The Impact Of Tariff Turmoil On China's Diamond Tool Foreign Trade Industry

The introduction of the US "reciprocal tariff" policy is like a sudden industrial hurricane, causing waves in the manufacturing market. This will have a huge impact on the global supply chain system and also affect China's diamond tool foreign trade industry

 

Decoding the underlying logic and strategic intent of tariff policies

Reverse reconstruction of the industrial chain. The essence of the executive order still reflects the idea of prioritizing the United States, weakening the manufacturing capacity of the United States, disrupting key supply chains, thereby dragging down employment and damaging the security of the US economy. By using differentiated tax rates to precisely target the recipient countries of China's manufacturing industry spillover, and at the cost of the world's "deindustrialization", forcibly returning the manufacturing industry to the United States. According to data from the US Department of Commerce, the proportion of manufacturing GDP to GDP has decreased from 13% in 2005 to 10% in 2024, with an estimated value added of $2.9 trillion in 2024. The proportion of global manufacturing added value to GDP in 2022 is 17.5%. In 2022, the added value of the US manufacturing industry accounted for 15% of the world's total, while China's was 30%, far ahead of the United States.

 

The impact of tariffs on China's Diamond Tools industry

The impact of US tariff policies on China's superhard materials industry chain presents multidimensional and deep-seated characteristics, which not only bring short-term cost pressure and market impact, but also force the industry to accelerate technological upgrading and global layout.

 

The dual pressure of increased upstream costs, tariffs, and supply chain restructuring

Although China has a huge advantage in the material sector, the tariffs have significantly increased the cost of importing raw materials, putting pressure on enterprises that rely on imported key raw materials for the production of superhard materials. The chain reaction of passive price increases has led to enterprises being forced to raise export prices in order to digest tariff costs. In addition, the transit trade route has been blocked, and Southeast Asian countries (such as Vietnam and Cambodia) have imposed tariffs on the transit of Chinese superhard materials, disrupting the plans of domestic superhard material companies to build production bases in Southeast Asia. Companies have been forced to abandon the US market or bear double tariff pressure. Taking diamond micro powder used for semiconductor wafer cutting as an example, its production relies on imported high-purity graphite, and the increase in tariffs may lead to a 15% -20% increase in single ton costs, compressing the profit margin of enterprises. Taking diamond cutting tools as an example again, the original export unit price of $100 requires an additional $54 tariff. If the enterprise absorbs 30% of the cost on its own, the gross profit margin will be compressed from 35% to 12%, approaching the break even point. In terms of cultivating diamonds, China's average export tax rate to the United States has soared, leading to an increase in terminal prices. China's bare diamond, jewelry OEM exports, and cross-border e-commerce exports will all come to a halt, and the prices and export volumes of domestic products will be greatly impacted in the short term. These products already have meager profits and the tax burden cannot be transferred. Even products with high added value are difficult to offset their impact through other factors.

 

Risk of shrinking demand side, rising prices, and customer churn

Export oriented enterprises have experienced a sharp decline in orders due to increased costs, leading to a contraction in demand. Large enterprises rely on brand and technology premiums to maintain customers, while small and medium-sized enterprises face a "double squeeze" and lack overseas layout, resulting in serious customer loss. At the same time, the intensification of inflation in the United States has suppressed consumer power, and customers are more inclined to purchase low-priced alternatives, or may request to transfer production bases or change suppliers, resulting in the loss of domestic enterprise orders. As the main export market for China's industrial diamond products, such as semiconductor wafer cutting wheels and coated cutting tools for aerospace, the United States has significantly weakened the price competitiveness of end products after the imposition of tariffs. In terms of cultivating diamonds, tariffs have led to an increase in the price of cultivated diamonds in the US market, high-end market orders have shifted to India and Russia, Chinese companies have reduced their market share, and some companies have turned to the domestic market, resulting in excessive inventory backlog. In terms of diamond composite sheets, domestic enterprises are likely to face a situation of no orders, and American customers are likely to switch to local products; In terms of superhard material products such as diamond saw blades, some American customers have switched to purchasing products from local and Korean competitors. China's export controls to the United States cover raw materials for the production of superhard materials such as tungsten wire and nickel based alloys, leading to supply chain disruptions for American companies and forcing them to seek alternative suppliers from India and Russia.

 

 

Response strategy: Multidimensional breakthrough and ecological reconstruction

The Tariff Commission of the State Council of China announced on April 4th that it will impose a 34% tariff on all imported goods originating from the United States starting from April 10th, forming a "symmetrical countermeasure" with the US tariffs on China. Starting from April 10th, the tariff rate on all imported goods originating in the United States will be increased from 34% to 84%, and 12 US entities will be included in the export control list, prohibiting the export of dual-use items to them.

 

Seeking "progress", adapting to local conditions in multiple areas, and laying out strategies. The irreplaceability of the Chinese market is becoming increasingly prominent, despite the tariffs imposed by the United States, China remains the world's largest consumer market and manufacturing center. In 2024, China's imports will reach US $2.4 trillion, accounting for 11.3% of the world's total. The proportion of trade between ASEAN and the "the Belt and Road" countries and China will continue to increase. According to customs data, in 2024, China's direct export of superhard materials to the United States includes 13 categories, with a total export volume of 7391 tons, exported to 211 countries and regions, and imported to 64 countries and regions (including China itself). The export model relying on a single manufacturing base is unsustainable, and it is impossible to find a permanent 'safe haven'. Chinese superhard material enterprises, especially export-oriented enterprises, have to be ready to adjust in the face of such changes. Under such an international environment and the U.S. trade policy framework, they are constantly going to the sea to meet the needs of global customers, spreading risks through the "double cycle" strategy, accelerating the layout of emerging markets such as the Belt and Road and Latin America, building overseas market networks, promoting the transition of Made in China to high value-added fields, and meeting new supply chain rules; Or try to take measures to reduce export prices, continue to transit to low tariff countries or regions in South America, offset the impact of high tariffs, and continue to export to the United States.

 

The superhard materials industry, as a core pillar of strategic emerging industries, plays a crucial role in supporting the upgrading of national high-end manufacturing, breaking through bottleneck technologies in key areas, and driving the restructuring of the global industrial chain. The breakthrough path of China's superhard materials industry is essentially a "long march" in materials science. This tariff hurricane is not only an industrial crisis, but also a historical opportunity for China's superhard materials industry to undergo a "value leap" transformation. Only by transforming the 'bottleneck' list into a 'roadmap for tackling challenges' can we achieve a qualitative change from' passive defense 'to' actively defining rules' in this great power game.