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Despite US tariffs, Switzerland still controls its own destiny
Article published in Le Temps, 17 August 2025.
Donald Trump’s erratic trade policy, which reflects his understanding that a country shipping more to the US than it imports is somehow stealing from Americans, caught Switzerland out. Switzerland’s 39% tariff looks objectively hard to justify compared with the 15% tariff negotiated by the neighbouring EU.
This tariff rate on Swiss exports to the US excludes pharmaceuticals and gold, which means that a little more than half of Switzerland’s exports to America are not yet impacted. Put differently, President Trump’s tariffs apply currently to around 3.5% of Swiss gross domestic product. Some of those exports could be re-routed via other jurisdictions to skirt the 39% duty. That’s barely a risk for Switzerland, given that the US threatens such ‘transshipments’ with a barely-worse 40% penalty tariff.
Switzerland has limited options to appease an administration whose policies defy conventional economic understanding, and it’s hard to see what more the Confederation can offer. Existing import tariffs on most industrial goods entering Switzerland are already zero.
And despite being the world’s 21st-largest economy by nominal gross domestic product, we are already the US’s seventh largest foreign investor. That is thanks in part to the pharmaceutical industry’s capital expenditure which has committed to invest almost USD 300 billion into the US, according to corporate announcements.
It’s equally difficult to imagine a 39% tariff – the highest applied to any advanced economy and twice the EU and Japan’s baseline - remaining in place indefinitely
It’s equally difficult to imagine a 39% tariff – the highest applied to any advanced economy and twice the EU and Japan’s baseline - remaining in place indefinitely.
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As a share of some sectors, Switzerland already represents a significant fraction of US imports. Americans import more than four-fifths of their watches from Switzerland, more than 10% of their coffee, almost 10% of their precious metals and nearly 9% of their pharmaceuticals.
Economic consequences
In the wake of the new US tariff announced on 1 August, we lowered our expectation for Swiss economic growth from 1.1% in 2025 to 0.9%. This takes into account Switzerland’s export dependence, the importance of the US market to the country, as well as a generally slowing economy. We have also accounted for Switzerland’s negative inflation, which has stabilised, after falling energy prices and the strength of the Swiss franc took a toll.
Will the Swiss National Bank be forced to resort to negative interest rates again? We think that the key policy rate of zero is already at its lowest level in this cycle. We cannot of course rule out a cut into negative territory, but that still looks like a last resort, if for example the Swiss franc were to strengthen unduly against major currencies. It’s also worth pointing out that negative rates would only have a marginal impact in boosting domestic demand compared with today’s zero rate.
One often overlooked aspect of Switzerland is that it benefits from a significant fiscal space. Long-term investment in energy, defence and infrastructure would be much more efficient in boosting domestic demand than a return to negative rates. Other tools like fiscal support for companies and employees affected by tariff-driven displacement are also possible as a means to cushion the blow, and would be arguably much more effective than negative rates, with lower side effects.
Of course the impact is not all one way. The effective tariff rate that the US is imposing on its own imports, which is for the most part paid by US importers and US consumers, is slowly becoming clearer. Until now, American companies have anticipated the difficulties by stockpiling, but that cushion cannot last. We expect the real damage to become more visible in the weeks and months ahead.
There is no reason to think that the country cannot adapt again, and leverage its fiscal capacity to improve productivity and so navigate the latest challenge from the US
There is still scope for negotiations to lead to a level of tariffs closer to European peers. The question is how long it will take Switzerland to negotiate an improvement that can apparently only come from a direct conversation with the US president.
The longer tariffs remain in place, the greater the damage to Switzerland’s economy. It’s anyone’s guess whether any concessions would be enough to safeguard access on favourable terms to the US market. In the meantime, time and again, Switzerland’s economy has proven itself remarkably agile.
Despite a strong currency and lack of natural resources, its export-oriented economy has been consistently adaptable. There is no reason to think that the country cannot adapt again, and leverage its fiscal capacity to improve productivity and so navigate the latest challenge from the US.
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