The US surprises Switzerland with a 39% tariff, but the new deadline offers hope

Switzerland is officially held on Friday holidays nationwide. However, many market watchers were pulled back to their desks overnight with news that they were hit by the White House at a 39% tariff rate.

It came as a shock to the alpine nation. A sign from the Swiss press was that the country was approaching negotiations for similar summary deals as those attacked by the European Union, the UK and Japan, where the country set baseline tariffs between 10% and 15%. Instead, it received one of the best rates in any country.

This is extremely important, with the US accounting for about a sixth of Switzerland’s total exports. The corporations revolved around the signs of relief when they were turned over the initial plan for a 31% tariff in April and handed over 10% obligations along with much of the world.

As of the end of Thursday, new tariff rates in dozens of countries that have not yet agreed to a framework trade arrangement with the US are expected to come into effect on August 7th. Given the precedents that President Donald Trump set for last-minute deadlines and deadlines, there is room for change.

Another potential reprieve came as the Swiss Federal Economic Agency told Reuters on Friday that it understands that the 39% tariff does not include the pharmaceutical sector, which is facing volatility apart from Trump’s latest comments on drug pricing. CNBC contacted the White House for comment.

Amidst the uncertainty, the reaction was overwhelmingly negative on Friday.

The Swiss Federal Council said “despite bilateral talks and Swiss’ very constructive progress from the start, the US is very regretful that it intends to impose a unilateral additional fee on imports from Switzerland.” It added that it continued to seek “negotiated solutions” and was in contact with US authorities.

Swissmem of the Manufacturers Association said the 39% tariff would be “very difficult” to the high-tech industry, exports and therefore the country.

“I am unsure. These tariffs are not reasonably based and are arbitrary. This decision puts tens of thousands of jobs in the industry at risk,” said Stephen Brupacher, director of the group.

Beat Wittmann, chairman and partner of Porta Advisors, said the news had “devastating” hit the Swiss economy and businesses.

“The United States is leading a one-sided zigzag war on tariffs, and this unpredictability imposes an increase in risk premiums on financial assets,” he said in an email. “This will weaken the Swiss economy, the Swiss franc and the Swiss stock market, particularly the very important export sector.”

The Swiss government must recognize that the time for “cherry picking, carve out, special deals” has ended.

Switzerland’s major exports include chemical and pharmaceuticals, watches and jewelry, chocolate, gemstones and electronics.

Adrian Petttejohn, European economist at Capital Economics, said the 39% tariff rate would be about 0.6% off Swiss GDP, or about 0.6% off by including drugs, but he said he was hoping to negotiate that.

As Swiss stock markets are closed for national days, indicators instead feed other paths, such as the performance of watches listed in London, Switzerland, fell almost 9% in morning trading.

In a Friday memo to clients, an analyst at investment bank Jeffries cited the company along with Richmont and Swatch Group, as well as the biggest hits from the news, especially compared to previous expectations.

However, they added that the start date on August 7th will be allowed to “sufficient final tweaks and changes agreed.”

Meanwhile, the Swiss franc slipped around 0.4% against the US dollar on Friday.

But that’s about 11% profitable after a massive rally at Franc against Greenback this year, investors seeking safe haven assets. It has brought challenges to the economy. This could have marked a return to deflation for the first time since the Covid-19 pandemic.

Rahul Sahgal, CEO of the Swiss-American Chamber of Commerce, told CNBC’s “Squawk Box Europe,” that the tariff news was “very disappointing” after many rounds of negotiations with the US Treasury.

“But I have to say I wouldn’t think it’s over,” he said.

“First of all, there will be days until August 7th. Also, if you read the executive order, you will leave certain windows open. I say that these additional tariffs may not apply if there is negotiations with the US.”

One element of the previously struck trade is its commitment to increase investment in the US. This is set in the EU to a total of $600 million, along with hundreds of millions of dollars in additional energy purchases. On this, Sahgal said Switzerland is looking for a range of $150 billion investment pledges. The country is already the sixth largest investor in the United States, he added.

Sahgal went on to say what the anchor point of the negotiation is, or how the 39% rate was calculated. Although he noted that Switzerland and the US trade ties were well balanced in both goods and services, Trump focused on the former.

“Switzerland is a country of nine million people, and there are like 30 million in the US, so even if it’s like…every Swiss was drinking a bottle of bourbon, eating steaks every day and buying a Harley Davidson.

-CNBC’s Karolin Ross, Sophie Kidelin and Ganesh Rao contributed to this story.