The so-called Liberation Day in the US had a catastrophic effect globally, making a deep dent in an otherwise Free Trade Era. We are indeed in a new phase, one that is protectionist, arbitrary and dangerous. For decades, the US was a benchmark and an inspiration for a free market economy for the world, helping to build global trade and championing a multilateral trading system where various economies achieved a “win all” situation.

WTO

End of WTO?

The World Trade Organization, though not perfect, was instrumental in bringing [prosperity and stability concerning trade to the world, including the US. Though there was a call from many countries to update and upgrade the WTO system, what the US is bringing in now by way of “Tariff” is definitely not a reform but an authoritative burden. The US’s reciprocal tariff proclaimed, is itself abandoning a system it had created and is a complete rejection of the WTO framework. This sets a precedent for other economies to abandon the WTO and set their own rules and regulations by imposing duties and trade barriers with other countries. This will indeed spell trouble for all nations in the long run.

Reciprocal Tariffs: Reason for a full-blown trade war?

The impact of higher tariffs and the uncertainty regarding the reaction of other countries as to what they may do next will weigh heavily on the global economy. If the Tariff era persists, global growth will slow down, and International investments will suffer. Countries that have a heavy dependency on trade will take a big hit, which may lead to mass unemployment in manufacturing and export-driven countries. In the 1930s too, the world experienced something like this, where trade wars escalated into armed conflict leading to World War II. It is difficult to predict the future that we will be getting into looking at the current situation. Recent reports point towards global institutions getting weaker as International norms erode, opening doors to a dark future. More countries might start using force or pressure to get their way.

Markets: What are Pundits predicting?

Pundits and Business Czar put it as the biggest policy-making error, and they have never seen anything like this. Although the stock market is not the economy but the commodity market, the bond market, everybody is signalling that this is a disaster and is going to be more painful. America had set benchmarks for ease of doing business coupled with light economic regulations and tariffs are fundamentally uneconomic to the nation. Billionaire Bill Ackman, a Trump supporter warns of economic nuclear winter over the recently announced Tariffs and amid market turmoil and added that the US should at least give three months to allow countries to renegotiate trading relationships.

What’s in store for the Diamond and Jewellery sector?

For the already reeling Natural Diamond manufacturing sector, Tariffs pose as the darkest period in their business life. Whether it was the 1990s recession or the 2020 Covid period, we knew about it and unitedly came out victorious. Over the last 18 months, the natural diamond sector has been facing gloom due to war, economic volatilities, and competition from lab-grown diamonds and other sectors such as travel, white goods, etc. To top it all now, tariffs have dealt a severe blow to the diamond manufacturing sector, leaving no room for consolidating and re-strategizing their marketing goals. The 26% tariff on Indian polished diamonds coming into the US will be hard to bear as the precious stone will become expensive and out of reach for consumers.

Yoram Dwash, President of WFDB, opines on a united front that the industry needs to take in these trying times and suggests a referendum to be presented to the US government to reduce the tariff on polished natural diamonds that was earlier taxed only 1%. Mehul Shah, Vice President, of Bharat Diamond Bourse, the world’s largest diamond exchange, said that apart from Indian diamond exports suffering, SEEPZ free zone in Mumbai exporting finished jewellery to the US will also be affected unless the government of India acts fast on the tax front regarding raw material.