By Karina Rollins
The United States is Switzerland’s second-largest trading partner (after the European Union). There is broad agreement in both countries that a bilateral free trade agreement (FTA) would make the important relationship even stronger and benefit not just industry, but the American and Swiss people as well.
Since fall 2018, the U.S. and Switzerland have engaged in exploratory talks, which supporters of an FTA hope will open the door to official negotiations. Many credit the Trump Administration with the “intensified exchange.” As senior members of the Trump Administration—including U.S. Trade Representative Robert Lighthizer—travel to the World Economic Forum in Davos in late January 2020, hopes are high that talks will advance.
Given the shared values of liberty, democracy, and free markets, anchored by the rule of law, a U.S.-Swiss FTA looks likely to succeed. However, relationships between countries are marked by complexities and specific issues that must be addressed. The main two complexities to be addressed for a U.S.-Swiss FTA are trade in pharmaceuticals and trade in agriculture.
One-third of the goods that the U.S. imports from Switzerland are pharmaceutical products, Switzerland’s most important export.
Trade in pharmaceuticals relates not only to goods, but to services as well. While one of the most important services the U.S. imports from Switzerland is insurance, there are other, highly specialized, activities that are carried out by the pharmaceutical industry—such as research and development (R&D) and licensing of innovative products. (When it comes to R&D, Swiss pharma companies invest billions of dollars in the U.S. each year.)
In October 2019, the Neue Zürcher Zeitung reported that the Trump Administration is considering placing tariffs on pharmaceuticals from Switzerland. The report had an immediate effect on Roche and Novartis, with their stock falling by 1 percent. The reason for these potential tariffs is not an agenda against Swiss pharma imports, but President Trump’s broad agenda to reduce the U.S. trade deficit worldwide. The president is eyeing Swiss pharma imports as a major factor in America’s $18.9 billion trade deficit with Switzerland. It is also possible that President Trump is using the threat of tariffs “as a stick to expedite trade negotiations…”
Switzerland’s food market is the most heavily protected (from foreign imports) in the world. This is particularly so for unprocessed dairy and meat products, as well as fruit and vegetables. It is understandable that Swiss farmers have largely remained skeptical of a free trade deal with the U.S. (Despite the fact, as Swiss think tank Avenir Suisse points out, that nearly 13 percent of Swiss agricultural and forest exports are purchased by the U.S.—while only 2 percent of such products imported by Switzerland come from the U.S.)
In 2006, when Switzerland decided not to open official negotiations for an FTA with the U.S., the “main issue was protecting the Swiss agricultural sector” from imported American products. Swiss opinions about inferior U.S. quality, and concerns about laxer U.S. environmental and consumer safeguards also played a role. Is the Swiss agricultural sector more open to a trade today? Either way, as Avenir Suisse declares: “Without Swiss concessions on agricultural goods, there will be no FTA with the US.”
A Trade Deal of Major Significance
U.S. Ambassador to Switzerland Edward McMullen (YL 1995) often highlights the importance of the U.S.-Swiss trade relationship, and has previously detailed the benefits of a U.S.-Swiss free trade deal for both countries, including for Swiss farmers.
The significance of the trade and investment relationship between Switzerland and the United States can hardly be overstated. Sergio Ermotti, CEO of UBS and former chairman of the board of the Swiss-American Chamber of Commerce, believes that Switzerland might be more important to the United States than China.
A U.S.-Swiss free trade deal was also on the agenda of the 2019 meeting of the World Economic Forum. And Swiss entrepreneur Michael Pieper, the owner of Artemis Holding, wrote of the significance of the trade relationship between the U.S. and Switzerland—and about the important role of the American Swiss Foundation.
And, as Avenir Suisse explains, things are different than in 2006, when official FTA negotiations failed to take flight:
The global environment has changed fundamentally. Now, the dominant themes are weakened multilateralism, trade wars, and the rise of China. Issues related to the bilateral relationship between Switzerland and the US have evolved, banking secrecy is history, and creative solutions involving gradual liberalization can be found for the shrinking Swiss agricultural sector.
U.S. Trade with Switzerland
According to the U.S. Trade Representative, in 2017 (latest data available), U.S.-Swiss trade totalled $122 billion. U.S. exports to Switzerland were $59.0 billion; imports were $62.9 billion. The U.S. goods and services trade deficit with Switzerland was $4.0 billion in 2017.
Switzerland sent 12.2 percent of its total export goods to the United States in 2016, making the U.S. Switzerland’s No. 2 export destination (after Germany, at 14.4 percent).
Swiss Direct Investment in the United States
The United States is—by far—the most important destination for Swiss foreign direct investment (FDI). Switzerland’s cumulative direct investment in the U.S. amounts to $310 billion. Swiss companies directly support nearly half a million jobs across the United States, at an average salary of just over $100,000. Swiss affiliates are especially powerful contributors in pharmaceuticals and medicine, and in food manufacturing.
Switzerland is now the seventh-largest foreign director investor in the United States. At the end of 2018, Switzerland and six other countries made up 70 percent of all FDI in the U.S.
Win-Win: Swiss-US Free Trade, Avenir Suisse
The Case for a US-Swiss Trade Agreement, The Heritage Foundation
The Time Is Ripe for a U.S.-Swiss Trade Agreement, Ed Feulner & Anthony Kim, The Daily Signal
The United States and Switzerland: Strengthening Our Economic Ties, speech by former Swiss Ambassador to the U.S. Martin Dahinden
Building New Free Trade Alliances, Kent Lassman and Patricia Schramm, The Washington Times
Switzerland’s Economic Footprint in the United States, Embassy of Switzerland, Washington, DC
Switzerland, United States Trade Representative
5 Reasons to Pursue a U.S.-Swiss Trade Agreement, Anthony Kim, The Daily Signal
Opportunity Knocks for Switzerland in the US, Ralph Pöhner, Handelszeitung
Swiss-U.S. Economic Relations, Federal Council of Switzerland
Trade & Investment Framework Agreements, United States Trade Representative
Trade in Goods with Switzerland, U.S. Census Bureau
A growing impact is also being made by Switzerland’s “export” of its apprenticeship and vocational education model. (See ASF’s Apprenticeship Information and Resources page.)