Trump negotiations face heightened Swiss interest following tariff surprise
The Swiss economy is bracing for potential disruption as negotiations continue over a trade deal with the United States. Despite Thursday's deadline, the Swiss Federal Council has vowed to persist in their efforts to reach a mutually beneficial agreement.
The current tariff situation has been a cause for concern, with Switzerland facing a 39-percent duty on its goods, one of the highest among the economies affected by new tariffs effective from Thursday. This tariff has raised eyebrows, particularly in light of President Karin Keller-Sutter's assertion that Trump believes Switzerland "steals" from the United States due to a trade surplus of 40 billion Swiss francs ($50 billion).
However, there is a glimmer of hope. Analysts at Swiss investment managers Vontobel believe that negotiations could lower the US tariffs for Switzerland to 15%. This prospect has sparked optimism among investors, as evidenced by the recovery of the Swiss stock market on Monday, which ended the day down only 0.15% after initially declining by more than 2%.
Key sectors such as watches, pharmaceuticals, and machinery could be hit substantially if the 39-percent tariffs remain in place. Export volumes to the US are forecasted to decline by 20-30% (around CHF 10-18 billion), putting 10,000 to 20,000 Swiss jobs at risk. The potential contraction in GDP growth could range from 0.3 to 0.7% in 2025, and inflation could increase by 0.5-1% due to increased import costs.
For the watch industry, the US is a significant market, accounting for approximately 18% of Swiss exports. The steep tariff would disrupt trade significantly, impacting margins and competitiveness. The pharmaceutical sector, which accounts for more than half of Swiss exports, faces ongoing legal and economic uncertainty about potential future tariff expansions. Higher tariffs could increase production costs and reduce competitiveness in the US market.
Even Swiss gold refining, which plays a large but complex role in trade stats, could be affected. These tariffs create higher transaction costs and pressure on profit margins amid global trade tensions.
The Swiss government could potentially use the distortions in the gold trade as a point in negotiations to alleviate the current tariff situation. Swiss media suggests that the government could point to distortions in the gold trade during negotiations, as it inflates the country's trade surplus with the United States.
In the face of these challenges, companies dependent on the Swiss brand might consider relocating or shifting production and exports to the EU or other countries with better tariff conditions. However, this relocation is constrained by legal scrutiny and the need for substantial local value creation.
In conclusion, the US tariffs pose a significant threat to Switzerland's economy, particularly in sectors such as watches, pharmaceuticals, and chocolate. If negotiations do not yield a more attractive offer from the Swiss Federal Council, Switzerland could find itself at a disadvantage compared to other trading partners with similar economic profiles, such as the EU, Britain, and Japan, due to lower duties.
- Due to the higher tariffs, the finance sector could experience a rise in uncertainty, as investors closely watch the trade deal negotiations between Switzerland and the United States.
- The business community, particularly those involved in the watch, pharmaceuticals, and machinery industries, are closely monitoring politics and the progress of trade talks, as a delay in reaching an agreement could have significant consequences, including increased costs and potential job losses.
- Coinciding with the tariff situation, crime-and-justice officials may witness an increase in illegal activities related to the smuggling of goods, as companies might resort to unlawful means to avoid the tariffs, potentially impacting general-news coverage and international relations.
