Why Switzerland faces a unique struggle

Switzerland is scrambling to reach deals with Washington as it appears to avoid a “triple blow” of economic problems after suffering 39% tariffs on imported goods

Swiss leaders travelled to Washington, D.C. this week to try to reach an agreement with the U.S. government to avoid the major responsibilities that will take effect on August 7.

The 39% tariff rate is one of the latest new duties of President Donald Trump once and for all, and is a surprise For European countries, it seems imminent to be a trade agreement.

Trump told CNBC on Tuesday that Swiss President Karin Keller-Sutter “don’t want to hear” his concerns about Switzerland’s trade deficit. Swiss government after announcing a 39% tariff explain Switzerland maintained a “very constructive position from the outset” in its “intensive” speech.

According to Switzerland, the United States recorded a trade deficit of $38.3 billion in Switzerland, while its surplus in the service sector last year was $29.7 billion. Office of the United States Trade Representative.

Switzerland’s inflation rate is long, even Negative earlier this year. In July, the consumer price index was 0.2% compared to the same period last year.

Adrian Prettejohn, an European economist in European capital economics, told CNBC that as long as Switzerland’s key exports of drugs are not affected by tariffs, their impact on economic growth may be limited.

“We estimate that the current tariff rate is 39%, but GDP will be reduced by about 0.6% over the medium term due to drug exemptions. While this is important, it is not disastrous and does correspond to about three months of economic growth,” he explained.

However, Trump also told CNBC in an interview Tuesday that specific tariffs are targeting pharmaceutical sectors Can be up to 250% In the next 18 months.

The U.S. responsibility for pharmaceutical imports will be a major blow to Switzerland, a major hub in the global pharmaceutical industry. In 2023the life sciences field contributes 38.5% of Switzerland’s exports.

Prettejohn said the duties of a specific sector “could” bring the overall impact of U.S. tariffs on Switzerland’s GDP to more than 1%, and could be as high as 2%. ”

“Pharma is Switzerland’s most important export to date,” Torsten Sauter, head of Swiss equity research at Kepler Cheuvreux, said in a note on Monday. “Here, Switzerland’s dependence through U.S. pharmaceuticals is leveraged, but it must be carefully stomped – a mistake could cause a devastating 39% tariff, the most valuable sector.”

The currency, often seen as a safe haven asset during times of uncertainty or market turmoil, has risen about 11% against the U.S. dollar since the beginning of the year. It is Soaring value Always weighing inflation, prompting Swiss National Bank to increase Reduce its critical interest rate to 0% In June.

Sauter of Kepler Cheuvreux said on Monday that Swiss exporters are now facing a “triple blow”.

“The steep tariffs … will (will) be high in a weaker USD/CHF currency pair, and compete against neighbors, is unfavorable.”

EU recent A deal with the Trump administration This would impose a 15% tariff on cargo exports to the United States – much lower than the Swiss face.

Kamal Sharma, a strategist at Bank of America G10 FX, told CNBC on Wednesday that Trump’s trade policy puts Swiss National Bank in a “very, very difficult situation.”

“I think the biggest problem is that from a rate standpoint, the market is now starting to become more focused because negatives (rates) are always within range,” he said. “There is some concern that if the U.S.-Swiss trade agreement remains as it is, it means it will oppress the SNB to take further tolerant actions.”

Sharma said negative rates rarely increased inflation and weakened currencies in the past, and it is unlikely to stop the tariff hit.

The strategist added: “The more direct response that SNB may take is to look at, we need to offset this through engineering depreciation, and that’s what it makes the intervention come back to work. So now intervention is more likely than before.”

But this is not easy for Swiss policymakers. SNB intervention in the forex market leads to Switzerland is marked as currency manipulator In Trump’s first term, earlier this year, the country was added to the “surveillance” list of “trading partners,” and “monetary practices and macroeconomic policies deserve attention. ”

Trump’s tariff policy also takes into account any “currency manipulation and trade barriers.” Swiss officials denied allegations of intention to devalue the Swiss franc.

However, Sharma of BOA said that even if the SNB could “increase the anger of the U.S. government”, the SNB could tillage in terms of monetary intervention.

“In some ways,[they]have no more losses… they have to start thinking about the Swiss industry.”