Mr. Adler, exports are vitally important for the Swiss economy (they account for a good 40% of GDP), and the coronavirus crisis has had a major impact on international trade. What is your assessment of the current situation of Swiss companies? What prospects do you see?
That varies significantly from one industry to the next and is therefore not easy to answer. In addition, the picture is likely to change quite quickly over time: We know that the pharmaceutical industry has hardly been affected by the crisis, and has even benefited in some cases. On the other hand, the MEM industries were directly and severely affected, especially component suppliers to the German automotive industry. Now that demand is picking up again and the German government has even approved subsidies for car purchases, the situation could improve again relatively quickly. In the capital goods sector, the recovery could be delayed because in many countries, not least in the US, companies will remain cautious about investment for some time to come. But I expect the situation to improve across the board as the economic recovery progresses, which we are already at the beginning of.
How can Swiss companies survive in this economic environment?
In my opinion, there are hardly any generally valid recipes for success.
Basically, it’s certainly a question of good customer relationship management and using the time to review one’s position in the market.
Both are probably a matter of course for most companies. The rest is due to external circumstances at the moment; there is not much a company can do about that. Companies are dependent on the decision making of governments in different countries and the general economic trend.
In an interview with us two years ago, we talked about protectionism, and today the topic is once again highly significant: How do you assess the situation for Swiss exporters, and what are the biggest challenges facing companies operating internationally?
Protectionism is and remains an important topic. The US-China trade dispute has not been resolved and could even worsen again. Although Swiss companies are sometimes indirectly affected by this conflict, the conflict is essentially bilateral. Overall, the framework conditions for internationally active Swiss companies are fairly stable.
At the beginning of the pandemic, the situation deteriorated somewhat when some countries restricted exports of medical protective equipment. But the opposite was also seen. For example, Roche benefited from an accelerated FDA approval process for coronavirus testing in the US. For our SMEs in particular, it remains crucial that they have good access to the EU market even after the crisis. As long as we can maintain or even manage to improve this access and conclude additional free trade agreements, the position of our exporters is likely to be strengthened. In principle, I believe that the much-cited change brought about by the coronavirus will perhaps not be as sweeping as some people think. The other issues that were already at the forefront before the crisis are actually more important.
While Switzerland’s most important trading partner is the EU, markets like the US and China are also very important. How do you see the future for trade by Swiss companies in and with these markets?
As I have already mentioned, it is crucial that we can maintain the treaties with the EU. The free trade agreement with China also remains important and it would also be helpful if we could conclude such an agreement with the US. At the moment, however, it doesn’t look like this will happen soon. In other words, the framework conditions are unlikely to change much Political change in the US could at best shift the focus back to the pharmaceutical industry, but it doesn’t look like that at the moment. The focus will therefore remain on the economic development. And even if, as already mentioned, world trade is beginning to improve, it will probably remain weaker than before the coronavirus crisis for some time. One topic that has nothing to do with COVID-19 is Brexit. The risk that the negotiations between the EU and the UK will fail and thus increase tariffs between the two regions is increasing here. However, Switzerland and the UK should actually be able to find a good bilateral solution, as Switzerland is barely affected by the outcome of the EU and UK negotiations.
At the beginning of the crisis, dependency on China for procurement and production proved to be a problem for many companies waiting for Chinese supplies. Is this dependency likely to change in future? Where do you see the greatest difficulties in re-evaluating locations?
Actually, I see more of a risk here that we ourselves will take protectionist measures as a result of the supposed problems during the coronavirus pandemic: there are those who say that we now have to produce many more “strategic” goods in Switzerland. In most cases, this would simply increase costs and hardly protect us from the next pandemic. I hope that the discussions about this kind of shift will tail off again.
I believe that costs should continue to be the central driver for decisions on production locations – adjusted for the quality of goods, of course. A certain diversification of possible suppliers is certainly useful and reduces the risk of bottlenecks.
But the fact that we now produce a lot of expensive goods in Switzerland for stock doesn’t seem very sensible. Who knows, in the event of another pandemic, we might just have the wrong products in stock.
What else do we need to consider?
Professor Simon Evenett’s team at the University of St. Gallen has been conducting intensive research into non-tariff trade barriers since the financial crisis. These are meanwhile much more important than customs duties. Evenett and a colleague have found that while some countries restricted exports of medical goods during the coronavirus crisis, many countries dismantled import barriers. They have therefore proposed that countries within the WTO should adopt a new special agreement that guarantees that exporting countries can export their goods without hindrance, provided that they agree not to introduce export restrictions in the event of a crisis. I consider this a very interesting response to the crisis, which could stabilize and even intensify international trade. It would be nice if the crisis could have such positive effects.
And what about diversification?
There is certainly nothing wrong with diversifying import sources, but I don’t know whether the state should play a major role here. I could imagine drawing up purchase agreements in critical areas that would be guaranteed by the state. That would reduce the proneness to crises. But it doesn’t seem to make much sense to me that the state should prescribe that you should now have five rather than two suppliers for product X.
Instead of micromanagement, the state must create good general conditions for trade and negotiate them internationally.
Some experts and journalists say that we are heading towards the end to globalization as we know it. What do you think about this theory?
I consider this to be rather exaggerated, too. However, I do believe that the current conflict between the US and China over access to advanced technology could lead to a certain division of the world in certain areas, where other states would then be forced to choose a side. At best, the EU could play a special role between the two opponents. At the moment there are indications that Germany, too, is worried about the protection of intellectual property. Here too, I hope that this will not lead to stand-offs due to blocs being formed, but that the exchange can be kept as open as possible within the framework of international agreements. After all, China also has a central interest in conducting trade. Perhaps we can agree on new rules that everyone will observe. However, I don’t know whether that will succeed. But even a partial division of the world in the area of certain advanced technologies need not necessarily mean the end of globalization. I find announcing the end of globalization a bit too pessimistic.
The travel restrictions and closed borders that still exist in some cases remain a major challenge for foreign trade? How do you assess the developments?
I think this is a temporary problem. Of course, it could be a relatively long time before we get back to the international mass tourism that we had before. To put it bluntly, if for safety reasons you can only occupy every second seat on the plane, then flying will inevitably become more expensive. So, this brings us back to costs. However, that would be a very indirect and not exactly efficient way of solving the problem of carbon emissions.