How 39% Swiss Rates Reach Price

From luxury watches and skincare to artisan chocolate, US buyers of Swiss products could soon face a sharp price rise if negotiators are unable to make a deal to avoid a 39% tariff for it to come into effect on Thursday.

Last week, the announcement that Switzerland is facing one of the highest US tariff rates in the world surprised many politicians, analysts and businesses.

The US has a massive trade deficit with Switzerland, totaling $38.3 billion in 2024. The Swiss government has pointed out that it is part of the gap as the world’s largest gold metal passes through the country in large numbers to pass through precious metals before it is sent all over the world. Both gold and silver have been exempted from the White House’s “mutual tariff” policy launched in April.

The US is also a major importer of Swiss medicines. This is an industry that is confused about the tariff charges and medical equipment they face. Pharma products are currently exempt from a 39% tax, but sector-specific tariffs may still be left to the US separate section 232 investigation.

However, consumers are mostly familiar with Alpine Country’s high-end products, from Rolex watches to premium skincare and beauty products. As economists warn of a smash hit on growth, employment and stocks, if a 39% tariff stays for a long time, it’s something Swiss negotiators are currently rushing to avoid.

The US was the largest overseas market for Swiss watches in 2024, with exports totaling 4.37 billion Swiss francs ($5.4 billion), according to the Swiss Watch Industry Federation.

To qualify for Swiss production, at least 60% of the production cost of a watch must be Swiss-based, but the technology development must be carried out domestically.

“Swiss watches have long been the cornerstone of the US market, and the 39% tariffs will truly be a reform,” Paul Altieri, founder and CEO of online resale platform Bob’s Watches, told CNBC.

“All of a sudden, all imports are incurring a large additional cost, and dealers face tough choices. They absorb tariffs, dig into margins, and pass them to customers. He pointed out that the retail price of the Rolex Submariner could jump from $10,000 to nearly $14,000.

For the Swiss Watch business, the 39% tariff will be “devastating,” Jean-Philippe Bertschy, head of Swiss Equity Research at Vontobel, told CNBC’s “Squawk Box Europe” on Tuesday.

“They have already raised their spring prices by an average of 5-10%. I think another hit will be very difficult for US consumers, especially when they enter the mid-segment level.” In a research note, Vontobel flagged Swatches as vulnerable to tariff hits, with stocks down 2.3% on Monday.

“For luxury watches, there’s a long waiting list for brands like Rolex, Patek Philippe, Ardmer’s Piguet, and so I think it’s more comfortable for these companies to raise prices,” Bersey continued.

“You have very limited measures. Of course you can try and take a few other steps to increase efficiency and counter US tariffs, but overall it’s very challenging for the industry.”

The giant of consumer goods Nestle It is one of Switzerland’s largest companies. The company says it faces minimizing the direct impact of tariffs as more than 90% of what’s sold in the US are sold locally.

James Edwardes Jones, managing director of consumer research at RBC Capital Markets, told CNBC’s “Squawk Box Europe.”

The popular Nespresso coffee brand known for its home coffee machines and capsule pods is likely among items that are experiencing price increases as they are exposed to higher prices.

“In the case of Nestle, all Nespresso is manufactured in Switzerland and then exported all over the world, so it seems likely they’ll be caught in a small way,” added Edwards Jones.

Nestlé did not immediately respond to CNBC’s request for comments regarding the impact of Swiss taxation. The company has not specified a level of Nespresso’s US sales, but the six-month results show that North America has grown at a “strong double-digit rate.”

Swiss world-renowned beauty and skincare products may be affected by price increases as brands not included in drug tariff exemptions look good to offset import costs.

This could be most notable for companies that take pride in Switzerland production, such as Caviar-based anti-aging skincare brand La Prairie, Spa supplier Balmont and nail care business Mabara, but did not respond to CNBC’s request for comment.

“Swiss businesses can generally survive 10-15% tariffs without major margin erosion or loss of demand, but 39% set bars much higher,” Lombard Odier said in a memo on Monday.

Lausanne-Headquarted GardemaMeanwhile, products containing injectable aesthetics and cetaphil face wash are not produced in Switzerland and are now largely excluded from global tariffs under the pharmaceutical exemption.

However, large capacity in the European Union, the UK and Canada could be subject to higher taxes and could collide with consumer costs.

It is also seen that higher import duties are pushing up the prices of luxury goods. Richmont– Owned high-end jewelry brands Cartier and Van Cleef & Arpels.

Bofa Securities said in a memo on Tuesday that 7% of Richmont’s input costs will be exposed to an increase in Swiss fees, which likely lead to rising consumer prices. “Price rises are the most obvious way to reduce headwinds,” the analyst wrote.

Richemont did not respond to requests for comment on CNBC’s 39% rate, but flagged the tariffs in first quarter revenues as potentially “price rise” and could affect consumer demand.

Lombard Odier noted that a “small percentage” of luxury exports could lead to increased demand for products along with prices, but price increases were set widely to undermine consumer demand.

Roger Wealli, director of the Swiss Chocolatier manufacturing association Chocosysse, said the 39% tariff rate will be taken over at prices, causing a sudden loss of US business for many members of the group. The recent valuation of the Swiss franc against the US dollar, which causes imports to be more expensive, means that effective price increases are close to 55%, he said.

The main impact lies in small and medium-sized businesses that do not have access to US production sites, such as large multinationals, Wehrli said. Industry juggernaut lindt & sprüngli and Barry Carrebeau The factory is already in the state, but members of small chocolate chocotheses, such as Kamille Brock and Ledallach, are produced only in Switzerland.

“There are other specific issues with production in the US,” Wareli continued.

“If you want to label chocolate as Swiss, you need to produce it in Switzerland. It’s a quality sign of the international market. So, if it’s not of Swiss origin, you’ll lose more or less customers,” Wehrli told CNBC.

These rules of origin owned by the US Group forced Tobreron Mondelez InternationalAfter changing the package in 2023, moving some of its production from Bern, the Swiss capital, to Slovakia, it refers itself to being “established in Switzerland” instead of “Swiss chocolate.” CNBC contacted Mondelez to comment on the impact of tariffs on US Tobreron