| Source: KOF Economic Institute
With the memorandum of understanding now in place and tariffs set at 15%, the economic outlook for Switzerland is improving. The reduced tariff rate is likely to boost Swiss gross domestic product (GDP) by between 0.3 and 0.5%, according to calculations by the KOF Institute. However, considerable burdens and risks remain. Like other countries, Switzerland has now also managed to reach a so-called “deal” with the Trump administration. As is usual with such agreements, there are clear agreements and a series of declarations of intent for the time being. As with the other agreements, this is far from being a legally binding agreement. “For the Swiss economy, the most important figure in this declaration of intent is the new customs duty rate of 15%,” emphasises KOF Co-Director Hans Gersbach. This rate applies to sectors for which a customs duty rate of 39% applied to goods exports to the US, with separate additional rules for various products. The timing of the tariff reduction is not yet known, but is to be agreed in the coming weeks. Switzerland is making a series of commitments for investments by Swiss companies and investors in the US totalling 200 billion US dollars by 2030 and market openings for agricultural products from the US. “The new tariff rate brings relief, but considerable burdens and risks remain for the Swiss economy,” says Hans Gersbach, assessing the memorandum of understanding. The impact of tariff relief This tariff reduction significantly improves the economic outlook in Switzerland. The KOF Institute expects an annual increase in GDP of between 0.3% and 0.5% compared to a tariff rate of 39%. This means that the seasonally adjusted economic growth forecast for 2026, currently estimated at 0.9%, will once again be well above 1%. If the 39% tariff rate had remained in place for a longer period, the KOF Institute estimates that 7,500 to 15,000 full-time jobs in Switzerland would have been at risk in the affected sectors of mechanical engineering, precision instruments, watches and food. “With a tariff rate of 15 per cent for the affected industries, various special regulations and the application of MFN tariffs for individual product categories, the majority of these jobs are now no longer at risk. However, it should not be forgotten that a 15% tariff on certain goods exported to the USA also affects economic performance in Switzerland,” says KOF Co-Director Gersbach. This tariff reduces GDP by almost 0.2% per annum compared to its potential level, resulting in an average loss of income of around CHF 150 per Swiss citizen per year. The remaining tariff rate continues to have a significant impact on the industries affected. The watch industry, precision instruments, mechanical engineering and, to some extent, the food industry are particularly affected. In these industries, there are companies with a high proportion of exports to the US which, given the current exchange rate development, will have to reduce their exports to the US if their market power is not significant. Nevertheless, the so-called second-layer effects are not high, as EU countries have been subject to the same tariff rate for their goods exports to the US. “Also that Switzerland has the same tariff rate as the EU is strategically appropriate”, says Hans Gersbach. Significant additional risk for the pharmaceutical industry There is a significant risk due to the US administration's efforts to lower drug prices in the US and the pharmaceutical industry's promise of massive investments in the US. The Section 232 investigation launched in April 2025 covers pharmaceutical products, active ingredients and derived products, regardless of their country of origin. The major pharmaceutical companies received a letter from the US government some time ago asking them to submit proposals. The first pharmaceutical companies, such as Pfizer and AstraZeneca, have already made a “deal” with the US administration. “In order to avert possible tariffs, the two major pharmaceutical companies Roche and Novartis would have to put together a package similar in thrust to the agreement reached by Pfizer and AstraZeneca. Pfizer's agreement with the US government dated 30 September 2025, for example, stipulates that Pfizer will significantly reduce its drug prices – especially for the state Medicaid programme – and in return will be exempted from the threatened tariffs on imported pharmaceuticals,” explains Gersbach. Pfizer has also committed to investing heavily in research, development and production in the US in order to expand local capacity. The pharmaceutical industry is an important sector in Switzerland and has been the main driver of GDP growth for many years. Today, the pharmaceutical sector accounts for around 6% of Switzerland's GDP, and around a quarter of the value added by industry and construction comes from the pharmaceutical industry. The current risks in this sector – potential tariffs, massive shifts in value added to the US and abroad, restructuring of supply chains and reduced investment in Switzerland – therefore also pose considerable economic risks which, depending on the scenario, could reduce GDP growth in the coming years to a lesser or greater extent. Even if the potential for production shifts is limited in the short term, these shifts are expected to significantly reduce the pharmaceutical industry's exports to the US in the medium term. It is also foreseeable that the strong growth of the pharmaceutical sector in Switzerland will come to an end and that stagnation is not a pessimistic scenario. Further commitments The Swiss government's other commitments in the deal involve either no or only minor additional economic costs if they were already planned or if the Swiss economy is only marginally affected. “Additional costs could arise if, due to the threat of tariffs, very high investments in the US by Swiss companies lead to lower investments in Switzerland, which are central to capital formation and technical progress in Switzerland,” says Hans Gersbach, assessing the further commitments. “The investment commitments of USD 200 billion are enormous, and direct investment by Swiss companies in the US would have to multiply over the next five years and be massive by 2026. This will not be without negative repercussions on investment in Switzerland. It is also unclear what would happen if private actors who have promised to invest ultimately did not or could not do so,” Gersbach continues. Market concessions for import quotas in the agricultural sector will not play a major role in the overall economic context. Furthermore, the expectation that the relocation of gold processing could significantly reduce Switzerland's trade surplus with the US in goods trade is not high, as there has been no surplus in gold trade with the US for many years, with a few exceptions. It is essential that the agreement does not include any link to American rules on export or investment controls and sanctions. “If Switzerland had done so, it would have sold its identity,” concludes Hans Gersbach. However, it remains to be seen how much power the various declarations of intent published by the White House, including in the area of cooperation on export controls and sanctions, will have. |