India's diamond industry is facing a crisis as the United States has imposed a 50% tariff on Indian goods. This new tariff, which took effect on Wednesday, is one of the highest in the world and has left many in the industry worried about job losses and reduced orders. Kirit Bhansali, chairman of India's Gem and Jewelry Export Promotion Council, described the situation as "the entire industry is in trauma." The tariffs include an additional 25% duty, which U.S. President Donald Trump has labeled a penalty for India's purchase of discounted Russian oil.

The U.S. is India's largest market for precious stones, accounting for over 30% of India's exports, nearly $10 billion in the last fiscal year. Bhansali noted that approximately 175,000 workers in the diamond and jewelry sector will be directly affected by the new tariffs. The impact is not limited to gems; other sectors such as shrimp farming, textiles, and clothing manufacturing are also at risk. The Seafood Exporters Association of India estimates that about half a million shrimp farmers could lose their livelihoods due to these tariffs.

Trade relations between India and the U.S. have deteriorated sharply. Trump's administration has criticized India for its oil purchases from Russia, which the U.S. claims are funding the war in Ukraine. Indian officials have defended their actions, calling the U.S. tariffs "unfair, unjustified, and unreasonable."

Despite ongoing trade talks, the relationship appears strained. India's Foreign Minister Subrahmanyam Jaishankar stated that negotiations are still ongoing, but a U.S. trade delegation recently canceled a planned visit to India. Indian officials have emphasized their commitment to protecting the agricultural sector, a contentious issue in trade discussions.

Prime Minister Narendra Modi has urged a focus on "Made in India" and self-reliance in response to the tariffs. The geopolitical significance of India as a counterbalance to China complicates the situation, as the U.S. has historically sought to strengthen ties with India. However, the imposition of these tariffs has left many questioning the future of U.S.-India relations.

The tariffs are expected to have a significant economic impact. Citigroup estimates that the 50% tariff could reduce India's annual GDP growth by 0.6 to 0.8 percentage points. While the U.S. is a major export market for India, accounting for $87.4 billion in shipments in 2024, this represents only about 2% of India's total GDP.

In light of the tariffs, Modi's government is considering measures to support affected sectors, including textiles and footwear. The Indian economy, primarily driven by domestic demand, may mitigate some of the impact, but the situation remains precarious. Financial markets have reacted negatively, with the rupee becoming the worst-performing currency in Asia this year, and foreign outflows from Indian stock markets have reached nearly $5 billion since July.