Trump tariff shock: how Switzerland is positioning itself

Switzerland is analysing the implications of US tariffs Keystone / Salvatore Di Nolfi

Swiss exporters are currently subject to increased tariffs on goods exported to the United States. The Swiss government has established dialogue with the US. Businesses are praying for a solution. *

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Who is affected by the tariffs?

The new tariffs imposed by the US particularly affect the Swiss watch industry (export value CHF4 billion), machinery (CHF3.1 billion), and medical technology sectors. Swiss food products such as chocolate and cheese are also affected, each with an export value of just over CHF100 million. Coffee products, primarily Nespresso capsules, account for CHF1 billion of Swiss exports to the US.

The US originally imposed tariffs on Switzerland at 31%, much higher than on other European countries. European Union exports were subject to a 20% levy, while Great Britain’s is subject to only 10%. The US calculations underlying these tariffs are strongly contested by Switzerland and other countries.

Swiss exporters were facing a double burden of higher tariffs and competitive disadvantages compared to neighboring countries. Half of all Swiss export companies expect to be negatively affected, according to a survey by the business umbrella organisation economiesuisse.

But in a dramatic U-turn on April 9, US President Donald Trump abruptly suspended many of the more punitive rates for 90 days, leaving a 10% blanket rate in place, except for China.

The looming threat

Swiss exporters still face increased tariffs but no longer at a higher rate than neighbouring countries.

When the 31% tariff was originally introduced, the tech engineering and precision tools lobby group Swissmem had warned that smaller Swiss companies “face losing this market [the US] altogether”. Manufacturers are also threatened by a separate 25% US tariff on car parts.

Nearly 17% of Swiss watch exports went to the US last year, making it the largest market by far. The US also absorbed 23% of exported Swiss medical devices.

“Export barriers not only jeopardise companies, but also jobs, innovation and security of supply,” said Adrian Hunn, director of Swiss Medtech.

Medicines have been spared US tariffs so far, but Trump has indicated that new export charges could be levied in the near future. The Swiss pharmaceutical industry provided nearly half of the value of Swiss exports to the US last year (CHF31.2 billion).

What damage could this cause?

For smaller companies that rely on the US market, but don’t have production facilities there, the US tariffs pose a major threat.

This could potentially have a negative impact on jobs in the coming months. Swissmem has called on the government to allow more workers to be put on state-subsidised shortened working hours.

Around a third of the 1,300 companies represented by the mechanical engineering lobby group Swissmechanic had already reduced the working hours of staff before the tariffs were announced.

The rate of unemployment in Switzerland at 2.9% is currently less of a problem than in neighbouring countries, such as Germany. The KOF Swiss Economic Institute last month predicted the jobless rate to peak at 3% this year, but this figure has yet to be updated since tariffs were announced.

Trade unions do not sound alarmed just yet. “The US tariffs are indeed a nuisance for the Swiss export industry. But over-dramatising them is inappropriate,” wrote Swiss Trade Union Federation chief economist Daniel Lampert in a blog post.

In October, KOF released calculations of how anticipated US tariffs could impact Switzerland. Assuming a 60% tariff against Chinese goods and 20% for the rest of the world, KOF predicted Switzerland’s economic growth to slow by between 0.2% and 0.3%.

Such losses would equate to an annual economic loss of CHF200 per head of population. Speaking to Swiss public broadcaster SRF, KOF economist Hans Gersbach said the 32% tariff had the potential to result in greater losses.

What will Switzerland do next?

The Swiss response to the alarmingly high tariffs has been typically understated, unlike other countries.

The US has hiked the tariff on Chinese imports to 125% from the 104% level that kicked in on April 9. In response China has filed a lawsuit with the World Trade Organization (WTO). Beijing has also announced a levy of 84% on US goods. Canada has also threatened retaliatory tariffs.

Taiwan and Spain have announced state-funded support to protect industries hit by US tariffs.

Swiss President Karin Keller-Sutter told a media conference that the US version of “unfair” trading conditions with Switzerland was akin to making “one-plus-one equal three”. But she warned that a knee-jerk retaliation could cause greater damage to the economy.

The government has instead opted to analyse the impact of the tariffs in “greater detail” before making a decision.

This included a telephone call between Keller-Sutter and Trump, the appointment of a special Swiss envoy to the US and the establishment of a multi-departmental task force to find ways to manage the new tariff regime.

Switzerland stated that it is “committed to open markets, stable framework conditions and legal certainty”.

What arguments does Switzerland have?

The Swiss government argues that the US has not included US services exported to Switzerland in its trade balance calculations, particularly software licenses. If imported services (valued at CHF21 billion) were included, Switzerland’s trade surplus would be about half the size of the calculation used by the Trump administration: CHF18 billion instead of CHF38.5 billion.

In addition, Switzerland is a major investor in the US. It ranks seventh among all countries and, among these seven, the investor that pays the highest average salaries in the US. Swiss companies employ half a million people in the US.

The Swiss government sees its good offices, which it performs for the US in Iran, as another card in the tariff poker game.

What clout does Switzerland have?

Switzerland has already set its import tariffs on industrial goods at zero and can no longer offer the US anything in this regard. Tariffs still apply to US agricultural products. According to media reports, Swiss considerations now centre on an offer of investment commitments.

Former US Ambassador to Bern, Edward McMullen has also spoken out in favour of Switzerland.

A silver lining?

Provided the world does not descend into an all-out tit-for-tat trade war, Switzerland is reasonably positioned to absorb the worst impact of the new US tariffs, Stefan Gerlach, chief economist of EFG bank, told SWI swissinfo.ch.

The strong franc gives Swiss exports some advantage over competitors in the euro zone. And global customers should retain an appetite for high-end Swiss goods even if prices are forced upwards.

“Swiss exports in general, and particularly luxury goods, are not very price sensitive. Manufacturers can work around the problems by redirecting their trade to other countries, especially within Europe,” he said.

He also expects US consumers to bear the brunt of increased prices of goods, which will be passed on in part by manufacturers.

“A more likely outcome is the deflationary effect of disrupted trade, which could contract economic growth worldwide,” said Gerlach

“In the worst-case scenario, global recession, driven by international retaliatory tariffs and an escalation by the US, could bring severe consequences for an export-dependent country like Switzerland. But we are a long way off such a situation right now,” he added.

The WTO expects the Trump tariffs to reduce global trade by around 1% this year.

* This article has been updated from the original version on April 4 to include fresh information.

Edited by Marc Leutenegger/ts