Geopolitical tensions are testing the Swiss economic model and threatening to disrupt global trade. Hans Gersbach, co-director of the KOF Swiss Economic Institute at ETH Zurich, shares insights on navigating these commercial pressures.
The ongoing rivalry between China and the United States is placing immense strain on international trade, with prospects for further escalation. At the end of 2024, Beijing imposed a ban on some rare metal exports to the U.S., while the new Trump administration has responded with threats of tariffs as high as 60% on Chinese goods. Economies worldwide are bracing for a trade war likely to upend supply chains. Switzerland, with its dense network of industrial and export-driven SMEs, is particularly exposed to these disruptions. Hans Gersbach explains how Swiss SMEs can prepare for and soften the impact of these growing conflicts.
What would be the consequences if the United States were to introduce new trade barriers against the European Union or Switzerland?
Hans Gersbach: If the U.S. were to impose tariff barriers on the EU, the European economy would suffer. This could, in turn, lead to a decline in European demand for Swiss products, impacting all sectors of the Swiss economy.
It is also not entirely out of the question that the U.S. might impose tariffs on Swiss goods. If that happens, the pharmaceutical industry would be hit particularly hard, as the U.S. is a crucial market for this sector. Other industries, such as machine tools, precision instruments, and watchmaking, could also face significant difficulties. On top of this, the entire Swiss economy would feel the ripple effects of increased production costs and delivery delays caused by tariffs disrupting global supply chains. The economic cost of these disruptions for Switzerland could range from fractions of a percentage point to several percentage points of GDP. Ultimately, the scale of the impact will depend on the severity of the geopolitical conflicts.
How can Swiss SMEs prepare for a slowdown in global trade?
Gersbach: There are many sector-specific factors to consider. In general, Swiss industrial SMEs can counter these challenges by diversifying their export markets and supplier networks. In times of geopolitical instability, it is crucial to reduce dependence on high-risk regions. Additionally, extra caution is advisable when investing in or expanding into risky markets.
How can companies effectively reduce their reliance on high-risk markets?
Gersbach: "Friendshoring" – relocating supply chains to countries that are geographically closer or traditionally considered "friendly" – is a smart strategy for businesses that can afford it. Wherever possible, prioritizing partnerships with local companies adds even more value.
Moreover, Swiss entrepreneurs stand to gain by investing in innovation, digital transformation, and high-value niche products. These initiatives not only boost competitiveness but also reinforce their reputation for excellence in global markets.
Should the Swiss Confederation subsidize certain key sectors to secure industrial supply chains?
Gersbach: The Swiss model is based on a free and internationally open market, which has proven effective so far. Direct intervention by the Confederation, such as subsidies, is only justified in the event of a systemic threat – for example, if the supply of critical intermediate goods can no longer be guaranteed through international trade. Currently, there is no evidence to suggest we are facing such a situation. However, like other European countries, Switzerland must adapt its supply security policies.
Synergies between the public and private sectors can be strengthened. The focus should be on ensuring the long-term sustainability of Swiss industry and driving productivity gains through innovation and knowledge transfer. Partnerships between the Federal Institutes of Technology, universities, and higher education institutions, alongside funding programs like Innosuisse, are key pillars of Switzerland’s innovation ecosystem.
At the cantonal level, increasing tax credits to support companies in financing their research and development activities would be valuable. It is also essential to make Switzerland attractive to top talent and to foster an entrepreneurial spirit among its population.
Is Donald Trump's presidency an opportunity to revive free trade agreement negotiations between the United States and Switzerland?
Gersbach: Any free trade agreement would be advantageous for the Swiss economy. Although restarting such negotiations with the Trump administration may be challenging, it is crucial to resume discussions at the right time. Engaging immediately in dialogue to avoid potential trade restrictions is also a prudent step.
To navigate the geopolitical uncertainties on the horizon, the Confederation must ensure that trade remains as free and efficient as possible. For now, the focus should be on optimizing the free trade agreement with China (31 billion francs of trade between January and November 2024*, ndlr) and preparing the groundwork for a potential treaty with Mercosur (Argentina, Bolivia, Brazil, Paraguay, and Uruguay, trade between Switzerland and these countries totalled 4.4 billion francs between January and November 2024*, ndlr.).
*excluding gold bars and other precious metals, coins, precious stones and gems, and works of art and antiques. Source: Federal Office of Customs and Border Security FOCB.
Biography
Hans Gersbach has been a professor of economics and co-director of the KOF Swiss Economic Institute at ETH Zurich since 2023. He has held the Macroeconomics: Innovation and Policy chair at ETH Zurich since 2006. Originally from Aargau, he earned degrees in mathematics and economics from the University of Basel and served as a professor at the University of Heidelberg in Germany from 1995 to 2006. He is also a member of the Economic Policy Commission in Bern.
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Last modification 22.01.2025
