Switzerland warns its companies that no, they can't dodge Trump's tariffs by routing goods through the tiny neighboring country of Liechtenstein

Yahoo

2 days ago

Switzerland and Liechtenstein have long shared an economic market, but President Donald Trump has imposed a steep tariff on Swiss goods compared to its Liechtensteiner neighbors. The Swiss government has clarified that Swiss businesses will be unable to reroute their products through the neighboring principality. The Trump administration recently implemented a 40% tariff on transshipments, or the movement of goods to an intermediate destination ostensibly with lower levies, to disincentivize this behavior.
The Swiss government is telling its domestic companies that they have not, in fact, found a clever way to skirt President Donald Trump's tariffs by routing goods through the tiny neighborhood country of Liechtenstein.
Switzerland and Liechtenstein share a 102-year-old customs treaty allowing the 25km-long principality to share the Swiss economic area. But that agreement, which makes it nearly impossible to measure trade between the two closely linked countries, does not mean they are tariffed similarly. While U.S. tariffs on Swiss exports swelled to 39% in Trump's latest round of tariffs, levies on goods from Liechtenstein are only 15%. The Swiss State Secretariat for Economic Affairs (SECO) has said Swiss firms cannot pass off goods as Liechtensteiner by routing them through the principality because they would still be recognized as Swiss in origin.
'Such circumvention via Liechtenstein is fundamentally impossible. The United States applies its non-preferential rules of origin when levying additional tariffs,' a SECO spokesperson told Fortune in a translated email statement. 'For a product to be considered 'Liechtenstein origin,' it must either be entirely manufactured in Liechtenstein or [have] undergone sufficient processing.'
Liechtenstein head of government Brigitte Haas said last week there's concern, though improbable, of Swiss companies looking to Liechtenstein for ways to dodge import taxes, but the risks are high.
'There's a fear that there might be some circumvention, but those are subject to a 40% tariff,' Haas said in an interview with Swiss outlet SRF. 'I hardly think anyone would want to go through that.'
Trump's transshipment crackdown
Last month, the White House imposed a 40% penalty tax on 'transshipments,' or the movement of goods to an intermediate destination, meant to disincentivize this particular behavior.
The Trump administration is aware that countries with lower reciprocal tariff rates than its neighbors are incentivized to reroute their products, according to Robert Lawrence, Albert L. Williams Professor of International Trade and Investment at the Harvard Kennedy School. For years, China has used Mexico and Vietnam, among other countries, as transshipment bases prior to exporting goods to the U.S., according to a Brookings Institute report from June. These transshipments are having meaningful impacts: As China's trade surplus with the U.S. decreases, it has been completely offset by the increase in its trade surplus with other trading partners, the report found.
While the transshipment penalty was meant to address China, Lawrence told Fortune, it would apply to any country engaging in the behavior—despite some experts arguing the order lacks key details that would help enforce it.
'It was really important with the response to China,' Lawrence said. 'But there's always this incentive to arbitrage between countries who are close to one another but have differentiated tariff treatment.'
High stakes in Switzerland
With Switzerland and the U.S. failing to come to a trade agreement before the Aug. 1 deadline, Swiss companies now fear Trump's steep tariffs could roil domestic businesses, particularly in the industrial machinery, cheese, and chocolate industries. While Switzerland may rely on the U.S. as a key importer, the U.S. may be able to find suitable alternatives elsewhere, Lawrence said, putting the onus on Swiss companies to absorb the cost of tariffs in order to keep prices competitive in the U.S. market.
Liechtenstein could likewise suffer, according to head of government Haas, who said last week that although the principality has stopped trade negotiations with the U.S. and accepted the 15%, Switzerland's economic health could waver and impact Liechtenstein, which counts Switzerland as its domestic market. Haas also said many Liechtensteiner products don't list Liechtenstein as their certified place of origin, leaving uncertainty about how explicit the U.S. was in outlining the reciprocal tariffs for the principality.
U.S. consumers could meanwhile begin to feel the impacts of these steep reciprocal tariffs, responding differently to the alternatives available from other countries, should Swiss imports no longer be as readily available or affordable. For example, according to Lawrence, U.S. consumers may now buy more Cadbury chocolate from the UK—where tariffs sit at 10%—despite not finding the product as appealing as Swiss chocolates, but because it's theoretically cheaper and more abundant.
But these ramifications are about more than just chocolate.
'There's going to be a lot of inefficiency,' Lawrence said. 'Americans are going to buy inferior products.'
This story was originally featured on Fortune.com
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