CHF: No letter yet, but threat of tariffs on pharmaceutical products - Commerzbank

Amidst all the discussions about potential trade deals with the US (see yesterday's article on Japan and today's article on the EU), one important point has been overlooked. Switzerland has not yet received a letter threatening tariffs from 1 August. This is certainly a positive sign for Switzerland. After all, Trump announced that the remaining countries would probably face tariffs of around 15%, and he announced a 31% tariff on Swiss products at the beginning of April. This is also consistent with statements made by Swiss officials a few weeks ago who emphasised that a trade deal with the US was ready for Trump to sign, Commerzbank's FX analyst Michael Pfister notes.

Swiss franc is likely to trend sideways

"Firstly, it is unclear whether Switzerland will receive a letter at all. The White House spokeswoman recently emphasised that letters could still be sent if the talks fail. Secondly, it is unclear why Trump has not yet signed the deal with Switzerland. It is possible that the focus was initially on Japan, India and the EU, with Switzerland being overlooked. This would be a positive development if it means that Switzerland will receive a lower tariff than was announced at the beginning of April. However, it would be a bad sign if the tariffs were only postponed, with a letter similar to those sent to most other countries ultimately announcing similar tariffs."

"Added to this is the threat of tariffs on pharmaceutical products. These account for a large proportion of US imports from Switzerland. Initially, the majority of these were exempt from reciprocal tariffs at the beginning of April due to the extensive list of exemptions in Annex 2 of the Executive Order on reciprocal tariffs. However, this is only a postponement, and Trump has repeatedly emphasised that he intends to impose sectoral tariffs on pharmaceutical products. Most recently, he mentioned a rate of 200%. While the rate is unlikely to remain this high, a sectoral tariff is still likely."

"A possible trade deal between Switzerland and the US is likely to include sectoral tariffs on pharmaceutical products. One possibility would be a 15% tariff on all Swiss imports to the US plus a low double-digit tariff on Swiss pharmaceutical products, depending on what Switzerland can offer the US. Compared with the tariffs threatened to date, this would be a positive sign for Switzerland. From this perspective, it is therefore entirely understandable that the Swiss franc has strengthened in recent weeks, in line with our forecast. However, all market participants should be aware that the tariffs will still have a negative impact on the Swiss real economy. We therefore revised our growth forecast downwards last week, partly due to weaker recent figures. Until the uncertainty surrounding the tariffs subsides, the Swiss franc is likely to trend sideways."