United States tariffs pose a challenge for Switzerland as negotiations commence to find a possible resolution
The United States' decision to impose a 39% tariff on Swiss goods is expected to have a significant negative impact on the Swiss economy, particularly on the manufacturing sectors of watchmaking and pharmaceuticals.
For the Swiss watchmaking industry, which relies heavily on the U.S. as its largest market for luxury timepieces, the tariff presents an acute threat. The 39% tariff rate is nearly three times higher than tariffs applied to other European watchmaking countries and far exceeds the 15% tariffs negotiated by Germany and Japan with the U.S. This steep increase in levies will substantially raise import costs for Swiss watches in the U.S., likely reducing demand and sales. Major Swiss watch brands including Rolex, Audemars Piguet, Omega, and smaller manufacturers like Oris and Raymond Weil are poised to face severe commercial disruption.
Regarding pharmaceuticals and other Swiss manufacturing sectors, while the specific tariff impact is less detailed, the 39% tariff broadly applies to Swiss goods, meaning import costs for key exports like pharmaceuticals would increase sharply as well. This likely diminishes competitiveness in the U.S. market, one of Switzerland’s primary export destinations, and could lead to decreased revenues and potential downsizing or relocation considerations for affected companies.
The trade deficit is the center of President Trump's preoccupation, and an agreement on a framework trade deal could not be reached. Yet, the Swiss government and industry bodies are seeking urgent trade agreements to mitigate these consequences. Senior Swiss officials have held numerous discussions with US counterparts in an attempt to reach a deal with the Trump administration.
The United States is a key trading partner for Switzerland, taking 18.6% of its total exports last year. Pharmaceuticals dominate Swiss goods exports to the United States, accounting for 60% of the total. Machinery and metalworking account for 20% of Swiss goods exports to the United States, while watches account for 8%.
The European Union has succeeded in getting Washington to agree that the 15-percent tariff ceiling it agreed would also apply to a potential levy on pharmaceuticals. The Swiss government remains in contact with US authorities, hoping to find a negotiated solution.
The new tariffs are set to go into effect on August 7. Economist Adrian Prettejohn at Capital Economics expects the high tariff rate on Switzerland to be negotiated down in the future and notes that pharmaceutical goods are currently exempt from the tariffs. The trade association representing the small and medium-sized firms in Switzerland's machine and metal-working industry has urged the government to take advantage of the negotiating window before the entry into force of the new tariffs, warning of serious long-term consequences.
Despite the impending tariffs, Switzerland continues to be a significant foreign direct investor in the United States, particularly in research and development. Swiss pharmaceutical giants Roche and Novartis have announced plans to invest tens of billions of dollars in the United States in the coming five years.
The Swiss government has expressed regret over the US's intention to impose tariffs, citing progress in bilateral talks and Switzerland's constructive position. President Karin Keller-Sutter, also the finance minister, spoke with Trump on Thursday. Trump has threatened pharmaceutical firms to lower prices or face punishment, but these are being considered separately from the reciprocal tariffs.
The trade balance between Switzerland and the United States is heavily in Switzerland's favor, at 40 billion Swiss francs ($49 billion) last year. However, the implementation of the 39% tariff rate, if it remains in place, would knock around 0.6% off Swiss GDP. The impact would be considerably more if pharmaceuticals lose their tariff exemption.
In conclusion, the tariff risks weakening Swiss export-driven industries, reducing their market share in the U.S., and by extension, slowing Swiss economic growth tied to these key sectors. The Swiss government and industry bodies are seeking urgent trade agreements to mitigate these consequences.
- The 39% tariff on Swiss goods also impacts the Swiss finance sector, as the increased costs for Swiss pharmaceuticals could lead to reduced revenues for Swiss pharmaceutical companies like Roche and Novartis, potentially affecting their research and development investments in the United States.
- In the arts sector, the significant increase in tariffs on Swiss watches may alter the general-news narrative, with the impact on major Swiss watch brands like Rolex, Audemars Piguet, and Omega potentially being covered more widely in business and finance news outlets due to the economic implications.
- The tariffs could also have a ripple effect on politics, as the Swiss government may need to consider new strategies to protect its industries from such trade barriers, potentially leading to heightened tensions with the United States in future trade negotiations.
