Expertise

Impact of the United States trade battles for Swiss MEM companies

The United States represent the second largest export market for Switzerland. 30% of Swiss exports are generated by the MEM industry, of which 13.6% are going to the US. Read here about the outcome of the presentations and panel discussions from the event co-organized with Swissmem “Impact of US politics and trade battles for Swiss MEM companies”.

Washington D.C.

Swiss trade relations with the USA

The USA represent the second largest export market for Switzerland (CHF41 billion in goods for 2018; CHF27 billion in services for 2017). 30% of Swiss exports (total CHF220 billion) are generated by the MEM industry, of which 13.6% are going to the US. Continuous growth (9.5% in 2018) indicates that, despite its mature market, the US continues to hold a significant potential for Swiss industry.

Whereas the US counts as the third largest foreign direct investor in Switzerland, Switzerland ranks as seventh foreign direct investor in the US, another proof of the tight economic relations with the US.

Government representatives from both sides hold regular meetings - some jointly with EFTA - to discuss trade policy and investment cooperation. Federal Councilor Parmelin recently conducted exploratory talks regarding a free trade agreement between Switzerland and the United States. Though generally interested in crafting bilateral agreements, the unresolved trade dispute with China currently remains a higher priority for the US.

US global trade policy

US trade policy generally attempts to reduce its global trade deficit ($621 billion in 2018 - 3% of GDP with export of $2.5 trillion - 12% of GDP). The US administration claims that unfair trade has harmed US workers and businesses. The current tariff initiatives, targeted primarily at China, are taken under national security measures. Currently, only a small part of US imports are subject to tariffs and for many products these rates are lower than for imports into the trading-partner countries (e.g. cars imported into the US are taxed at a lower rate than American cars imported into other countries). While defending global trade and the reduction of tariffs, as per the view of the US administration, trade should be conducted on an equal playing field.

Impact of US policy for Swiss MEM companies

The impact on Swiss trade with the US can be considered as “collateral damage”; for example, as with the tariffs on steel and aluminum (25% and 10% respectively, some exemptions granted). Broad-based measures by the US impact Swiss suppliers despite the unlikely threat to US national security. Other impacts that are felt by Swiss MEM companies are due to indirect consequences from non-US markets, such as the EU taxing metals as a response to US measures. Nevertheless, Swiss companies with specialized niche businesses survive the turbulences relatively well. The common denominator of competitivity and innovation for the two economies, very different in size, contribute to prosperous trade relations.

In some cases, US measures can force an adaptation of the supply chain. As one Swiss company explained, they are considering reversing part of their product flow. Instead of shipping components to China for further assembly and final export to the US, machine components made in China will be sent to Switzerland for assembly and exported to the US. Subsequently, Chinese subsidiaries of Swiss companies are faced with greater difficulties to export to the US.

General business issues to consider for the US market:

  • US market development requires a vested investment and an active presence through representation by partners (distributors, specialized agents) or with an own legal entity.
  • MEM areas are concentrated in the Great Lakes area, in the South-East, Texas and California.
  • Customer service and after-sales service is of utmost importance.
  • In most cases, public tendering requires a local representation.
  • Product liability issues need to be considered and mitigated, a good place to start is consulting a US attorney, following US regulations for all products and including the US and Canada into product liability insurance policies.
  • The tax situation requires special consideration (transfer pricing, local tax rules, etc.) and should be looked at together with a CPA (Certified Public Accountant).
  • It is advisable to hedge the dollar exchange risk.

Would you like to learn more about the MEM industry in the USA?

If you would like to further evaluate the challenges and opportunities in the US-market without any further obligation, please get in touch with our Consultant USA & Canada, Annina Bosshard.

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