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Swiss franc: a collateral victim of the trade war?
The foreign exchange market has recently been marked by a weakening of the Swiss franc, an unusual occurrence given its reputation as a safe haven during periods of economic or political uncertainty. This decline is largely explained by the United States’ decision to impose prohibitive tariffs of 39% on imports from Switzerland. This protectionist measure directly penalizes Swiss exporters, thereby reducing the trade surpluses that have historically supported the national currency.
The deterioration of these economic fundamentals is affecting investor expectations. They now fear a lasting weakening of the current account balance and mounting pressure on growth. In this context, the Swiss National Bank (SNB) may be prompted to intervene to stabilize the situation, with a return to negative interest rates not to be ruled out. From a technical perspective, the franc retains further downside potential against the euro, with a short-term target of 0.96.
Swiss economy on the brink of collapse?
On April 2nd, Donald Trump announced prohibitive tariffs on imports from most of the United States’ trading partners. Economists were shocked by the plan to impose a 31% tax on Swiss goods imported into the US After nearly four months of intense negotiations, most developed countries have managed to reach agreements with the US government, securing far more reasonable tariff rates.
Switzerland, however, is not among them. No deal could be reached with the Trump administration, and Swiss exports to the US are now subject to a punitive 39% tariff, the highest rate among developed nations.
While the method used to arrive at this figure is unclear, it is easier to quantify the potential impact of these duties on the Swiss economy if they are not promptly reduced. At present, around 40% of Swiss exports to the US are subject to the 39% tariff. Pharmaceutical products, which currently account for nearly 60% of Swiss exports to the US, are exempt for now and are undergoing separate review by the American government. How long this exemption will last is uncertain, especially as Donald Trump has openly expressed his intention to apply tariffs to medicines as well, with the aim of promoting domestic production in the US.
In their current form, these customs duties could shave 0.3% off Swiss GDP growth this year, with overall GDP expected to expand by between 1.3% and 1.5%, according to economists. The hardest-hit industries will be watchmaking, precision instruments, and machinery manufacturing. The repercussions will be felt not only by these companies but also by their local suppliers. Combined with a sharply stronger Swiss franc against the dollar in 2025, many products will become prohibitively expensive and far less competitive than their European counterparts. The consequences for the Swiss economic fabric are severe, and a rise in unemployment appears inevitable under current conditions.
If the pharmaceutical sector were to face the same fate as other goods, the GDP impact could climb to 0.7%. This would amount to a major economic setback.
How, then, can one explain the lack of reaction in the stock markets since the announcement? First, investors are clinging to the hope that these extreme tariffs are once again a negotiation tactic from Trump, and that they may be reversed once the Swiss Federal Council makes certain concessions. Indeed, a new, undisclosed offer has already reached the Oval Office.
Second, listed companies are generally less affected than small, private local SMEs, which have no means of relocating production to the US. These smaller firms are the primary victims of the current situation and will likely have to resort to short-time work schemes.
Finally, a significant share of the domestic stock market is not directly exposed to US tariffs. These are the stocks we strongly recommend prioritizing in the current environment. Notable examples include service companies such as financial institutions, which account for more than 20% of the SPI index. Domestic-focused companies operating exclusively in Switzerland also represent a substantial share of the indices. In addition, certain multinational exporters, such as Lindt or Nestlé, have long manufactured US-bound products locally in America.
While the current situation poses a serious threat to the domestic economy, uncertainty remains high. How long before these tariffs are eased? What fate awaits the pharmaceutical industry? For now, investors are favouring optimism and shifting into the least affected stocks, a move we have also implemented since April in our Swiss equity portfolios and investment funds.
This week’s figure: 15/8
Date on which Donald Trump and Vladimir Putin are expected to meet in Alaska to negotiate a ceasefire in Ukraine.
A peace agreement would be good news for risky assets, particularly European equities, which would benefit from reduced uncertainty.
Author
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Daniel Steck has nearly 25 years of experience in finance. After a first experience in financial analysis at Lombard Odier, particularly in the health sector, he continued his career at Reyl & Cie, as an analyst and portfolio manager. He joined Piguet Galland in 2018 as a senior manager and is responsible for the management of various thematic certificates and equity funds in Switzerland and North America.