Unwinding The Impact Of 31% US Tariffs On Swiss Watch Industry

There’s nothing predictable about Trump. The man does what he does. Proven over time, his diplomatic debacles have been quite a few and rather serve as pointers to provocative decisions and intrepid declarations. It’s a bit strange to attribute the said for someone occupying #319 on Forbes 400. Regardless, the implications of what he says and does, influence everything beyond ‘the man's wall’ and surprisingly in the immediate, the man himself, whose fortune dropped by $500 million in just April’s first week. This was after the President announced massive reciprocal tariffs on imports to the US for more than 180 countries along with a 10% baseline tariff for all imports.

How Are The Tariffs Unfair To The Swiss?

Outside the president’s premises, there was little to guess in what country (China) would be hit hardest by the pseudo-reciprocal tariffs. But for a nation known for political neutrality, Switzerland was left in a state of shock. With 31% tariffs imposed upon the speculated tariff-immune nation, it features among the top 25 nations with highest bearing of tariffs in the list of 185. Surprisingly, the levy on Swiss imports to US is higher than that of EU and UK combined, which stands at 20% and 10% respectively.

What makes it literally incomprehensible is the fact that as of January 2024, Switzerland abolished all industrial tariffs, meaning that 99% of all goods from the US can be imported into Switzerland duty-free. With $352 billion in cumulative investment, Switzerland ranks 6th among foreign investors in the US and $15 billion in R&D spending makes it the lead in research investments. Moreover, Swiss companies support 400,000 jobs in the US, that’s 7th largest on the direct employment scale. So, the 31% reciprocal tariffs, in addition to the 10% blanket rate, should land with a decidedly sour note for the Swiss.

How Many Swiss Watches Do US Consumers Buy?

As of 2024, clocks and watches accounted for $29.53 billion out of Switzerland’s total exports of $446.30 billion. That’s roughly 6.62%. For the United States, which is the largest importer of Swiss watches, the total value of Swiss watch exports was $5.2 billion. That’s 17.6% of all Swiss watch exports. With its hefty reliance on the US, which overtook China in 2021 as the leading market for Swiss watches, the tariffs in no way favor the Swiss watch industry.

Following the 90-day pause till when the tariffs do come into effect (10% blanket rate excluded), the repercussions could be sizeable and would shift the industry majorly, which for the first quarter of 2025, according to the Federation of the Swiss Watch Industry (FHS), declined in total exports by 1.1%. However, for the month of March, there was an export spike of 1.5%, possibly driven by the bulk imports trying to outpace the tariffs. The latter is a temporary strategy to stockpile major inventory in the US and avoid the country-specific 31% reciprocal tariffs applied in addition to the 10% base tariff which as of current is applicable on imports.

How Are Tariffs Applied On Swiss Watches?

It is widely understood that the 31% reciprocal tariff won’t instantly be levied onto the retail price of Swiss watches. It’s most likely to be levied on the declared value of bulk imports which is at wholesale rate and tends to be lower than the final retail price.

Let’s understand it better with an example:

Consider a watch with a declared import value or wholesale rate of $10,000. Let’s suppose it retails for $15,000. Now, the 31% tariff would be levied on the declared import value/wholesale rate i.e. $10,000, which accounts to $3,100 and not on the retail value i.e. $15,000. Thus, the watch now has an import cost of $13,100. If the levy is entirely passed on to the consumer, the brands will now charge a retail of $18,100 ($15,000 + 31% of $10,000) instead of the pre-reciprocal tariff retail of $15,000 for the same watch.

The above works for bulk imports into the US. For retail orders directly shipped to US consumers from Switzerland, the entire levy would be applicable on the retail price or MSRP. In this scenario, the applicable tariff for the same watch would be 31% of $15,000 (retail price), i.e. $4,650 to be paid by the US consumer. This would push the final MSRP up to $19,650. This already happened with the M.A.D.2 raffle where all US participants were emailed about the impact of the new tariffs on their purchase and were informed that, “any local taxes or duties (such as VAT) remain the buyer’s responsibility. If these tariffs go into effect, you (the buyer) would, therefore, be responsible for 31% import charges on Swiss watches.”

For now, only the 10% blanket rate remains and the 31% reciprocal tariff will only be applied after the 90-day pause. British watchmaker Christopher Ward, manufacturing its watches in Switzerland, also reached out to US customers stating the application of an additional 10% tariff on their purchases to be paid at checkout by the buyers. This would be increased to 31% post the 90-day pause. Remember, all this could be applicable in addition to the existing duties that watch imports are subjected to, which normally range from 3% to 8%, depending upon their classification based on a Harmonized Tariff Schedule (HTS) Code.

Are The Tariffs Truly Reciprocal?

The key thing to know about Trump’s chart, particularly its first column titled “Tariffs Charged to the U.S.A.” is that the numbers depicted in that column aren’t actually the tariffs that foreign countries charge the US. In reality, it’s actually the trade deficit in percentage of imports and that too applied inconsistently for countries. Simply put, it’s the difference between the value of goods imported by the US from ‘x’ country and the US goods exported to ‘x’ country. If the former is higher than the latter, the reciprocal tariff is also set high in order to drive “bilateral trade deficits to zero.” Thus, it shows how much tariff the US would have to charge other countries in order to get trade balance.

Given the total population disparity between the US and Switzerland (347 million versus 9 million), the US is always going to have a trade deficit with Switzerland. Agreed, both Swiss and US consumers are among the richest in the world. Yet, it’s impossible to devise a scenario where the Swiss buy as much of American goods in value as the US buys Swiss made. Moreover, Switzerland is an exporter of mainly goods with either higher demand or high unit pricing (pharmaceuticals and watches make 54% of total Swiss exports to the US), hence, more to attribute to the deficit.

How Will The Tariffs Impact Swiss Watchmaking?

Those in the ‘pro tariff lobby’ argue that the imposed tariffs will ultimately raise prices of imported goods, thus allowing American companies to compete directly, and also it would force foreign companies to pursue manufacturing of their products in the US as means to avoid the tax levy. Some even argue that it’s just Trump’s bargaining chip to earn better trade deals with foreign countries and hence a tool to extract trade concessions.

Regardless, watches and pharmaceuticals being Switzerland’s major exports, the tariffs imposed by their lead importer could be big for the Swiss economy. The Swiss watch industry already has a ‘premiumization’ trend ongoing. If brands pass the entire tariff cost to US buyers, prices of Swiss watches in the US could rise by about 20%. Brands have to decide whether they earn less money or pass the cost on to the consumers through price hikes. Will the consumers be US only or global is something worthy to keep track of. For brands like Rolex, it’s unlikely that they’ll charge more globally, as their price hikes have been known to be geographically targeted. Although it’s similar, Rolex pricing globally doesn’t show any inextricable link. They very much could raise MSRP in the US specifically, and if the sources at WatchPro are to be believed, Rolex is planning a 3% US-specific pricing hike from May 1. This is speculated to come with a dealer’s margin cut of 1%, which brings it down to 33%. It follows Swatch Group’s April 16 US-specific price hike of about 7-10% in reaction to tariff increases from the former 3% to 10% now.

But, entry-level Swiss watch brands, operating on thinner margins, are highly likely to introduce direct price hikes. On the contrary, high-end brands such as Rolex, Omega, Audemars Piguet or Patek Philippe may decide to absorb tariff costs only in part while increasing prices to maintain profitability. In any way, it’s going to prompt brands to reassess their pricing strategies as well as cost structures.

While it’s still ambiguous, the tariffs do impact the secondary market for Swiss watches as well, which data proves to be growing 3% faster than the primary space in terms of CAGR. Here margins are the slimmest and thus, the chances of price hikes get higher. Moreover, regardless of the country for import of Swiss watches into the US, most watches trading on the secondary space are of Swiss origin, hence liable for the reciprocal tariffs. It’s because the tariffs are based on the country of origin, not the last stop in the supply logistics.

What Possible Solutions Can Swiss Watch Brands Pursue?

There’s no official announcement from any major brand as to how they will counter the base surcharge or even the country-specific tariffs once applicable. However, several potential solutions come to mind. While there’s no interest among Swiss brands in moving manufacturing to the US, thus avoiding import duties altogether, the sheer scale of such a shift is impossible to execute anywhere in the next decade. Even for the sake of humor, if Rolex decides to establish a manufacturing facility within the US, it would be a significant infrastructural undertaking and also a hefty investment in manpower as neither the requisite infrastructure nor the skill exists at scale in the US. In reality, the costs associated with any such endeavour would be multiple folds higher than the brand absorbing the tariff costs into their margin. Moreover, any of this is literally impossible while Rolex is still expanding in Switzerland, with its fifth manufacturing facility in Bulle set to open in 2029. This 100,000 square meter factory is being developed at a cost upward of CHF 1 billion.

Besides Rolex, only a select few brands can make everything in-house. The Swiss watch industry has always been an interconnected network of manufacturers and suppliers. It’s totally unfeasible to move only parts of production or assembly to the US while relying majorly on imported Swiss components. Even with US-based production, there will be a significant non-US based supply chain, particularly Swiss and Chinese. For the latter, the tariffs are even higher and currently stand at an unhinged 145%, although negotiations are underway to bring them down significantly. Right now, everything is just too ambiguous. At least, when Trump’s saying that the tariffs are permanent and also that they could even go away, it’s counterproductive in motivating foreign companies to move production to the US. Also crucial is the heritage factor which is a major driver of success for most Swiss watch manufacturers. Moving production to the US would mean losing the “Swiss Made” tag. All of this is a vague possibility as there still lies significant uncertainty in the nature of these tariffs.

So, here are the realistic options that could pose as possible solutions against the Trump’s tariff crisis:

• Brands can ship and stockpile inventory in the U.S. before the tariffs take effect as a temporary measure.
• Swiss watch manufacturers could pass the entire tariff cost on to the US consumers through price hikes. The pricing adjustments could be localized to the US market or be distributed globally. This would however be unpleasant for non-US consumers. Regardless, it would be an uphill task to achieve healthy sales after imposing an overnight 15-20% price hike.
• Brands could absorb the tariff into their margins and compromise on profits from the US market. This could be coupled with cost-saving strategies where marketing and promotional expenditures see a cut.
• Brands may choose a cost-sharing strategy where they cover part of the tariff increase, with the remaining burden shared with the consumer. This together with price hikes, more in the US and some globally, seems to be the optimal short-term scenario.

What’s My Take On This?

In reality, Swiss watches are an innocent bystander in the brute trauma imposed by the tariffs. These harmless commodities crafted with passion and purchased by choice, have little to no impact in yielding the objectives of the imposed tariffs. No, this won’t “enrich US citizens,” and no, there won’t be a resurgence of watchmaking jobs in the US. On the contrary, there could however be job cuts as brands negotiate cost increments by reducing marketing, retail or promotional spends, particularly in the US where significant price hikes will definitely impact sales.

Although the full weight of a 31% tariff on Swiss products may or may not return once the pause period passes, a significant 10% levy still exists, and could solidify into a permanent trade fixture. This is a clear net negative for Swiss watches, both at the manufacturer and consumer levels. As the brands still assess their options, one thing that becomes clear is that consumers should prepare for potential price hikes, across the US and elsewhere.

The story is far from over. Stay tuned for updates.