The U.S. recorded a $38.3 billion trade deficit with Switzerland when accounting for goods, and a $29.7 billion surplus in the services realm last year, according to the Office of the United States Trade Representative.

The problem for affected companies is that they have suddenly become less competitive than their rivals – the US tariffs on Swiss exports are much higher than for competing products from the European Union (EU), for example.

Companies in the watchmaking and machine industries, as well as chocolate and cheese manufacturers, have meanwhile already had several months to prepare for the tariff hikes. They have used this time to fill their warehouses in the US, where a lot of goods are now stockpiled – having been imported at a lower tariff rate. Companies are also reorganising their supply chains. They can produce more locally or expand production in the US. But this will naturally take a lot of time.

What does it means for the watchmaking sector

“In Neuchâtel alone, where much of the industrial activity is tied to watchmaking, the tariffs affect over 32,000 full-time equivalent jobs,” said Florence Nater, Neuchâtel’s Minister of Economy. A similar situation is unfolding across the Vallée de Joux – from Geneva to Schaffhausen – home to the core of Swiss watchmaking.

Affected cantons are already planning for a rise in unemployment and are demanding the extension of short-time work (RHT) schemes. This measure allows companies to temporarily reduce or suspend operations without terminating employment contracts. It’s generally used in times of economic hardship to prevent mass layoffs.

“We shipped much more product to the United States, so this means there is not an immediate impact on us. In short, the entire industry took similar action. As a result, most brands should be able to stay afloat through year-end – but the solution is only temporary”: Nick Hayek, Swatch Group CEO, Reuters.

Absorbing cost?

Depending on the price point and brand positioning, the only options are: reduce brand margins, pressure distributors and retailers to cut their margins, and pass the remaining cost to the end customer.

There are three levers to be pull: increasing efficiency, reducing margins – including at the retailer level – or raising prices, not only in the U.S. but globally, in order to offset the additional costs resulting from the imposed tariffs.

Relocation is not an option due to Swiss Made Label

While some companies in the industrial and pharmaceutical sectors are considering relocating production to the U.S. or investing heavily there, this is not a viable path for the watch industry. As Nick Hayek explained to Reuters: “We produce everything in Switzerland, not in China. And we have a high cost. Swiss-Made regulations require at least 60% of production in Switzerland, making relocation of the production impossible, at least if still using the Swiss-Made norm.

Mexico could benefit from tariffs imposed on Switzerland

The proximity between the United States and Mexico could be beneficial for the watch industry. In 2024, Mexico welcomed approximately 14 million American tourists, representing a new record for the country and a 7.4% increase in the number of American tourists compared to the previous year, according to data from the Ministry of Tourism (SECTUR) and El Financiero.

Based on these data and the connectivity that exists between our country and the United States, we could hypothesize that one of the solutions to the tariff imposition could strengthen the Mexican market by redirecting more watch imports to domestic outlets, such as Ultrajewels, which also has strategically located outlets in tourist and border destinations such as Cancún, Monterrey, and Los Cabos.