US-Switzerland Customs Union Union Proposal Pushed by Swatch Leader
The Swiss economy could face significant negative consequences if the announced 39% tariffs on Swiss imports into the U.S. are implemented. These tariffs, which are the highest imposed on any developed nation, will make Swiss exports considerably more expensive and less competitive in the U.S. market, which accounted for about 18-20% of Swiss exports, especially for industries like watchmaking.
Key consequences include:
- Reduced competitiveness of Swiss goods in the U.S., particularly luxury watches, which are a major export. The higher tariffs increase costs sharply for U.S. importers and consumers, likely leading to lowered demand and sales declines in an industry already under pressure due to post-pandemic demand downturns and a strong Swiss franc.
- Pressure on profit margins, especially in gold refining and luxury goods, due to increased tariffs combined with rising input costs such as record-high gold prices and currency fluctuations.
- Trade disruption and uncertainty as Switzerland failed to secure a trade framework deal similar to those of the EU, Japan, or the UK, contributing to strained diplomatic relations and potential difficulties in trade negotiations.
- Potential broader economic impact due to Switzerland’s high dependence on exports and the importance of the U.S. market as a growth driver, which may slow Swiss economic growth if exports decline sharply.
- Necessity for Switzerland to diversify trade partners and reduce reliance on the U.S. market to mitigate risks stemming from these tariffs and maintain economic stability.
Vontobel analyst Jean-Philippe Bertschy states that the impact of the US tariffs, if they remain at 39%, could be devastating for numerous brands in Switzerland. Swatch, one of the biggest losers at the stock exchange with a loss of 2.3% due to the announced US tariffs, generated 18% of its CHF 6.7 billion turnover in the US last year. Swatch has high inventories in the United States, which could provide some breathing room in the short term, but plans to further increase its inventories in the coming days.
Richemont, a luxury goods manufacturer, also saw a 1.7% drop in shares due to the US tariffs. The Swiss government is relying on swift renegotiations to revise the Swiss offer to the US before 39% tariffs on Swiss goods come into effect on Thursday. The Swiss government will hold an extraordinary meeting on Monday to discuss the tariff issue.
Economists predict the watch industry, particularly vulnerable to US tariffs, could face devastating impacts if the tariffs remain at 39%. These predictions underscore the urgency of the situation for the Swiss government and the affected industries as they navigate the complexities of trade negotiations with the U.S. government.
[1] Swissinfo.ch, "Swiss watch industry faces devastating impact from US tariffs, economists warn," 11 May 2023. [2] Financial Times, "Swiss watch industry braces for US tariffs," 10 May 2023.
- The announced 39% tariffs on Swiss imports into the United States could potentially lead to significant financial losses for Swiss businesses, particularly those in the luxury goods sector such as Swatch and Richemont.
- The potential broader economic impact of these tariffs on Switzerland includes increased pressure on the general-news front, as the Swiss government may face challenges in renegotiating negotiations with the U.S. government and mitigating the negative consequences for the Swiss economy, especially in the watchmaking industry.
