The United States jewellery industry is facing a complex balancing act as new tariffs on diamonds force wholesalers and retailers to decide whether to absorb costs, negotiate with overseas suppliers (particularly India), or pass them on to consumers.
Paul Zimnisky, an independent diamond and jewellery analyst and consultant based in the New York City metro area, told Rough & Polished in an exclusive interview that the situation is very fluid, but the industry is going to have to deal with this in one way or another at the end of the day.
He said although higher prices could reinforce natural diamonds' perceived value, they also risk demand destruction—especially at lower price points—and may widen the gap between natural and lab-grown diamonds, where retailers have more pricing flexibility.
The secondary market, Zimnisky said, could benefit as pre-tariff inventory gains a premium, and strategic negotiations between the U.S. and India may ultimately soften the blow.
He said the outcome will hinge on supply chain collaboration, consumer resilience, and potential shifts toward lab-grown and recycled diamonds.
NB: Zimnisky recently published a brief commenting on the impact of the newly imposed U.S. tariffs on the global diamond and jewellery industry, which can be read here.
Below are excerpts from the interview.
How will U.S. wholesalers and vertically integrated jewellers decide whether to fully pass on tariff costs to retailers or negotiate with overseas suppliers to share the burden?
This is ultimately going to be a game of strategy and negotiation in determining who the supply chain will share the burden of these new taxes – or maybe it will be the consumer. There are a lot of moving parts, and the situation is very fluid, but at the end of the day it looks like the industry is going to have to deal with this in some shape or form.
What strategies might retailers use to balance price increases with margin preservation when passing costs to consumers?
Again, I think this is going to be about sharing the responsibility throughout the supply chain. The situation with India will remain key here, given that a diamond’s origin is considered where it was “substantially transformed.” So whether we are talking about a 26% tariff or a 10% tariff makes a big difference. We will see, but I would speculate that the U.S. and India will reach some sort of deal that will limit the impact of this.
How might the decision to absorb some of the tariff costs (rather than fully passing them on) affect competition among wholesalers?
The economics of the trade probably don’t vary that much between players, so there is probably a limited amount of flexibility that wholesalers have here. For them, I think the key will be working with their overseas suppliers to limit the impact as much as possible.
If retailers’ top-line revenue increases due to higher prices, how might their profit margins be affected if they choose not to pass the full cost to consumers?
The average price of a diamond sold in the U.S. will undoubtedly be higher if say a 26% or even 10% tax is embedded into the price. That said, higher prices could certainly lead to some demand destruction, in addition, retailers might absorb some of the burden with their own margins. So, this scenario could lead to a situation where a retailer’s sales increase, but profit doesn’t. This is just one possibility.
How could the price elasticity of demand for diamonds and jewellery influence retailers' pricing strategies post-tariff?
There are at least two ways of looking at this. Higher prices could definitely hurt demand as it simply relates to a consumer's spending ability. However, with higher-end merchandise, perhaps this could have a positive effect on the perception of diamond value given that prices have been sliding for a few years. I have said for some time now that higher natural diamond prices could have a positive impact on demand in some cases. We will see.
What are potential scenarios where demand destruction due to higher prices could offset any revenue gains from price increases?
I think at the lower end especially this is the risk. Whether it’s the financial markets or consumer sentiment, uncertainty results in hesitancy among investors and shoppers. This is where we are right now. And then if this results in a meaningful economic slowdown, consumers will simply have less spending power. This macro risk is real.
Why would diamonds and jewellery already in the U.S. before the tariffs command a premium compared to newly imported goods?
Merchandise already inside the U.S. should theoretically be worth a premium relative to the pre-tariff value as the market price for merchandise should now reflect the additional cost of the new tariffs. This goes for business inventory and even jewelry owned by consumers, in terms of its secondary market value.
How might the second-hand (recycled) diamond market benefit from the new tariffs, and what impact could this have on consumer perception of diamonds as a "store of value"?
This could be a key development from all of this. The situation could certainly boost the secondary diamond and jewelry market in the U.S. And this could certainly help with the perception of diamond value.
How might the price gap between lab-grown diamonds (LGD) and natural diamonds widen due to tariffs, and what effect could this have on consumer preferences?
I think retailers have a lot more flexibility with LGD pricing than they do with natural given the relatively oversized margins that LGD can offer. This could mean that retailers can afford to "eat" the tariff cost for the benefit of consumers.
How might retailers adjust their pricing strategies for LGDs differently than for natural diamonds to mitigate consumer resistance to price hikes?
This could result in even further price differentiation between natural and LGD which could further differentiate consumer perception of the two products. This could actually be seen as a helpful development for the larger industry in my opinion.
Mathew Nyaungwa, Editor-In-Chief-Rough & Polished
