Switzerland is counting the cost after not taking Trump seriously on tariffs

Switzerland faces mounting economic uncertainty as a looming U.S. deadline threatens to impose 39% tariffs on its goods, one of the highest rates announced by President Donald Trump, disrupting hopes of a trade deal and raising fears of job losses and recession in the export-reliant Alpine nation.

Switzerland is grappling with heightened tensions as a U.S.-imposed deadline for a trade agreement nears, with President Donald Trump announcing a 39% tariff on Swiss goods effective August 7, 2025, one of the steepest rates globally. The unexpected hike, up from an earlier 31% proposal, follows a contentious Thursday phone call between Swiss President Karin Keller-Sutter and Trump, where no agreement was reached, despite earlier optimism about a near-finalized deal. Swiss officials, including Keller-Sutter and Economy Minister Guy Parmelin, expressed disappointment, with the government seeking a negotiated solution to mitigate the economic fallout. The Swiss Federal Department of Economic Affairs noted that the pharmaceutical sector, a key export, may be exempt, though uncertainty persists due to Trump’s comments on drug pricing.

The tariff announcement shocked Swiss markets, with the SMI index dropping 1.7% before recovering slightly to a 0.4% loss by Monday afternoon. Industry leaders, including Jan Atteslander from Economiesuisse, warned that the 39% tariff could devastate businesses, particularly in sectors like watches, machinery, and electronics, potentially leading to significant job losses. Atteslander emphasized the U.S. as an irreplaceable export market, despite Switzerland’s efforts to diversify. UBS analysts described the tariffs’ impact on Swiss equities as “negative, but not destructive,” with watchmakers, medtech firms, and smaller export-reliant companies most vulnerable. London-listed Watches of Switzerland fell nearly 9% on Friday, reflecting market jitters.

Economists like GianLuigi Mandruzzato from EFG Asset Management highlighted an increased recession risk, with the tariffs affecting about 10% of Switzerland’s economy and exerting deflationary pressure. The Swiss National Bank, already at zero interest rates to counter deflation and a strong Swiss franc, faces further challenges. The franc, up 11% against the dollar this year, slid 0.4% on Friday. While some hope remains for last-minute negotiations, U.S. Trade Representative Jamieson Greer indicated the tariff rates are largely fixed, dimming prospects for immediate relief. Swiss officials are preparing a new offer, but analysts like Adrian Prettejohn from Capital Economics suggest a potential 0.6% GDP hit, or more if pharmaceuticals are included. The uncertainty underscores Switzerland’s precarious position as a small, export-driven economy navigating Trump’s unpredictable trade policies, with businesses bracing for a turbulent period ahead.