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Tough Talk Swiss wary of Trump protectionism

An employee processes an order for Europe's biggest online pharmacy, Zur Rose, in canton Thurgau

(Keystone)

Swiss prosperity depends on access to global markets, which President Johann Schneider-Ammann said would be a priority in his first talk with US President-elect Donald Trump.

Schneider-Ammann previewed the conversation that he said Trump wants to have with him soon as a chance for the two men to speak as entrepreneur-to-entrepreneur and politician-to-politician.

“We Swiss fight for open markets. We hope that he shares the philosophy of the World Trade Organisation,” he said in an interview with Swiss public television RTS. Schneider-Ammann, who also is the economics minister, holds the one-year presidency that rotates among the seven-member cabinet.

Disruption and backlash

Swiss and other businesses that depend on the global supply chain – including those in the United States – could be hurt if Trump’s administration attempts to impose trade barriers on China, said Reto Föllmi, a professor of international economics at the University of St. Gallen.

The same could happen if the Trump administration takes other measures to keep US jobs at home or to punish nations it believes are trading unfairly, he said. But to do so, Trump would have to withdraw the US from the Geneva-based World Trade Organisation or make a case there for punitive tariffs on China under international trade rules.

“This would throw a disruptive element into the world manufacturing system. Because everyone would have to switch their partners in the global supply chain,” Föllmi told swissinfo.ch. “It will be problematic for Swiss firms,” he said, though there also “might be short-term gains because China might want to use Switzerland as a hub to enter US markets.”

The turmoil could affect the many Swiss companies that, like their counterparts around the world, make high-tech or consumer products using materials and parts obtained from other countries. A similar scenario could play out elsewhere with other American trading partners in Europe or further abroad if Trump’s protectionism raises costs for US manufacturers.

“The risks are simply that this causes uncertainty and disruption in the global economy, which of course hurts an open economy like Switzerland in particular,” said Föllmi. “Demand for these products will shrink and this directly hurts Swiss producers.”

Open dialogue

The Swiss government has been in contact with Trump’s campaign since September 2015 and is now in touch with his transition team, said Foreign Minister Didier Burkhalter, who in 2014 held the Swiss presidency and chaired the 57-nation Organisation for Security and Cooperation in Europe (OSCE), the world’s largest regional security organisation.

Burkhalter was not surprised by Trump’s election victory but has doubts about whether the president-elect’s economic positions – which his transition team promised “would be made more precise” – will benefit the United States or the world, he told Swiss newspaper Schweiz am Sonntag last month.

Over the weekend, Trump provoked Beijing with criticism of China’s currency and tariffs and its expansionist stance toward the South China Sea. He did so with his Twitter account and by speaking directly with the Taiwanese leader, breaking nearly four decades of US diplomatic protocol.

On the campaign trail Trump threatened to have the US withdraw from the Geneva-based World Trade Organisation, which operates a system of trade rules and helps nations settle trade disputes. Under its rules, the US cannot unilaterally impose tariffs but must make a case for them by proving that another country has caused damage to US trade through unfair practices.

Supply chains

Trump’s policies would have a big effect on hundreds of US companies that make and assemble goods particularly in China and Mexico, but increased US protectionism also would complicate production of globally sourced products.

In Switzerland, the chairman of Horgen-based SSM says US trade barriers on China might slow Chinese demand for his textile machinery and facilities for yarn processing – which could, in turn, lower Swiss buying of American products.

“There is not a single machine that we have that we are able to build with materials from one country,” the SSM board chairman, Ernesto Maurer, was quoted as saying in The New York Times last week.

His company has one plant each in China, Hong Kong and Italy, and two plants in the US – both in traditional textile centres Georgia and South Carolina, which in the 19th century flourished on widespread availability of transportation, raw materials and cheap labour.

It is difficult to see how such moves against China might create US jobs, Maurer said, especially when the American textile industry increasingly relies on robots while other countries offer cheap labour.

“Someone else will pick up the business,” he said.

Foreign trade

The Swiss economy was the 17th largest exporter in the world in 2014, according to the US-based Economic Complexity Index (ECI).

Switzerland exported $296 billion (CHF298 billion) and imported $281 billion (CHF283 billion) that year. Its top exports were gold, packaged medicaments, human or animal blood and watches; its top imports were gold, packaged medicaments, cars, jewelry and human or animal blood.

Most of its exports went to Germany, the United States, Hong Kong, India and China; most of its exports came from Germany, the United Kingdom, Italy, the United States and France.

Switzerland’s access to open markets depends on a 1972 free trade agreement with the European Union and a network of 28 free trade agreements (FTAs) with 38 partners outside the EU.

Switzerland normally agrees to its FTAs with its partners Norway, Iceland and Liechtenstein, in the framework of the European Free Trade Association (EFTA), but also can enter into FTAs outside the EFTA framework as well – as it has with both Japan and China.

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