'As far as he was concerned they were just food-growers who happened to work the fields on either side of the Dwarves' ancestral road to the Mountains.'
UT, The Quest of
Erebor, Appendix
The "he" is
Thorin, "they" are the
hobbits of
the Shire, and the speaker is
Gandalf. So the conclusion must be that there was trade between Dwarves and hobbits.
As for the diamond studs, leaving aside the traditional mutual suspicion between the
races, I don't think the
Elves need be invoked at all. For one thing, we have this, from "A Long-expected Party":
We have to keep in mind that in this first chapter, we are essentially still in the world of
The Hobbit; the enlargement into the darker tale only begins to emerge at the end. The "magic" in the toys, seen through the eyes of hobbit-children, could easily be attributed to the natural mechanical ingenuity of Dwarves, as alluded to in posts above. It's ambiguous, I grant, and can be considered a toss-up.
But the studs themselves were given by
Gandalf; a wizard, and at this point still the wizard of
The Hobbit, who would not be above "magic cufflinks". Whether Dwarves had any connection with them is another question.
Just to point out that Gerontius was
Bilbo's maternal grandfather; this partly accounts for Bilbo's "competition", and also perhaps for the resentment at his being "unchanged" more than long-lived. The
Tooks, after all, were considered a "remarkable"
race; enough so to give rise to the story that "long ago one of the Took ancestors must have taken a fairy wife". In fact, the first edition has
As far as I know the Shire hobbits had no knowledge of the
Dunedain, but if they had, I suppose they might well have been included in the rumors. I'd have serious doubts, myself. 😄