Trump’s Shock 39% Tariff Crashes Swiss National Day Party

(Bloomberg) —

Switzerland’s political and business elite are reeling from Donald Trump’s shock punitive tariffs that the government was confident it had avoided.

The US president’s decision to slap tariffs of 39% on all Swiss imports is among the most dramatic of any so far, heralding a rude awakening on Friday, a national holiday that is a highlight of Switzerland’s summer calendar.

The stakes are enormous. Last year, such was the extent of the country’s goods exports that it saddled the US with a $38 billion bilateral trade deficit, the 13th biggest for the world’s largest economy. That tally is likely to have irked Trump. For their own part, the Swiss claim to be the seventh-largest foreign investor in America.

“We weren’t able to reach agreement on the best way to reduce that trade deficit at all,” US Trade Representative Jamieson Greer told Bloomberg Television. “They ship enormous amounts of pharmaceuticals to our country. We want to be making pharmaceuticals in our country.”

President Karin Keller-Sutter, whose last-ditch call to Trump on Thursday failed to sway him, put a brave face on a result which threatens to deal a serious blow to the country’s industrial base. Speaking on the Ruetli meadow, a patch of hallowed ground overlooking Lake Lucerne that marks the spot of the country’s foundation more than 700 years ago, she insisted the challenge posed by the White House will be overcome.

“Switzerland is used to storms,” Keller-Sutter, who is also Switzerland’s finance minister, told a crowd gathered on the Alpine pasture. “We need to live through it, continue to work and find solutions. I don’t want to give this too much room today — this is our day, the day of the Swiss people.”

Aug. 1 marks Switzerland’s birthday and is an occasion normally celebrated with brunches, barbecues, and fireworks that light up its mountain valleys. For many Swiss, the news made an unpleasant start into the national holiday — a party that Trump just crashed.

“It’s sobering, but really, what can still surprise us today?,” said Lucas Renaud, a 34-year-old university researcher in Basel. “It further shakes my trust that US are still a reliable partner. I am worried about that.”

As recently as July 16, Swiss officials said they had approved the draft of a framework trade deal with US counterparts, and were just awaiting signoff from the White House. That now looks like a dramatic misreading of the mood in Washington that is likely to prompt soul-searching and political recriminations in the coming days.

“This is a failure on the part of the government,” said Rene Schwok, honorary professor in the Department of Political Science and International Relations at the University of Geneva and the Global Studies Institute. “Keller-Sutter was directly involved in the negotiations. She had direct phone calls with Trump and had boasted somewhat about the quality of her relationship with the US president.”

The tariff shock adds another headache for Keller-Sutter, who at home, is dealing with the fallout of the rescue takeover of Credit Suisse. She is the driving force behind stricter capital requirements for UBS Group AG which will go through parliament in the coming years.

So far the government has expressed only “great regret” over the tariff number, and stressed it will continue to seek a negotiated solution. Greer explained that the levy applied to Switzerland reflects the balance of commerce with America.

“The rates are largely determined by the trade deficit of a country with the United States and what the country is willing to do to address that trade deficit,” he said. “We have high tariffs not just on Switzerland but many countries where we weren’t able to fully resolve a path forward.”

Swiss companies had made extensive overtures to the US, with pharma giants Roche Holding AG and Novartis AG alone pledging in recent months to invest more than $70 billion in US research, manufacturing and distribution. Both companies didn’t immediately respond to requests for comment on the new tariff.

What Bloomberg Economics Says…

“Given the country’s high sectoral exposure to US imports, looming pharma levies add a major downside risk — our estimates point to a total trade shock of more than 32 ppts if the US decides to slap that sector with 25% tariffs. This, along with the franc’s appreciation, could lead to the Swiss National Bank cutting rates into negative territory as soon as September.”

—Jean Dalbard, economist. For full React, click here

While the government tries to figure out what went wrong, independent observers appear equally baffled by the arbitrary nature of the 39% figure.

“Nobody knows where the 39% comes from,” said Stefan Legge, a professor of tax and trade policy at St. Gallen University, who wondered aloud why the US president didn’t pick a round number like 40%.

The tariff, even if negotiated down, is a reminder to some politicians that Switzerland’s ability to forge its own destiny is limited, and should seek to bolster ties in its home continent, first and foremost.

In a national day speech in Schaffhausen, close to the border to Germany, Justice Minister Beat Jans drew a clear message from Trump’s decision.

“Switzerland’s home is in Europe,” he said. “We are feeling this more than ever now.”

Keller-Sutter herself was circumspect on Friday at the Ruetli meadow, where patriotic Swiss gathered to commemorate the 1291 oath that first bound together the country’s original three cantons. She admitted not having had much sleep the previous night when she spoke to Trump.

“I explained to the American president that we’re having our Swiss National Day today,” she said. “He asked me until when Switzerland goes back and I said 1291 — he couldn’t believe it.”

Keller-Sutter then tried to lighten the mood, quipping that 1291 “wasn’t a new tariff rate” because “that would have been too much.”

(A faulty AI summary was removed for misrepresenting surplus as a deficit.)

–With assistance from Dylan Griffiths, Lisa Abramowicz, Jan-Henrik Förster, Annmarie Hordern, Jana Randow and Dani Burger.

(Adds trade deficit in third paragraph)

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