After the Trump election: why Switzerland now faces challenges
At the KOF Economic Forum, Stefan Brupbacher (Swissmem), Benno Keller (Switzerland Global Enterprise) and Hans Gersbach (KOF) discussed the question ‘Geopolitical tensions and bloc formations: does Switzerland need to realign itself?’. Moderated by Sina Freiermuth (SRF), an exciting debate developed on a highly topical subject.
The election of Donald Trump as US president, the ongoing wars in Ukraine and the Middle East, and snap elections in Germany: economic and political uncertainty is currently greater than it has been for decades. Given the threat of geopolitical blocs forming, neutral Switzerland is faced with the question of how to align itself in future.
Trump’s tariffs would mainly affect the United States itself
In his introductory speech, Hans Gersbach, KOF’s co-director, presented the results of the KOF trade model he developed in collaboration with Kieran Walsh and Paul Maunoir. This model suggests that the tariffs threatened by Trump during the election campaign (60 per cent on Chinese imports and 20 per cent on all other imports) would result in a loss of prosperity worldwide. The United States in particular – as well as neighbouring countries such as Mexico and Canada – would suffer from these tariffs.
These calculations show that Switzerland, as a small and open economy, would be hit harder than other European countries. The pharmaceutical industry especially – but also manufacturers of machinery, equipment, precision instruments and watches – would be adversely affected by the proposed tariffs. Hans Gersbach drew a clear conclusion from this: “Switzerland must position itself quickly and negotiate a renewal of the free trade agreement with China and discuss Trump’s potential tariffs with the US,” said Gersbach.
Trump introduced tariffs of 25 per cent on all imports from Canada and Mexico and an additional 10 per cent on imports from China, stipulating conditions as to when these could be removed. “This is probably the start of a stop-and-go trade policy in which tariffs are threatened or actually levied in order to achieve certain negotiation outcomes or geopolitical objectives,” suspects Gersbach. Provided Switzerland is not affected by tariffs or other trade barriers, it will not suffer any loss of prosperity as long as the global economic situation does not deteriorate.
The threat of geopolitical blocs
In his presentation, Benno Keller, Head of Corporate Development & Foresight at Switzerland Global Enterprise, outlined various scenarios of how international trade could evolve following Donald Trump’s election. A positive scenario with relatively smooth trade is possible, provided Trump’s tariff threats were merely rhetorical devices to gain an advantageous negotiating position for tariff agreements. Equally conceivable are negative scenarios such as the world splitting into two large geopolitical blocs (the US, Canada, Europe, Japan and Australia versus China and Russia) that no longer trade with each other.
Keller believes that the worst-case scenario would be a military confrontation between these two blocs, which could be triggered by China launching an attack on Taiwan, for example. There is also one possible scenario, however, in which trade barriers remain limited to certain product groups but diplomatic relations between these blocs are maintained.
The Swiss tech industry is being hit by the economic crisis in Germany
Finally, Swissmem director Stefan Brupbacher took a look at the geopolitical situation from the perspective of the Swiss tech companies. His analysis revealed that this industry is suffering from the economic crisis in Germany, which is by far the most important export market for the engineering sector, accounting for a share of over 23 per cent. The crisis in this neighbouring country is hitting Swiss automotive suppliers in particular, who are feeling the effects of ailing German car manufacturers such as Volkswagen, Daimler and BMW. EU bureaucracy and overregulation, which also affect Swiss suppliers, are weighing on the tech industry, claimed Brupbacher.
Singapore as a role model
The FDP politician made a series of economic policy demands. Firstly, he said, Swiss firms must be able to export almost anywhere in the world. The need to choose one of the geopolitical blocs must be prevented as far as possible – similar to the strategy adopted by Singapore, for example. Swiss industry must continue to produce essential goods, diplomacy must make Switzerland indispensable for the major powers, and Switzerland must exercise restraint in its foreign policy demands on emerging countries because “the entire world cannot copy the Swiss model,” according to Brupbacher.
This would enable Switzerland to remain under the radar of the major powers and to sign as many bilateral and free trade agreements as possible. A resolution of any potential tariff conflict must be sought with the United States. Following the abolition of industrial tariffs in 2024 and as a major investor in the US, Switzerland is in a strong position here. As far as its relations with the EU are concerned, Switzerland must ensure that it is treated like an EEA state with regard to protective tariffs.
There are grounds for optimism with this approach. A survey reveals that almost 75 per cent of all tech companies plan to invest in Switzerland in areas such as production capacity expansion and digitalisation over the next three years. “For its economy to thrive, Switzerland must return to its tried-and-tested economic model,” reckons Brupbacher. “The state should only set the economic framework and otherwise hold back on interventions such as granting subsidies to individual firms,” he added.
KOF Events
KOF’s next public event is KOF Beyond the Borders on 11 December, which will discuss the topic "Quo vadis Germany? Economic prospects and their impact on Switzerland" (in German, via Zoom). Registration and further information are available here.
Contact
KOF Bereich Zentrale Dienste
Leonhardstrasse 21
8092
Zürich
Switzerland
KOF Bereich Zentrale Dienste
Leonhardstrasse 21
8092
Zürich
Switzerland