Resistance has no diminishing returns.
Don't think that less an increase in % means diminishing returns.
Take it to the extreme: 1%? nothing right? well add 1% to 99% and you will be completely immune to physical damage.
Every 1 armor adds 1% effective health
If this isn't enough to convince you then read another post I made or read the wiki.
But you are somewhat right, buffing the base values of all champions tankyness (health & res) lowers the contribution of resistances or health of other sources.
Again take it to the extreme, if base resistances and health were very influential and items almost not, then buying defensive items isn't really worth it as you only increase your survivability a little. On the flip side are all other champions almost equal tanky and picking a meat shield simply is not worth it as you don't bring anything unique (everybody is as tanky as you).
Keep in mind that only increasing base resistances increases the value of health, which work together to create tankyness. Adding global resists has to be done careful so not the lower the viability of resistance items too much.