Trump's poison pill on Swiss National Day – Commerzbank

Market participants with ties to Switzerland were probably not too pleased when the US administration announced new tariffs for a large number of countries at the end of last week: alongside Brazil, which will now have to pay significantly higher tariffs for political reason, Switzerland is the only country to face significant tariff increases compared with Liberation Day. Rather than the 31% announced at the beginning of April, 39% will now be payable from the end of the week. This comes despite reports a few weeks ago that the deal was ready to be signed by Donald Trump. The fact that the announcement was made on Swiss National Day, or rather on the night before, added to the sour taste left in people's mouths, Commerzbank's FX analyst Michael Pfister notes.

Switzerland unlikely to respond with countermeasures

"Since this new escalation, the blame game has begun in Swiss politics. Did the Swiss government misjudge the negotiations with the US and miscalculate with its offer? While the officials were not wrong to say that an agreement had been reached on most of the negotiations, as my colleague Volkmar emphasised a few weeks ago, unless there is agreement on all points, no deal will be reached, even if 95% agreement has been reached. Reports of an intense telephone conversation between the Swiss and US presidents on Thursday evening suggest that the US president expected an even better offer. The fact that Switzerland has already made a better offer per capita than other countries did not seem to matter. Trump probably sees Switzerland as extremely wealthy and considers the current account deficit to be so significant that he still expects more. The Swiss have probably hesitated to make an unrealistic offer, as other countries have done."

"This is the worst-case scenario for Switzerland. In recent weeks, most of the major trading partners of the US have reached a deal thanks to enormous concessions that will keep tariffs at around 15%. Over the weekend, the US administration indicated that the tariffs are now final and that, while further negotiations are possible, they are unlikely to result in significant changes. This may be a new negotiating tactic, but since Switzerland is now one of the few remaining trading partners with higher tariffs, it does not make things any easier. It is extremely unlikely that Switzerland will respond with countermeasures. Instead, officials will probably improve their offer significantly, as reports yesterday of an agreement in the Swiss Federal Council suggest."

"One thing should also be clear, however: there were very few scenarios in which the Swiss franc would have suffered from the escalations coming out of the White House. With such a poor negotiating position, however, it seems that we have now reached one of those scenarios. If the government manages to reach a deal in the near future, EUR/CHF should stabilise at our forecast of 0.93. However, if negotiations continue to escalate, the franc is likely to come under further pressure. For the time being, therefore, the risks for the franc are asymmetrically distributed."