Zug companies coming under pressure from tariffs

The tariff dispute seems to have eased for now, but President Trump's tariffs are also affecting local companies. Some were able to react, but others have felt the consequences acutely. Many remained calm, however.
 

When US President Donald Trump announced punitive tariffs on imports last April, there was a global outcry. Switzerland fared particularly badly; its goods imported into the United States were subject to a 31% tariff. The umbrella business association Economiesuisse spoke at the time of a "serious burden" on the Swiss export sector.

For the canton of Zug, the USA is the second most important trading partner: according to the Federal Office for Customs and Border Security (Bundesamt für Zoll und Grenzsicherheit), 14% of all exports are traded across the Atlantic. This is just behind Germany, the most important export market, where 16% are traded. The high tariffs were a shock, especially for SMEs. These companies often operate as suppliers for larger corporations, and have little leverage against predetermined prices.

At the end of April, Swiss President Karin Keller-Sutter and Economics Minister Guy Parmelin travelled to the US to try and secure a favourable deal, following Trump's announcement of a 90-day suspension of tariffs to allow for negotiations with other countries. While countries like Great Britain and the European Union were able to reach a tariff agreement, Switzerland was left empty-handed.

Even worse, Trump criticised Keller-Sutter's approach, calling her "pedantic" (oberlehrerhaft). Consequently, the high tariffs for Switzerland were reinstated, with the rate being increased from 31 to 39 percentage points. According to information available at the time of publication, the rate is now expected to be reduced back to 15%.

Difficult geopolitical environment
In October and November, several large companies in Central Switzerland, including the Baar-based construction chemicals group Sika, implemented mass layoffs. A total of 1,500 jobs are to be cut worldwide. One of the reasons: the difficult geopolitical environment. While Sika is only marginally affected by the tariffs, a spokesperson wrote in response to an inquiry from the Zuger Zeitung newspaper last April that the Baar-based company is considered a good example of "local for local."
Sika operates 45 factories in the USA through a subsidiary, and produces almost 100% of the products sold there locally. These "American" companies are exempt from tariffs.

The same likely applies to Holcim. The world's largest cement manufacturer has spun off its American business into the newly founded company Amrize, which also has its headquarters in the city of Zug. Originally intended to provide an additional line of business, Amrize now helps to circumvent the punitive tariffs. Or, as Holcim stated in response to an inquiry: "With our strong local focus, we are well-positioned to manage the current economic uncertainties."

Mass layoffs recently occurred at the Baar-based construction chemicals company Sika     Photo: Boris Bürgisser
The household appliance manufacturer V-Zug also operates in the US.                 Photo: Dominik Wunderli
 

But due to the fact that other large Central Swiss companies had to announce layoffs or short-time work around the same time – a prominent example being Thermoplan, the Weggis-based manufacturer of fully automatic coffee machines, which was hit hard by the tariffs – fears of an economic crisis have recently been circulating.

A calm mood at the Office for Economic Affairs
But companies in Zug remained calm. In a recent interview with the Zuger Zeitung newspaper, Bernhard Neidhart, head of the Office for Economic Affairs and Labour (Amt für Wirtschaft und Arbeit), stated: "The primary economic effect on goods exports to the USA is rather small for Zug. We have only received a very few applications for short-time work since the end of July, of which only two or three cited the US tariffs as the reason."

What's difficult to assess, he added, is the indirect impact: "Internationally active companies, and in particular their headquarters, may adjust their value chains across countries in the medium term. This effect is possible, but we can't estimate the potential damage."

Nevertheless, many companies are affected, including V-Zug. The household appliance manufacturer operates in the premium segment in the US, where its revenue share in the first half of this year was just under 3%. "Accordingly, the tariff rate has not had a massive impact on our overall business," wrote a spokesperson in response to an inquiry. Nevertheless, the tariffs are an unwelcome situation and create additional pressure. The company has been in discussions with local partners to explore how the burden can be mitigated.
The US business of V-Zug had not yet changed by mid-November, however.

Many companies declined to comment
Export-oriented SMEs, which tend to be heavily affected, are mostly holding back from commenting. Several inquiries went completely unanswered, while others declined to comment on the "political" aspects. Still others hinted at their hope for an agreement.

An agreement of this kind was finally reached in mid-November. But, given the notorious unpredictability of US President Donald Trump, one is inclined to say: at least for now.

Following a meeting with several Swiss business leaders in early November, Donald Trump wrote the following on the Truth Social portal: "It was a great honour to meet with the high-ranking representatives of Switzerland." Trade and the trade imbalance were the main focus of the meeting, which was initiated by Swiss business leaders. Alfred Gantner, one of the founders of the Baar-based company Partners Group, was among those who visited Trump. “We expressed our conviction that a bilateral trade agreement would further strengthen economic cooperation,” the company stated. But the group did not participate in any negotiations with the US President – even though it supports them.

The final word has not yet been spoken on the American side either. Although the tariffs were imposed after their announcement, they are the subject of legal proceedings in US courts, where decisions are still pending. It also remains to be seen how US President Trump will react to a court ruling.

How the Zug Chamber of Commerce assesses the situation:
The US tariffs, which came into effect at the beginning of August, affected many companies. Markus Vogel is a tax expert, head of KPMG in Central Switzerland, and a board member of the Zug Chamber of Commerce (Zuger Wirtschaftskammer). He offers his assessment of the situation:

Markus Vogel, how did Zug companies deal with the punitive tariffs?
The US tariffs were painful for some companies. But this always depends on how a company is connected to US market and how it is positioned there. Certain sectors were also exempt from the US tariffs. Where a company is a market leader with a product that is in high demand, it may be able to pass on the tariffs. Others have had to absorb them through declining margins, however,  and have had to explore alternatives.

What advice do you have for affected companies in a crisis like this?
First of all, companies need to clarify how and in which areas they are affected by the tariffs. Only in this way can suitable measures be derived to mitigate the effects of the tariffs. While this may sound obvious, it isn't in many cases, because, until recently, the US tariffs were merely a footnote for many businesses.

What are some possible measures to mitigate such tariffs?
One tool, for example, is product classification. If a product was previously exported duty-free as a food or healthcare product, it's worth taking a closer look now. It may also be possible to import the product into the US as a medical device – and no tariffs were levied on these until recently. It's also worth examining whether the supply chain can be optimised, for example, by producing for the US market in another country with an existing production facility, or by dividing the product into duty-liable goods and duty-free services and licences. There are also other, highly individualised strategies for dealing with the new tariffs.
For instance, it may also be advisable to wait and see if a more favourable deal with the US emerges.

Are there any longer-term measures for companies?
Yes, for example, by local companies re-evaluating their dependence on the US market and then diversifying their business. Regardless of the tariffs, there is also currently a certain degree of uncertainty emanating from the US.

What do you mean by that?
The tariffs are also controversial within the United States, and the courts there are currently examining their legality. But regardless of their conclusions, we cannot rely on a period of calm afterwards. Zug-based companies need to learn how to deal with this and, at the same time, find ways to continue investing and driving their business forward despite the uncertain situation.