Switzerland, one of the wealthiest countries in the world, is currently facing tariffs of 39 percent on most of its exports, with the notable exception of pharmaceuticals, which are traditionally exempt from trade battles due to their importance to public health. Swiss pharmaceuticals account for more than 40 percent of total exports, and 5.4 percent of the country’s gross domestic product, with companies like Novartis and Roche enjoying a worldwide reputation.
But the sector remains imperiled as it faces an investigation by the Trump administration, which has deemed pharmaceutical imports a potential national security risk. The White House has stated that one of its policy goals is to “permanently bring our medical supply chains back home” and the administration is now investigating whether foreign pharmaceutical manufacturers—including those in Switzerland—pose a risk to national security under section 232 of the Trade Expansion Act. A report by federal investigators, set to be delivered this fall, could prompt the president to impose tariffs of up to 200 percent on cancer treatments, diagnostic tests, and heart medication, all manufactured in Switzerland.
Switzerland’s other high-value industries are facing severe headwinds as well. The market for luxury watches, potentially the country’s most iconic export (depending on one’s fondness for chocolate and cheese), faces uncertainty. Anticipating the 39 percent tariff cliff, watch companies engaged in a “mad scramble” to get inventory out of Switzerland and into the U.S., John Shmerler, the CEO of the 1916 Company, a U.S.-based watch seller, told TMD. “We had about $10 million of goods outside the United States that we brought back, that we paid a little over a million dollars in tariffs to bring back in,” he said.
Even so, the average high-income U.S. watch buyer may not be particularly dissuaded by a double-digit percentage increase in prices. “Wealthy customers are still celebrating milestones in their lives, and they’re buying nice things,” Shmerler said. “They’re a little bit more resilient to this stuff.”
The Swiss economy isn’t just watches, chocolates, and pills, however. Switzerland also boasts a large number of small- to medium-sized companies proficient in highly specialized manufacturing—insulin pumps, release valves for automobile airbags, and the engine for the Mars rover. Some of those companies will be forced to pass on costs to their customers, Rahul Saghal, the CEO of the Swiss-American Chamber of Commerce, to TMD. “The big sector that’s losing out is a Swiss manufacturing industry that does not have the flexibility of a multinational company,” he said.
Tariffs could also mean a complete loss of the U.S. market for these companies. Blumer AG, a maker of cutting, punching, and banding machines (used for items such as labels, cards, and tax stamps), has in recent months received no orders from U.S. customers. “If the tariffs remain this high, there will be no new machine orders from the U.S.,” Blumer AG CEO Roy Bruderer said in a recent interview.
On the other side of the world, Sri Lanka’s economy is also heavily based on exports. But unlike Switzerland, its main exports are neither high-tech products nor luxuries. Its three largest exports are apparel, tea, and rubber, with clothing alone making up 40 percent of the country’s exports. And a few major major markets are key for Sri Lankan goods.
Last year a quarter of the country’s exports went to the European Union (which grants preferential trade partner status to the island), but another quarter went to the U.S. And, in July, the entire sector faced possible disaster as initial U.S. “reciprocal” tariffs were set at 44 percent.
Frantic diplomatic efforts from Sri Lanka ensued. After agreeing to a host of concessions, including cutting tariffs on the majority of U.S. exports to Sri Lanka and agreeing to purchase hundreds of millions of dollars’ worth of U.S. oil, the Trump administration reduced the tariff rate on Sri Lankan imports to 20 percent. That actually put Sri Lankan textile manufacturers in line with other major exporters: Bangladesh, Indonesia, and Vietnam are all subject to 20 percent levies, and Thailand and the Philippines’ tariff rates are set at 19 percent.
In fact, Sri Lankan exporters now also enjoy a major comparative advantage over those located in regional behemoth India, currently locked in a trade standoff with the U.S. and enduring a 50 percent tax on exports to the U.S. So it’s unlikely that Sri Lankan production would shift to another neighboring country, which is what manufacturers in Switzerland are now considering.
But a 20 percent rate still represents a significant increase from the previous average tariff level of around 4 percent. “Even with that, there’s a lot to absorb for these economies,” Farwa Aamer, the South Asia director at the Asia Society, told TMD. “These external shocks are hard to absorb,” she said, noting Sri Lanka’s reliance on securing international financing as it attempts to recover from a devastating 2022 recession and its relative lack of economic diversification.
Sri Lanka and Switzerland will both be engaged in the same task over the next few weeks: frantically trying to negotiate lower tariff levels. Swiss diplomats, who had previously been publicly optimistic about securing a favorable trade deal, are now tight-lipped about the progress of negotiations as they aim to finalize a new deal by the end of October. “I can simply tell you that the Federal Council remains fully committed to improving the tariff situation,” government spokesperson Nicole Lamon said Wednesday, declining to give further details.
In the meantime, the Federal Council, the cabinet that governs Switzerland, is working on crafting concessions that might induce the White House to lower tariffs. These concessions could include increasing defense spending, importing more planes and liquefied natural gas, and purchasing U.S. arms. Swiss officials have also stated the country will reduce regulatory burdens on Swiss companies. But they need to move quickly. In mid-August, estimates from the Swiss government showed that the country’s economy grew at only 0.1 percent, down from 0.8 percent the previous quarter, and engineering trade group Swissmem says that 30 percent of manufacturing companies are considering shifting production out of the country to other locations in the European Union, which faces an average 15 percent tariff rate. “We are currently in a dangerous downward spiral,” Swissmem CEO Stefan Brupbacher said on Tuesday.
Meanwhile, Sri Lankan negotiators—mindful that the country’s main export competitors face the same tariff rates—are still seeking to drive down the 20 percent rate. The country still remains on an upward trajectory from its severe financial crisis in 2022, with the central bank in recent weeks projecting a growth rate of 4.5 percent next year. It cautioned, however, that “external demand conditions” (i.e., U.S. tariffs) could potentially harm its ongoing economic recovery. And business leaders are trying to ensure against unreliable U.S. trade. “Sri Lanka needs to widen our trade beyond our traditional markets,” Yohan Lawrence, the chairman of the Exporters Association of Sri Lanka, said at a recent conference.
But as soon as either country reaches a new deal, the U.S. may decide to make another big move. On Tuesday, Trump wrote on social media that “With this TRUTH, I put all Countries with Digital Taxes, Legislation, Rules, or Regulations, on notice,” threatening further tariffs. If the White House ever decides that Sri Lanka or Switzerland falls afoul of that diktat, or any other ultimatum made by Trump, they may find themselves scrambling even more.
