Neutrality got the Swiss nowhere on tariffs
For Swiss drugmakers like Novartis, the stay of execution granted to the sector feels temporary, with a possible 25 per cent pharmaceutical tariff to come if no deal is done. Local media have compared it to the Swiss defeat at Marignano at the hands of the French in 1515.
This is obviously not an emerging-market-style crisis moment: Switzerland is one of the richest countries in the world, and Rolex watches are somewhat less price-sensitive than Volkswagen cars. The Swiss stock market, which quickly recovered early losses, is taking solace in the fact that 39 per cent feels like a blustery prelude to more concessions and a handshake. Already, the Alpine country is scrambling to offer more goodies to an irate US administration. One might imagine more EU-style pledges are coming, such as buying more US energy.
Yet, there are deep geopolitical doubts rocking the land of nine million, which has had its fair share of recent crises including the collapse of Credit Suisse in 2023. The shock stems from the abundance of confidence that Swiss leaders had in their ability to sweet-talk Trump, shying away from retaliation and making all sorts of positive noises from buying US jets to encouraging more Swiss investment across the Atlantic (Roche Holding AG says it will invest US$50 billion).
President Karin Keller-Sutter even claimed some credit for Trump's initial tariff climb-down in April. Her Midas touch, if it was ever there, has gone; some parties are using this as a chance to call for a more pro-EU political direction.
The humbling reality is that maybe this is not a negotiation after all but a test of strength as US economic policy goes full-on mercantilist – a test that Bern could never really win. The Trump administration sees Switzerland as a currency manipulator (the Swiss National Bank disagrees) that is ripping off Americans via a US$38 billion trade surplus in goods, even if a huge chunk of this is gold bullion refining. Switzerland seems to have played up its small size, happy neutrality and dependence on the US as plus points in trade talks – failing to realise that playing nice with a bully can also have costs.
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Making matters worse is the collective action problem that seems to be plaguing the entire European continent, if not the world. Last month, the Kiel Institute published a proposal to counter the misguided economics of Trump's tariffs with a coalition of countries representing 50 per cent of goods exports to the US, including the EU, Canada and South Korea. The proposed retaliation would be concentrated and powerful enough to get the US to blink.
Yet, we seem to be getting further away from such a scenario, with Switzerland the latest example of a country that could only have made a difference as part of a larger bloc including the EU. Even knowing the likelihood that collective action would work better than every market going its own way, the urge will always be to negotiate separately in the hope of getting a better deal than your neighbour.
Whatever happens next, the message can't be just business as usual. Pharmaceutical industry consultant Lawrence Lynch reckons one silver lining of a lose-lose tariff fight for drugmakers would be a stronger and more integrated European market and more diversification away from the US to make up for higher barriers.
And as for the politicians now preparing for subsequent rounds of arm-twisting over trade, there should be a recognition that the turmoil is just getting started. Dodging a bullet today doesn't mean escaping another tomorrow. BLOOMBERG
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