Calls are mounting in Switzerland to suspend the OECD minimum tax in response to the new 39% US tariffs imposed by the Trump administration. Bourgeois parties in parliament see this as a necessary measure to enhance Switzerland's attractiveness as an economic hub, especially given Trump's market-destabilizing trade policies.

Switzerland adopted the OECD minimum tax in 2023 with an overwhelming 80% popular vote, aiming to combat tax evasion and aggressive tax competition between nations. However, the imposition of these high US tariffs, among the highest ever, raises serious concerns about the competitiveness of Swiss companies, particularly exporters.

While the Federal Department of Finance currently has no plans to withdraw the tax, political pressure is increasing. The Swiss People's Party (UDC), the FDP.The Liberals (FDP), and The Centre party argue that the United States is no longer adhering to international agreements, making the continuation of the OECD minimum tax unnecessary for the Swiss economy. They are calling for its suspension as a defensive measure for the Swiss economy.

Market Signals

Sectoral Impacts: The watchmaking, pharmaceutical, consumer goods, and machinery and metals industries are all facing significant potential losses. Pharmaceuticals are initially exempt, but there is a threat of higher tariffs if drug prices are not reduced.
Price Movements and Volatility: The Swiss stock market experienced a significant tumble upon opening following the tariff announcement, reflecting a direct negative market reaction.
Competitor Positioning Changes: Both the EU and the UK face significantly lower tariffs (15% and 10% respectively), placing Switzerland in an unfavorable competitive position.

Winners & Losers

Losers: Swiss exporters, their employees, and US consumers of Swiss goods who will face higher prices. Switzerland's reputation as a free-trading nation could be damaged.

Potential Winners: US domestic producers of competing goods, if they can fill the gap left by Swiss exporters.

Supply Chain Implications: The "Swiss-Made" regulations for watches limit supply chain flexibility. Companies may need to explore alternative sourcing for non-critical components.

Action Timeline

Immediate (24-48h): Intensify Swiss diplomatic efforts to present a "more attractive offer." Companies should monitor developments closely. Assess and manage inventory in the US.
Short-term (1-2 weeks): Monitor potential interest rate cuts by the Swiss National Bank in September. Re-evaluate "Swiss-Made" compliance in the watch industry.
Long-term: Monitor global developments in OECD minimum tax implementation and its ongoing impact on Switzerland's attractiveness.

Risk Assessment

Regulatory Risks: The primary risk is the imposition or escalation of US tariffs and failure to negotiate solutions.
Market Volatility: The tariffs have already contributed to stock market declines and currency fluctuations, with further volatility expected.
Geopolitical Tensions: The tariffs are part of a broader trend of increasing global trade friction and protectionism, which could lead to further retaliatory measures.

Key Indicators

Signal for Market/Industry: The US tariffs indicate a growing global trade protectionism trend, putting pressure on export-oriented economies like Switzerland.
Leading Indicators: Switzerland's diplomatic and economic response to these tariffs.

Regional Perspective

The US tariffs challenge Switzerland's notion of "splendid isolation" and exceptionalism, forcing the country to re-evaluate its neutral and detached stance. This shock could push Switzerland closer to the EU, as its current trade relationship with the US is increasingly seen as unfavorable compared to its European neighbors.

Immediate Implications

What Happens Next: Continued Swiss diplomatic efforts to present a "more attractive offer" to the US.
Time-Sensitive Opportunities or Risks: Strategic inventory assessment by companies in the US. Immediate impact on stock prices and export-oriented businesses.

What to Watch

US-Swiss Trade Negotiations: Outcome of diplomatic talks and any "more attractive offer" from Switzerland.
Pharmaceutical Sector Tariffs: Any US decision to extend tariffs to the pharmaceutical industry.
Swiss National Bank Monetary Policy: Any change in interest rates in response to the economic situation.
Global Economic Conditions: Global demand for luxury goods.
OECD Minimum Tax Implementation: Continued implementation, with the cross-border component (Income Inclusion Rule) effective January 1, 2025.

Analysis

The 39% US tariffs present a significant challenge for Switzerland, threatening its economic attractiveness and pressuring key sectors. While right-wing parties are calling for the suspension of the OECD minimum tax as a precautionary measure, the government is weighing the full implications. Switzerland's challenge is to balance the need to protect its economy and ensure its legal certainty, while maintaining its commitment to international agreements, particularly within the context of an evolving global tax regime.