Switzerland's go-it-alone approach tested by Trump tariff shock
It's a choice between "freedom and serfdom,' Marcel Dettling says before tossing the treaty documents onto a bonfire.
The trouble for Dettling and Switzerland's other EU naysayers is that the alternative vision of a nimble nation trading freely with the rest of the world isn't looking so good anymore. On the day the video was released — Aug. 1, Switzerland's national day — the White House delivered a bombshell by announcing the country would face tariffs of 39% on all exports to the U.S., among the highest anywhere in the world.
President Karin Keller-Sutter arrived in Washington on Tuesday as she and her colleagues race to get Donald Trump to reconsider. They don't have much time, with the levies due to kick in on Thursday.
Helene Budliger, one of the chief negotiators for Switzerland, held a phone call with business representatives on Monday. She told them that Switzerland's main goal is to get the overall tariff number down, but didn't reveal any potential concessions it might make, according to people briefed on the call.
Budliger also received a clear message from businesses: there's no substitute for the U.S. market.
EU tension
While the Swiss try to figure out how to deal with Trump and the U.S., the episode has cast a new light on the country's relationship with the EU. That's long been a divisive issue, with arguments about trade and economic benefits clashing with concern about immigration and sovereignty.
For the pro-EU voices, the chaotic back and forth with the U.S. will give them fresh reason to push the benefits of ties with the bloc, particularly as it secured a far better 15% rate.
"This will undoubtedly strengthen the camp of those who argue that Switzerland needs to move closer to the EU,' said Rene Schwok, a professor of political science at the University of Geneva. "Their argument is that the EU is a much more reliable partner than the U.S. and China.'
Swiss President Karin Keller-Sutter is in a race against time to negotiate with U.S. President Donald Trump about tariffs of 39% on all exports to the U.S. before they kick in on Thursday. |
REUTERS
Keller-Sutter and her officials had expressed confidence right up until late last week that they'd secured a far better deal with the U.S. But it all fell apart at the end during a phone call with Trump. Critics say she didn't have anything to offer and came unprepared to the negotiation table.
The U.S. president sees his country's $39 billion trade deficit with Switzerland as tantamount to theft, and didn't appreciate being told otherwise by Keller-Sutter.
"I don't believe that the U.S. is a reliable partner under this presidency,' said Andri Silberschmidt, a Liberal lawmaker and member of Keller-Sutter's party. "As a small nation, we are dependent on reliable partners who abide by agreements.'
Switzerland is in the midst of a separate debate on an agreement with the EU that it hammered out late last year and is due to go to a national vote. In a survey — conducted before Trump's self-declared Liberation Day announcement on tariffs — 47% of Swiss respondents were in favor, while 35% were against it.
It's not just the upending of global trade that is pushing the Swiss to rethink how it works with the EU. The director of the government agency responsible for military procurement said in June he's seeking closer collaboration with European neighbors as global demand for weapons surges and the nation's own defense industry falters.
Such ideas are among many in recent years that have angered Dettling and the Swiss People's Party.
Switzerland's decision to embrace EU sanctions on Russia shortly after its full-scale invasion of Ukraine in 2022 was a watershed moment. The European Commission had urged Switzerland to follow its lead on punishing the Kremlin, noting that although not an EU member state, it's still "part of Europe.' Switzerland took the hint.
Then last August, an independent panel recommended the government deepen military cooperation with the EU and NATO.
That prompted a backlash from Dettler's party, which called it an attempt to "destroy Swiss neutrality.'
Jacob Funk Kirkegaard, a senior fellow at the Bruegel think tank, says the shift away from strict neutrality is a sign of the times.
"NATO might be a stretch, but this might push Swiss to pursue an even closer economic relationship with the EU,' he said.
Banking
All this is happening as Switzerland's flagship financial-services sector is under pressure after the collapse of Credit Suisse, as well as growing competition from other financial hubs in Asia and the Middle East.
There have also been painful reforms in the wake of the collapse. These are seen as necessary by the government, but viewed by the one remaining first-tier lender, UBS Group AG, as so detrimental that it has considered moving its headquarters out of the country.
To be sure, Switzerland's low unemployment, low inflation economy is robust enough that it could withstand the 39% tariff hit. If pharmaceutical exports were included at the unchanged rate, this would translate to a hit of at least 0.7-percentage point hit to the economy, according to Hans Gersbach at KOF economic research institute in Zurich.
If drug exports were excluded, the hit would be between 0.3 and 0.6 percentage points. That would be a harsh blow but not enough to tip the economy into recession.
Still, that would jeopardize "tens of thousands of jobs' in key manufacturing industries, said Stefan Brupbacher, director of trade group Swissmem.
However Keller-Sutter's last-minute bid in Washington works out, the lesson for Switzerland is that it needs to realize it's not in the same league as the U.S., China or the EU but a small player.
This may push the Swiss to reconsider the advantages of "splendid isolation,' Kirkegaard said.
"When the elephants are dancing, the mice get trampled and that's a little bit of what's happened here.'
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