Swiss Tariff Deal Brings Relief to Struggling Watchmakers
TL;DR
US tariffs on Swiss watches dropped from 39% to 15%, easing pressure on the industry. Exports had plunged, leading to furloughs and cost cuts. Challenges remain with weak demand in China and a strong Swiss franc.
Key Takeaways
- •US tariff reduction from 39% to 15% provides relief for Swiss watchmakers after exports fell sharply.
- •Companies implemented cost-cutting measures, including worker furloughs and reduced hours, to cope with the crisis.
- •Weak demand from China and a strong Swiss franc compound the industry's difficulties despite the tariff cut.
- •Major watch brands are investing in suppliers to secure expertise and support during the downturn.
- •Government subsidies for furloughed workers help preserve skilled labor in the specialized watchmaking sector.
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Companies have cut workers’ hours as US exports plunged
Three months. That’s how long it took Swiss watchmaker Grovana to restart exports to the US when Donald Trump hit the country with a 39% tariff rate.
After the announcement in August, Grovana’s owners had to figure out how much of the levy it could absorb, assess the damage to profits and renegotiate with its main distributor on prices. In early November, finally, shipments to the US began again.
After all that haggling and stress, the watch sector, and other Swiss exporters, finally got some relief on Friday, when the US said it would cut the tariff to 15%, less than half the original level.
The reduction can’t come soon enough. Watch exports to the US plunged 56% in September, companies have been cutting costs and putting workers on furlough, and big brands are spending money on small specialist firms to protect key suppliers. In the town of La Chaux-de-Fonds, one of the hubs of Swiss watchmaking, locals say the usual daily hum of activity is almost absent some days, as workshops reduce their hours.
“All of the watch industry in Switzerland right now is heavily affected,” said Christopher Bitterli, chief executive officer of Grovana. “You cannot live without the US market.”
Read more: US Agrees to Cut Swiss Tariffs to 15% After Investment Pledge
The 39% tariff had compounded an already difficult situation given sluggish demand from China and scorching prices for raw materials such as gold, which hit a record last month and could keep going to $5,000 an ounce, according to J.P. Morgan Private Bank.
And there’s the strong franc, which is up about 14% against the dollar this year, meaning the US currency doesn’t go as far as it used to when buying anything Swiss made.
Earlier on Friday, before the new trade deal was confirmed, luxury goods firm Richemont posted strong sales figures, but also warned of a bigger tariff impact in the second half of the year if better terms weren’t agreed.
Recent years haven’t all been bad for watchmakers. The current weakness comes after a boom in demand during the pandemic, and many hiked prices dramatically when inflation surged in the aftermath.
Some of the slump also reflects frontloading as watch brands rushed to get supplies to the US ahead of the tariffs. That’s meant demand for models and parts — such as tourbillons — has dropped off a cliff in some cases.
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To help, the Swiss government extended the period it will pay subsidies for workers on furlough. It’s available to all industries, but is particularly important for specialist watch movement makers, since they can’t afford to lose the expertise built up over decades.
It’s a “breath of oxygen,” said Pierre-Alain Berret, head of the Chamber of Commerce and Industry in the canton of Jura, part of the so-called Watch Valley. “It allows companies keep their skilled workforce.”
Across that area, in towns with a long horological tradition like La Chaux-de-Fonds and Le Locle, the impact of the slowdown is visible. Watch executives say some workshops that were once a hive of activity are down to just a couple of people. Shutters are closed at factories for part of the week, and traffic and commuter numbers are down.
Across the country, more companies — in both watchmaking and other sectors — are seeking government aid, with applications for furlough assistance rising this year.
Number of companies making advance notifications of short-time working
Even La Joux-Perret SA, one of Switzerland’s most respected and successful movement manufacturers, is feeling the pressure.
The slowdown is uneven, so the company is moving people to other positions for now, but furlough is an option if the bad times persist.
“Globally, compared with previous years, I clearly see a change,” said Jean-Charles Maillard, head of sales at the company. “Clients who used to order large quantities — big watch brands — have felt the crisis head-on.”
Some high-profile firms have recently invested in movement manufacturers, injecting much needed cash into suppliers on whom they are heavily reliant.
Audemars Piguet bought a majority stake in Inhotec SA, and LVMH acquired a minority holding in La Joux-Perret, which has worked closely with LVMH brands such as TAG Heuer.
Switzerland’s new trade deal came just over a week after a direct intervention from some of Switzerland’s most powerful business people, including Rolex SA boss Jean-Frederic Dufour. He was among a small group of executives who met with Donald Trump in the Oval Office, a gathering that appears to have given momentum to negotiations.
“The reduced tariff is an important, really much needed relief for the watch industry, but I still don't see the light at the end of the tunnel,” said Patrik Hoffmann, chairman of Favre Leuba, established in 1737 and one of the world’s oldest watch brands. “There are other problems like China, Hong Kong, where export numbers are still down by more than 30% compared to two years ago.”