Many countries are on alert following President Trump’s inauguration, awaiting an announcement on whether he will impose the 20% universal tariff executive order on imports he promised during his campaign. The tariffs would have significant implications for major trading partners like Canada and Mexico but would also affect any nation that exports to the U.S. Switzerland is no exception.
Behind pharmaceuticals and gold, watches are the third largest export to the U.S. Switzerland sells more than CHF 4 billion of watches to the U.S. every year or roughly 17% of total production. The U.S. is the largest export market for Swiss watches, accounting for twice the exports of the next largest markets, Japan and China. Tariffs on Swiss watches sold in the U.S. would cause a variety of direct and indirect issues for the industry, impacting watchmakers’ pricing strategies and profitability, global trade networks, and possibly the secondary watch market.
Impact Of Tariffs On Retail Prices
The most immediate and visible impact of increased tariffs would be on retail prices. One option would be for importers, distributors, and retailers to pass tariff costs onto consumers, resulting in noticeable price hikes for foreign watches sold in the U.S. For example, a watch priced at $10,000 could see its price rise to $12,000 or more, depending on how tariffs are absorbed across the supply chain.
The other option is to absorb the additional cost along the supply chain. For example, luxury brands could offset lower margins by reducing spend on marketing and trade shows. Many Swiss watchmakers are committed to maintaining consistent pricing across global markets. Omega’s CEO, Raynald Aeschlimann, has highlighted the importance of pricing strategies to sustain customer trust, even as external pressures mount, suggesting costs would not immediately rise due to U.S. tariffs.
Shifts In Consumer Behavior
Assuming tariff costs are not absorbed, the result would be higher costs for U.S. consumers. In response, American consumers might seek alternative avenues to purchase watches and other luxury items. This could include traveling abroad to duty-free zones or leveraging international retailers. People who can afford to purchase a $50,000 watch can afford to fly to Europe to save $10,000. However, these options are not without challenges, as they often involve logistical complications, and minimal net savings after travel costs.
Tariff Impact On Pre-Owned Market
The pre-owned market for Swiss watches could see significant changes in both demand and pricing dynamics in the event of a 20% tariff. Faced with a jump in retail prices, consumers might turn to the secondary market to purchase watches. Higher demand for pre-owned models would likely drive up their prices, creating opportunities for sellers but posing challenges for buyers.
Dealers in the pre-owned space may also struggle to source inventory as market dynamics shift, potentially leading to a tightening of supply. Most watches have seen their secondary market value fall over the last few years, but popular brands like Rolex, Audemars Piguet, and Patek Philippe, and some niche independent watchmakers still have models trading above their retail value.
Watch Charts Overall Market Index
For collectors, this could present a double-edged sword: while existing collections may appreciate in value, acquiring new pieces could become increasingly costly. It’s unfortunate, but watch enthusiasts are getting used to rising prices. Rolex, for example, raises prices by 4%-6% every year, with another 4% average increase announced for 2025.
Global Trade Relations
The imposition of U.S. tariffs on Swiss watches would not occur in isolation. Such a move could trigger retaliatory trade measures from affected countries, further destabilizing international trade agreements. These disputes can quickly escalate in a globalized economy, leading to broader implications for industries beyond luxury goods. Given the Swiss watch industry’s dependence on international trade, the worst-case scenario when it comes to tariffs could be devastating to an industry already struggling with overcapacity.
Industry Strategies and Adaptation
Swiss watchmakers have historically demonstrated resilience and adaptability in the face of challenges, from the quartz watch disruption to the entrance of the Apple Watch to economic downturns. In the current scenario, many brands may look to diversify their market focus. Emerging markets like India present promising opportunities. A recent trade agreement between Switzerland and India reduced tariffs from 22% to zero. Growth in these newer markets could offset some of the losses from higher tariffs in the U.S.
Currency fluctuations also remain a critical factor. The strong Swiss franc poses ongoing challenges to export competitiveness, further complicating the landscape for Swiss watchmakers. Should the Swiss franc weaken relative to the U.S. dollar, some of the negative impact of tariffs could be reduced.
Consumer Behavior and the Luxury Market
The Swiss watch industry is not alone in its concern over tariffs. Other luxury goods makers in Europe face the same potential issues. However, if current stock prices are any indication, universal tariffs are unlikely to occur. Shares of LVMH, the largest luxury goods manufacturer in the world, have climbed 13% over the last month; Richemont, the owner of Cartier and Vacheron Constantin, has seen its stock jump by 21% so far this year.
Companies like LVMH and Richemont are large global players in the luxury goods industry and will find a way to adjust. The risk of the Swiss watch industry losing market share in the U.S. is low because all imports would get taxed at the same rate. For example, watchmakers in Germany and Japan would be caught up in universal tariffs as well. Since there are virtually no U.S. watchmakers that compete with the Swiss, consumers are unlikely to switch to domestically manufactured watches: A consumer who wants to purchase a Rolex Daytona or an F.P. Journe Tourbillon Souverain is not going to opt for a Timex instead.
It is uncertain whether universal tariffs on all U.S. imports will be implemented. Based on actions taken during the first Trump administration, tariffs are more likely to be applied selectively, targeting areas of domestic significance to the U.S. or serving as a negotiation tool for geopolitical leverage.
Regardless, watch enthusiasts should not panic. Switzerland does not appear to be in the direct crosshairs of the U.S., and history has shown that tariffs can be reduced as quickly as they are established. The Swiss watch industry will adapt.
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