Guest AuthorIndian gems and jewelry exports to the USA accounts for US$10 billion annually and is 30.4 per cent of India’s overall exports. With the tariffs imposed by the latter, India is technically staring at a major drop in exports of gems and jewelry in the coming years. Or should we say until the global super power is considering a flip back on its decision.
Amit Modak, CEO of P N Gadgil & Sons, a leading jewelry retailer chain in India is sharing his views on tariffs and Indian jewelry exports to the USA and other countries.
Gold and silver prices are expected to remain highly volatile for another 3 to 4 weeks, until there is more clarity regarding tariffs, especially concerning nations other than the United States. The United States has imposed higher tariffs to encourage domestic manufacturing rather than relying on imports.
However, charging tariffs in this manner is not a sustainable strategy for America. The United States is a net importer, meaning it consumes more goods and services than it produces. Higher tariffs on imported goods will only drive up the input costs for American manufacturers, who still depend heavily on imports for raw materials, including base metals.
In the agricultural commodities sector, America also relies on imports. While the U.S. produces many agricultural products, it still imports items such as wheat from Ukraine, rice from India, and China. This dependence indicates that America is not fully self-sufficient. Consequently, the tariffs imposed are likely to harm domestic production rather than help it. Reducing import duties could enhance America’s ability to export more goods to other countries. Currently, however, what America exports is often not essential, aside from military and defense products.
Minimal impact
For example, in India, we import chicken legs, butter, cheese, California almonds, and pistachios from the United States. These products are not essential for the Indian market. Overall, India is a net exporter to the U.S. rather than the other way around, so the impact of U.S. tariffs on our economy will be minimal.
Globally, however, significant changes may occur, particularly in China. Much of China’s manufacturing output is directed towards the U.S. market, so if American demand decreases due to high tariffs. This could lead to a recessionary environment for Chinese manufacturers, characterised by lower demand and reduced orders.
America imports essential goods from China, even if it means paying higher tariffs. Ultimately, the cost of these tariffs will be borne by American consumers, not Chinese manufacturers. While Chinese companies might need to adjust their prices slightly, their goods are already relatively inexpensive, leaving little room for significant price adjustments. Therefore, the tariffs effectively act as a tax on the American people, increasing their costs to signal to the world that the U.S. is imposing higher tariffs on imports.
Essential services to suffer
The reality is that these goods are necessary for U.S. residents, not the exporting countries. In a separate issue, former President Trump attempted to target unauthorised immigrants in the U.S. by sending them back to their home countries using military planes. However, he soon realised that if he continued this practice, essential services would suffer due to a lack of workers. Jobs in malls, motels, hotels, and transportation, such as taxi and truck driving, would be severely impacted.
After some time, he ceased this policy. Reports indicated that India had more than 700,000 unauthorised immigrants residing in the U.S. We know that no more than 7,000 people returned, as he later realised and put an end to it. The same thing will happen with the tariff, as it will impose a tax on Americans, causing inflation in the U.S. to rise from 2% to 4%.
Increase in inflation
This increase in inflation means there will be no chance of reducing interest rates, which he hopes to do to boost production and support the manufacturing sector. The Federal Reserve will be forced to either raise interest rates or maintain the current level. This undermines its goal of lowering rates to support American manufacturing. Furthermore, significant unemployment may occur. As the manufacturing sector is expected to struggle under higher tariffs on imports of raw materials and components, potentially resulting in job cuts. The U.S. government is already reducing jobs. A significant job cut has been initiated by a committee led by Tesla Chairman Elon Musk. All of this is creating problems for America.
The tariff is fundamentally a problem for the U.S., not the world. While the global economy will feel its effects, these will be more dispersed and less concentrated compared to the direct impact on America. The negative consequences for the world will be spread out and experienced individually across various countries.
Gold, silver and recession
Regarding gold and silver, silver prices are currently declining, likely due to an impending recession caused by industrial slowdown linked to these tariff threats. However, I expect prices to rise again afterwards. As industrial recessions do not solely depend on America; other countries will eventually adjust, leading to an overall recovery outside of the U.S.
Historically, gold prices tend to move in relation to stock markets. If we look at the major corrections in gold in 2008, 2012, 2016, 2020, and the recent downturn, these corrections occurred alongside declines in the stock market. When the stock market falls, it’s common for hedge funds or high-net-worth individuals to sell gold to cover losses or meet margin calls.
This trend is not new; it has occurred many times before. Thus, when capital and financial markets decline, gold often falls as a result of these sales, creating liquidity for those affected.
Short term cues
For the short term, we predict that gold may drop to around 2,780 to 2,820. However, we do not expect it to fall to certain levels in Indian currency, which some people claim is unrealistic. When gold was trading at higher prices, everyone was speculating about reaching 1 lakh. Now, as gold prices decline, people are predicting lower and lower values. This reflects a common market behavior: when prices are rising, people compete to forecast higher prices. Conversely, when prices are falling, they compete to predict lower prices.
Aravind Sundaram
Guest Author