members can fill out to send a message to Congress and the Trump administration expressing their concerns over how tariffs will impact the jewelry industry and consumer confidence.

The NRF is also encouraging business owners to reach out to federal and local politicians and explain to them how the tariffs could impact their businesses. 

Gold pointed out on Monday’s webinar that Congress is not in session next week, meaning many senators and representatives will be at home in their districts.  

“There’s a great opportunity with folks being back from the District next week to invite them in for store tours and explain to them, ‘Here’s what the tariff rates are, here’s how much I’m going to have to pay, here’s what it means for my business on a daily basis.

“If I can encourage folks to do anything at this point, it’s reach out to your elected [officials] and explain to them what this means.” 

If they don’t listen, you should remember that the next time they are up for re-election.