Direct intervention: A model named “WHAT IF...TARIFFS?” with the numbers 3 and 9 reversed on its face, as a play on the 39% tariff slapped on Switzerland, is pictured on a wrist at a Swatch shop in Geneva. Swiss watch exports to the US fell 56% in September. — Reuters
ZURICH: Three months. That’s how long it took Swiss watchmaker Grovana to restart exports to the United States 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 United States began again.
After all that haggling and stress, the watch sector, and other Swiss exporters, finally got some relief last Friday, when the United States 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 United States 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.”
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 US$5,000 an ounce, according to JP 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.
Before the new trade deal was confirmed last Friday, 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.
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 United States ahead of the tariffs. That’s meant demand for models and parts – such as tourbillons – has dropped off a cliff in some cases.
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 the country, more companies – in both watchmaking and other sectors – are seeking government aid, with applications for furlough assistance rising this year.
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. — Bloomberg
