The Social World

Category: Business

  • Trump has brought the Swiss to heel

    The Swiss president and economy minister are rushing to Washington in a last-ditch attempt to reverse Donald Trump’s decision to impose a devastating 39 per cent tariff on Swiss exports. That decision landed in Bern with the force of a punch to the stomach. Officials were blindsided and the stock market and Swiss franc slumped. The tariff, higher than what the EU or UK received, threatens the very foundations of Switzerland’s export-led economy. With just one days before the tariffs come into effect, the mood in Bern is one of quiet panic.

    Right up until the announcement Switzerland thought it had done everything right. It sent billions in investment to the US and removed nearly all industrial tariffs on American goods. It signed up early to US-led sanctions against Russia, and in recent years all but dismantled its once-sacrosanct banking secrecy regime at Washington’s request. Switzerland went from being a truly neutral country to towing the line on pretty much everything the US requested. And now none of this deference appears to have counted at all. The Swiss have been hit with one of the harshest tariffs imposed on any US trading partner. In truly humiliating fashion, the new tariffs were announced by Trump on Switzerland’s national day. Now, in a move that smacks of desperation, the Swiss president is making a last-minute, uninvited dash to Washington to plead for mercy. Her mission is so urgent it was launched without a formal White House invitation, in the hope perhaps of securing a face-to-face meeting.

    The blow could hardly have landed harder. The US is by far Switzerland’s largest export market. Pharmaceuticals, luxury watches and precision machinery are all heavily reliant on American buyers. Shares in flagship companies like UBS, Richemont and Roche tumbled after the announcement. Analysts immediately downgraded growth forecasts. The Swiss franc fell. What was once a model trade relationship now threatens to upend the country’s economy. Swiss officials had expected perhaps 10 or 15 per cent tariffs, but nothing on this scale.

    What makes the blow even harder to swallow is who got off lightly. The EU, of which Switzerland isn’t a member, secured a 15 per cent tariff in its deal with Washington. The UK got a 10 per cent rate. Swiss officials entirely expected to be treated on similar terms, if not better. Switzerland had gone further than most, scrapping all industrial tariffs on US imports and pledging nearly $150 billion in American-bound investment. Instead, it was hit with a 39 per cent levy, one of the highest Trump has imposed on any country. The sense of humiliation is acute. Switzerland believed it was a trusted ally. It’s now wondering if that trust was hopelessly naïve.

    The humiliation wasn’t just economic. It was personal. Last Thursday President Karin Keller-Sutter held what officials now describe as a “disastrous” phone call with Trump. For weeks, Swiss negotiators believed they were on track to secure a deal close to the UK’s 10 per cent at most. Instead, Trump made it clear that was off the table. “The woman was nice, but she didn’t want to listen,” he told reporters after the call. He raged about the trade deficit. Reports from Washington suggest that all Trump had focused on was that Switzerland’s deficit was “stealing money” from the US. The next day, when he imposed the 39 per cent tariff, the Swiss press called it Keller-Sutter’s “greatest fiasco”. Blick compared it to the country’s worst military defeat, at the Battle of Marignano in 1515, when Swiss forces were decisively defeated by the French.

    A country that once prided itself on independence is learning that deference earns no favors in the age of Trump

    At the centre of Trump’s wrath is Switzerland’s vast pharmaceutical sector. Companies like Novartis and Roche dominate Swiss exports to the US. Pharmaceuticals alone account for nearly 50 per cent of Swiss exports. Trump wants the Swiss to cut prices and shift production to America. But the real trigger for the tariffs was the trade imbalance: a $39 billion deficit. Much of that imbalance comes from gold bullion, which merely passes through Switzerland to be refined. More confusing still, both gold and pharmaceuticals are, at least for now, exempt from the new tariffs. Which leaves the Swiss scratching their heads – if the problem isn’t what’s being taxed, what’s Trump punishing them for?

    The answer may be that Switzerland was playing by the wrong rulebook. In Bern, officials approached the talks with the US as technocrats, expecting that transparency, fairness, and compliance would be rewarded. They believed in offers that made sense on paper, pledging investment, scrapping tariffs, and upholding the international order. But Trump didn’t focus on that. Perhaps he just wanted spectacle. Perhaps he just wanted to win. “The problem is the Swiss believe we have to make reasonable and honest offers,” one person close to the negotiations told the Financial Times. “We are not good at international power politics”. That misreading of the moment has left Switzerland exposed and scrambling. The goal now appears to be to offer Trump something, anything, that might convince him to reverse course.

    Behind closed doors, the Swiss government is hurriedly assembling a package of concessions. Agriculture is said to be on the table, despite fierce opposition from Swiss farmers who have already vowed vehemently to fight any changes. There’s also talk of revisiting the contentious deal for the F-35 fighter jets Switzerland ordered from Lockheed Martin, after Washington requested up to 1.3 billion Swiss francs more than the agreed price. Analysts say opening the contract to further concessions could become part of Bern’s pitch. Officials are also said to be pushing pharma giants to pledge fresh investment in the States, and to lower prices of pharmaceuticals sold there, though the Swiss government has no legal means to compel them. Energy purchases, particularly American LNG, may also be part of the mix. However, Switzerland is a landlocked and nuclear-powered country, and barely uses gas. In short, it seems the Swiss now are preparing to offer a little bit of everything. Whether that’s enough for Trump remains to be seen.

    The deeper reckoning is with Switzerland’s foreign policy. In recent years, Switzerland has gradually surrendered its cherished neutrality, not just in rhetoric but in action. It caved on bank secrecy when Washington demanded it. It signed up to US-led sanctions on Russia, aligning itself with Nato positions it once studiously avoided. The once proudly neutral country has become, in effect, a loyal US satellite state, but without the protection or reciprocity the Swiss government thought that status was supposed to guarantee. And now, the Swiss find themselves targeted with the harshest tariffs. It turns out that compliance may not afford privileges. A country that once prided itself on independence is learning that deference earns no favours in the age of Trump. Analysts speculate that Trump’s tariff is less about economics and more about projecting strength against an easy target.

    The spectacle of Switzerland grovelling for a better tariff rate, rushing to Washington with watches, LNG pledges and budget sweeteners, is more than a diplomatic embarrassment. It marks the end of an era.  A small, rule-abiding country can no longer rely on predictability in global affairs. Switzerland believed that concessions would shield it from geopolitical storms. But it now finds itself alone, humiliated, and economically exposed. Trump’s tariff is a brutal reminder that global trade isn’t governed by fairness, it’s governed by leverage. And in this game, the Swiss have discovered, deference counts for nothing.

  • The trade war isn’t over yet

    Maybe Trump doesn’t always chicken out after all. Rapid trade deals with the UK, Japan, the EU and others in recent weeks may have given the impression that the trade war was essentially over. Today, though, comes Trump’s Ardennes offensive, with immediate tariffs of 35 per cent announced for Canada. Other countries have been given a week to prepare for steep increases: India will be subject to 25 per cent tariffs, Taiwan 20 per cent and Switzerland – far from neutral in this particular conflict – 39 per cent.

    Those who insist Trump has a very clever strategy and is winning tend also to be people who, in any other context, are in favor of low taxes

    According to Trump, Canada has been singled out for harsh treatment because it has failed to cooperate on the flow of fentanyl across the border. Trump also hinted that he was punishing Canada for recognizing Palestine, but then he has just done a trade deal with the EU in spite of France taking the same action, and didn’t make any trade threats to Britain in spite of Keir Starmer saying this week that the UK will recognize Palestine in September if Israel does not meet certain conditions.

    It seems rather more likely that Trump is saying: look, other countries have yielded and agreed to one-sided trade deals with the US – I’m going to carry on beating you about the head until you agree to do the same. But will they? So far, the countries which have agreed to Trump’s rather rough and ready trade deals have acted as if the benefits of a trading relationship with the US are one-way – they have more to lose than the US if a deal cannot be struck. But of course that is not always true. Taiwan, for example, produces over 90 per cent of the world’s high-end microchips, which are implanted in just about every device manufactured in the US. What benefit does it bring America if those chips are in future taxed at 20 per cent?

    There is a strange dislocation in attitudes towards Trump’s tariffs. Those who insist he has a very clever strategy and is winning tend also to be people who, in any other context, are in favour of low taxes. But a tariff is just a tax like any other – it adds costs to business and so suppresses economic activity. If tariffs are set at modest levels, it may be worth putting up with tariffs’ depressing effect in return for the revenue they raise. Raise them above a certain level, however, and revenue will start to decline as business activity is discouraged – the classic Laffer effect. US growth may have proved more resilient than many feared it would be after Liberation Day, but it is certain that tariffs on raw materials and components are a negative influence on US manufacturing industry.

    A country does not “win” by taxing its imports more than other countries tax its exports – if it did, the US would be one of the poorest countries in the world while many African countries would be startlingly rich. The US has done brilliantly well out of a regime of low import tariffs – as has Singapore, one of the few countries which, prior to Liberation Day, imposed even lower tariffs than did the US.

    But even if you do think that imposing higher tariffs than your trading partners amounts to “victory,” it is far from clear that Trump will emerge the eventual winner. Some countries may have yielded to him, but others are clearly holding out, and may well make the calculation that the US has more to lose from a trade war than they do. This war has a long way to run yet.

  • Trump has gained the upper hand over China

    Stockholm

    This week, the fate of the global economy could have been decided over a Mongolian barbecue in a Stockholm tourist trap. On Tuesday, just 50 yards from Sweden’s seat of government, Rosenbad – where the US Treasury Secretary Scott Bessent and the Chinese Vice Premier He Lifeng had been wrangling over trade negotiations – the Chinese delegation suddenly exited the talks and headed for lunch near the Mongolian buffet place, where they had eaten the day before. Its windows were covered up and a sign announced it would be closed for three days for a “private event.” The Americans stayed behind, making do with salad.

    China, still the factory of the world, remains the biggest test of Donald Trump’s resolve

    The Chinese had left to “report back to the mothership,” as Bessent later put it. But the mothership apparently did not budge. After talks resumed, it soon became clear that no breakthrough agreement had been struck.

    China wanted another extension to its tariff truce with America, which expires on August 12. Bessent said that was a call for his mothership, Donald Trump. The Treasury Secretary seemed to hint that Trump would approve such an extension. “Just to tamp down that rhetoric, the meetings were very constructive. We just haven’t given that sign-off,” he said, diplomatically.

    The problem is that two major issues haven’t been resolved: fentanyl, and the Chinese support for Russia and Iran. On fentanyl, “we seem to have a sequencing problem,” said Bessent, delicately. The Chinese want Trump’s tariffs to be reduced before they take action to prevent the manufacture of the chemicals that make the drug, which killed 50,000 Americans last year. The US side wants things to happen the other way round.

    Moving on to Iran and Russia, Bessent said: “One thing we are not pleased with, I’m sure the President won’t be, but it’s no secret: the Chinese buying 90 percent of Iranian oil. They’ve contributed $15 billion in dual use technology to the Russian war machine.”

    Insiders and Chinese officials kept a nervous eye on Trump’s Truth Social media account for signs of an angry orange eruption. But Trump, returning from Scotland on Tuesday night, sounded sanguine. “They had a very good meeting with China, and it seems that they’re going to brief me tomorrow,” he told reporters on Air Force One. The President appears to be in a better mood than he was in February, when he seemed hellbent on exploding trade relations with the world and especially China.

    On rare earth metals and magnets, Bessent and his Chinese counterparts appear to have made progress, building on previous meetings in London. Other key topics that didn’t make it to the negotiating table were the future of TikTok and a possible meeting between Trump and Xi – “that’s at the leaders’ level”, the Americans said.

    Officials inside the room told me that most of that time was spent playing a civil but pointed game of “My economy’s bigger than yours”. 

    “We had a big exchange – a very long exchange – and briefings on the economies of both countries,” Bessent reported. The Chinese, he added, “believe that their economy is in good shape.”

    America’s aim is to rebalance China’s financial model – which Bessent calls “the most unbalanced economy in modern times,” the likes of which we haven’t “seen since the British Empire” – away from mass manufacturing and toward internal consumerism. This isn’t just about dollar dominance or bringing in an estimated $300 billion to the US economy from tariffs: it’s about changing China. “They believe that they have a robust consumer economy, and they do not believe that they have a manufacturing surplus that is making its way into the rest of the world. Which I disagree with,” said Bessent.

    Outside the nearby Sheraton and Diplomat hotels, bored police officers milled about. Anyone searching for drama had to look to the press corps, which consisted mostly of Chinese journalists. Trade talks are bigger news in Beijing.

    There was some fretting about “optics” from US officials. Representatives of the US Treasury were concerned about the white-walled room the Swedes provided for Bessent’s television appearance – “hostage vibes,” muttered one aide. A spat over the positioning of the Chinese and American flags outside Rosenbad was also rumoured.

    What’s clear is that Trump has gained the upper hand in the trade war. When he unleashed his tariffs on what he called “liberation day,” the global expert consensus was clear: disaster. The tariffs, we were told, would amount to the largest tax hike on Americans since the 1910s. Inflation would soar. Growth would stall. Businesses and capital would flee.

    But the orthodoxy has, so far at least, been proved wrong. The numbers have come in better than expected. Inflation has stayed close to the 2 percent target. Almost 800,000 jobs have been created this year. Second-quarter GDP is expected to grow at a healthy rate of 2.4 percent. The stock market has rebounded sharply and is up nearly 10 percent since Trump’s re-election. The forecasts were pessimistic.

    America has won in Europe too. Europe has agreed to invest some $1.4 trillion into American energy and infrastructure in exchange for a reduced yet still significant tariff rate of 15 percent. The French Prime Minister called it “submission”.

    America has won in Europe too

    America has effectively challenged Europe to pick a side, Washington or Beijing, and for now Europe has chosen Washington. “I don’t know if they have our back,” said Bessent, “but clearly, the European relationship with the Chinese had a substantial deterioration.” As the US put up the tariff wall, the door opened for increased trade flows between Europe and China.

    According to Bessent, however, the EU has decided that being flooded with more cheap Chinese goods – while Beijing continued to protect its manufacturing at every turn – is not an economic blessing.

    “I had told them: this is what’s going to happen,” says Bessent. “There is now much more unity between the US and the allies. They’re now seeing the downside [of China] the US has seen.”

    The tariff regime, then, has frightened the world away from its dependence on a frequently malevolent Chinese superpower. Trump’s madman tactic makes everyone crazy, but it appears to have worked. The fear that Trump really might go all the way with his threat of 100 percent-plus tariffs, never backing down, has enabled him to walk things back toward normality while achieving his objectives.

    China, still the factory of the world, remains the biggest test of Trump’s resolve. But all sides know that, as America settles its trade disagreements with the rest of the world, it is Xi Jinping who now most needs the tariff pause to continue.