Potential drawbacks for Switzerland if comprehensive US tariffs are enacted, according to the International Monetary Fund
In a concerning development, the International Monetary Fund (IMF) has warned that if the Swiss economy faces the full force of U.S. tariffs, including pharmaceutical imports, it could lead to significant repercussions.
The IMF expects growth to be revised downwards to 1.1-1% for 2025 and 1.0-0.9% in 2026, marking a significant departure from the long-term average of 1.8%. This forecast is shared by the Swiss government and Swiss National Bank (SNB), which have made downgrades to their own economic forecasts.
If the U.S. were to impose tariffs on all Swiss imports, including pharmaceuticals, the potential impacts would be substantial and multifaceted. The economic cost could amount to up to CHF17.5 billion (about $22 billion) in 2026, which corresponds to roughly CHF2,000 per person. This estimate is based on past scenarios where tariffs were announced but not fully implemented.
The pharmaceutical sector, a significant contributor to Swiss exports, would be particularly hard-hit. Currently, pharmaceutical products make up about 96% of Basel-City's exports and are exempt from the announced 31% tariffs. However, if tariffs started to include pharmaceuticals, this would drastically increase the exposure and harm to cantons like Basel, intensifying the decline in Swiss exports to the U.S. market.
Sectors like machinery, watches, and agriculture are already vulnerable to tariffs. Including pharmaceuticals would deepen economic pain, especially in export-dependent regions like Basel. This could lead to reductions in cantonal GDPs beyond the current estimated 1 percentage point decline and worsen economic uncertainty for export-oriented companies.
The unpredictability around tariffs also reduces business investment and slows economic growth. Companies facing unknown trade barriers hesitate to expand or invest, damaging economic dynamism. On a global scale, tariffs of this magnitude tend to reduce GDP growth. For Switzerland, given its trade openness and reliance on exports such as pharmaceuticals, a full tariff imposition would likely trigger a notable slowdown in economic activity and potential job losses within affected industries.
Switzerland has been actively negotiating with the U.S. to avert higher tariffs, but expectations are that at least a 10% tariff will remain in place for a while, prolonging economic uncertainty and costs for Swiss exporters. Attilio Zanetti, an extended governing board member of the SNB, stated that the central bank agrees with the IMF’s conclusions about the significant price the world economy would pay from higher trade barriers.
Despite these challenges, the Swiss economy is expected to grow by 1.3% this year, according to the IMF. However, downside risks, including higher tariffs and policy uncertainty, remain significant. The SNB has expressed concerns about weaker price developments in the Swiss economy and cut its policy interest rate to 0% last month, its lowest level in nearly three years. The IMF expects Swiss inflation to remain low, at 0.1% by the end of 2025 and 0.6% by the end of 2026, due to low interest rates and higher oil prices.
It's important to note that broadcast income for Swiss-based organizations like soccer body FIFA and the International Olympic Committee distorts economic data related to sporting events. The SNB has also denied currency manipulation after being put on the U.S. watch list.
In conclusion, the potential full U.S. tariffs on Swiss imports, particularly pharmaceuticals, could have a profound impact on the Swiss economy, leading to substantial export losses, reduced GDP growth, and increased uncertainty hindering investment. This could cost the economy tens of billions of CHF and significantly disrupt key export regions like Basel. Switzerland continues to negotiate with the U.S. to mitigate these risks.
- The uncertainty surrounding potential U.S. tariffs, including those on pharmaceuticals, could increase the risk for Swiss-based industries, specifically finance and the Swiss National Bank (SNB), as uncertain trade environments often negatively affect business investment and slow economic growth.
- If the U.S. were to impose tariffs on Swiss pharmaceutical imports, the increased costs could contribute to higher inflation rates in Switzerland, given the significant role of the pharmaceutical sector in the Swiss economy and the country's reliance on exports.
