Switzerland Hit Harder as Rolex, Swatch Face Outsize Tariffs

(Bloomberg) — Switzerland may have expected to get off lightly from Donald Trump’s tariff salvo given its lighter touch approach to regulation and skepticism toward the European Union. Instead, it’s been slapped with one of highest levies on the continent, raising concern for key industries.

Exports to the US will have a 32% tariff, far higher than the 20% for the neighboring EU. It’s also more than triple the 10% level on the UK which, like Switzerland, is outside the bloc.

The government has called the move “incomprehensible,” and companies have had to race to figure out how they respond and protect their businesses. 

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At Rego-Fix, a maker of parts for machine tools, Chief Executive Officer Pascal Forrer got on a call with colleagues at the firm’s American subsidiary in the middle of the night. The company manufactures products in Switzerland and Forrer preparing for uncomfortable talks with customers about higher prices.

“More than the tariffs themselves I’m also just worried about the US economy slowing down,” Forrer said. “If the industry there stops investing, that’s when it will start reflecting in our sales number.”

For now, pharmaceuticals have been given a reprieve, but the levies will hit a range of products, from precision instruments to chocolate and luxury goods. Strategists at Oddo BHF said the tariff could significantly reduce US watch demand and force brands to revise prices, affecting the likes of Rolex, Patek Philippe and Swatch Group AG. 

The government said the economy will now probably grow less than it anticipated just last month, though Finance Minister Karin Keller-Sutter told reporters that no retaliation was planned for now.

The SMI benchmark stock index fell 2.5% on Thursday. Logitech International SA, which generates the bulk of its sales in the US and sources products from countries including China, Vietnam, Thailand and Mexico, plunged 17%, the biggest decliner on the Stoxx Europe 600.

The extent of the levies are a shock, particularly given Trump’s repeated focus on the EU in the build up to Wednesday’s announcement. He’s accused the EU of taking advantage of the US, and has said it was formed to “screw” the country.

While Switzerland was put on a US list for “unfair trade practices” earlier this year, State Secretary Helene Budliger Artieda said she was able to refute this in discussions last month. She said the country is doing everything Trump wants and doesn’t have discriminatory taxes or subsidies.

“Switzerland is Western Europe’s biggest loser,” said Simon J. Evenett, a professor at IMD business school in Lausanne. “But note a large share of Swiss exports will be exempted because they are pharmaceuticals. Other Swiss manufacturers will need to find third markets and will accelerate export diversification.”

While pharma escaped for now, that may not last. The chemicals and pharma sectors account for around half of Swiss goods exports.

And companies are already getting ready. Basel-based Roche Holding AG said it’s “considering additional U.S. investments to continue to meet patients’ needs.” It has more than 25,000 employees in the US.    

Cross-town rival Novartis AG AG said it’s also reviewing the new tariff measures.     

“We are committed to working constructively with the Trump Administration and US Congress to ensure policies are in place that support the development of the next generation of medicines,” it said.

Hearing-aid producer Sonova Holding AG, which produces products in Switzerland, China and Vietnam, said it “has the flexibility” to shift production if needed.

“Swiss companies are champions in protecting their margins,” said Thomas Wille, chief investment officer at Copernicus Wealth Management. “They have learned to deal with the weak euro in past years and have always found ways to protect their margin and grow the top line.”

The attacks on Switzerland may not stop there. If the tariffs result in more haven flows into the franc, that could strengthen the currency and push the country’s central bank to consider exchange-rate interventions again. That would expose Switzerland to accusations of being a currency manipulator, something it’s been branded before.

Keller-Sutter rejected that notion, saying the country “isn’t manipulating the Swiss franc to make exports cheaper.”

“It was surprising how high the tariff was,” Swiss National Bank Governing board member Petra Tschudin said at a conference on Thursday in Zurich. “This is more than was priced in.” 

She declined to say if the franc is over or under valued.

–With assistance from Naomi Kresge, Zoe Schneeweiss, Hugo Miller, Jeff Black and Noele Illien.

(Updates with finance minister in starting in seventh paragraph)

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