Swiss stunned by US tariff hike, seek negotiated solution

Highlights:

• US announces 39% tariff on imports from Switzerland
• Swiss manufacturers say tens of thousands of jobs at risk
• Talks to continue ahead of August 7 introduction

Swiss manufacturers warned on Friday that tens of thousands of jobs were at risk after US President Donald Trump hit them with one of the highest tariff rates in his global trade reset, even if there was some relief for now for the key drugs sector.

The government said it was "disappointed" and would decide how to proceed after Trump set a 39% tariff on the export-reliant country - more than double the 15% rate for most European Union imports into the United States.

The levy - up from an originally proposed 31% tariff that Swiss officials had described as "incomprehensible" - is a body blow for the small Alpine nation, which counts the US as the top export market for its pharmaceuticals, watches, machinery and chocolates.

The White House said on Friday it had made the move because of what it called Switzerland's refusal to make "meaningful concessions" by dropping trade barriers.

"Switzerland, being one of the wealthiest, highest income countries on earth, cannot expect the United States to tolerate a one-sided trade relationship," a White House official said.

Swiss President Karin Keller-Sutter earlier told Reuters the government would keep talking to Washington, but there were only limited concessions it could offer, as US imports already enjoyed 99.3% free market access.

"We have companies that have made very important direct investments (in the US). It's really difficult to give more," she said on the sidelines of a Swiss National Day event in Ruetli.

Keller-Sutter said the government was disappointed, with the 39% tariff "much higher" than what had been negotiated following "very constructive talks" with Washington in July.

Swiss media had reported that the government had expected a rate of around 10%.

Switzerland's main export to the US is pharmaceutical products - worth $35 billion last year - though officials said drugmakers should not be affected by the higher rate for now.

Swissmem, a group representing the mechanical and electrical engineering industries, said it was "really stunned" by the US move. "It's a massive shock for the export industry and for the whole country," said its deputy director Jean-Philippe Kohl.

"The tariffs are not based on any rational basis and are totally arbitrary ... This tariff will hit Swiss industry very hard, especially as our competitors in the European Union, Britain and Japan have much lower tariffs."

The US is Switzerland's top foreign watch market, accounting for 16.8% of exports, or about 4.4 billion francs, according to the Federation of the Swiss Watch Industry.

Shahzaib Khan, who runs two businesses selling Swiss luxury watches abroad, said the tariffs were "hard to digest".

"This is getting out of hand a little bit... I don't think brands can absorb 39%," Khan told Reuters.

The new rate is set to take effect on August 7, and a Swiss source familiar with the matter said negotiations would continue.

UBS Global Wealth Management's Chief Investment Office said its base case remains that Switzerland would eventually reach a deal similar to the one secured by the EU, which had 15% tariffs on imports to the United States.

"We expect weak growth but no recession for the Swiss economy in the coming quarters," it added.

PHARMA STILL FACES THREAT

There was some respite for the pharmaceuticals sector, which includes industry giants Roche and Novartis, as they were not included in the 39% rate.

"Swiss authorities understand that the tariffs should not include the pharmaceuticals sector," a spokesperson for the Economy Ministry said.

The sector still faces the possibility of separate levies.

Pharmaceuticals have historically been spared from trade wars due to the potential harm to patients. But Trump has said he wants to reduce the industry's reliance on foreign-made drugs and bring prices down.

He has launched a Section 232 national security investigation into the pharmaceutical sector worldwide, with a decision on whether to impose separate tariffs on that sector expected in the coming weeks. Trump said in July those duties could be as high as 200%.

Scienceindustries, a Swiss business association of more than 250 chemical, pharmaceutical, biotech and other scientific firms, warned that the chemical and pharmaceutical industry could still be affected by these tariffs.

"Pharmaceutical products are part of complex, globally interconnected supply chains. New tariffs would place a heavy burden on these structures, with growing uncertainty for companies and serious risks to the supply of vital medicines, particularly in the USA," the association said in a statement.

SHIFT IN STATEMENT

Trump's announcement differs significantly from a joint draft statement approved by the Swiss government on July 4 after intensive talks with the US, the finance ministry said in a statement, without giving details.

Swiss officials have been waiting since then for a sign-off on what was understood to be a preliminary framework for a deal, according to a person familiar with the matter.

Keller-Sutter, who also serves as finance minister, and Economy Minister Guy Parmelin had visited Washington to press their case; Switzerland is the seventh-largest investor in the United States.

Switzerland sent about 65 billion Swiss francs of goods to the United States last year, or about one-sixth of its total exports, giving it a goods trade surplus with the US of almost 38.7 billion francs. In services, it had a deficit of nearly 20.4 billion francs.