Switzerland finds itself in a delicate economic bind, facing the possibility of U.S. tariffs on its key exported pharmaceuticals. Only recently, the Swiss National Bank (SNB) went public with its alarm at American trade policies. They emphasized the impact of policies implemented during former President Donald Trump’s administration. The consumer price index for July showed a rather anemic 0.2% rise compared to one year ago. At the same time, the country faces an ongoing humanitarian crisis that threatens to further erode its economic resilience.
The pharmaceutical industry is key pillar of the Swiss economy, counting for around 38.5% of all exports in 2023. Imposing a large tariff on these products would jeopardize this vital industry. It would do permanent harm to the Swiss economy. The current deadly tariff rate is 39%. Economic analysts expect it to reduce the nation’s GDP by more than 0.6% in the medium term.
Swiss President Karin Keller-Sutter shrugged off Trump’s worries about the U.S. trade deficit with Switzerland. Last year, that deficit reached $38.3 billion in goods, even as the U.S. benefited from a $29.7 billion surplus in services. Given the rising trade tensions, this obstinacy is likely to strain bilateral relations between the two countries even more.
The SNB’s predicament has become more pronounced as it grapples with the ramifications of Trump’s trade policies. The bank now finds itself in a “very, very difficult situation,” which is exacerbated by the looming threat of tariffs and Switzerland’s prior designation as a currency manipulator during Trump’s first term. The country was later put onto a “Monitoring List,” signaling that its currency practices require closer observation.
Swiss inflation has largely been under control, with inflation even going negative earlier this year. Muted inflation and slow onward economic growth will likely pose sharp challenges for the SNB’s monetary policy. Despite this surge in scheduled spending, the economy grew by just 0.5% in GDP during the first quarter of 2025.
Swiss exporters nonetheless can’t escape the unique challenges created by never-ending trade negotiations. For one, they’re being hit by a “triple blow,” with new tariffs being the biggest worry for their businesses. The SNB should think about recalibrating or deploying other tactics to soften the blow, such as allowing for currency depreciation. Kamal Sharma, a G10 FX strategist at Bank of America, commented on this possibility:
“The more direct response that the SNB could take is to say, look, we need to offset this by engineering some currency depreciation, and what that does is that it brings intervention back into play. So intervention now is more likely than it was before.”
The Swiss Franc, Switzerland’s currency, is up about 11% versus the U.S. dollar year-to-date. This newfound appreciation is fueling changes to market forces. The rising value of the Franc could make things even more difficult for export competitiveness, especially for sectors that rely heavily on global markets.
Economists have expressed concern about the path forward for the SNB and Swiss industry as they navigate these turbulent waters. Syz Group’s Chief Investment Officer highlighted growing apprehensions among market participants regarding negative interest rates:
“I think the big issue is that from a rates perspective, the market is now starting to get a little bit more concerned, because negative [rates] is something that’s always on the horizon.”
Fears of protectionism are spreading over the pending U.S.-Swiss trade accord. If unchanged, this could compel the SNB to adopt a more dovish tone.
“There is some concern that if the U.S.-Swiss trade deal stays as it is, it means it’s going to press the SNB into further accommodative action,” said Syz Group’s CIO.
The Swiss government has taken a “very constructive stance” in negotiations with U.S. officials, but the stakes are still quite high. Torsten Sauter, head of Swiss equity research at Kepler Cheuvreux, reflected on Switzerland’s position:
“Here, Switzerland has leverage via US pharma reliance, but it must tread carefully — one misstep could trigger a devastating 39% tariff on its most valuable sector.”
Adrian Prettejohn, an economist at Capital Economics, called attention to the short-term GDP loss forecast. Though momentous, he thinks it won’t necessarily spell the end days.
“We estimate that the current tariff rate of 39%, but with exemptions for pharmaceutical products, would reduce GDP by around 0.6% in the medium term. While this is significant, it is not catastrophic; indeed, it is equivalent to around only three months of economic growth.”