U.S. Trade Tariffs: Swiss Companies Remain Resilient

At the beginning of the year, we already wrote in an initial article¹ on the potential impacts of the tariffs threatened by the United States. Since Donald Trump took office as the 47th President of the United States, a lot has happened, and the consequences for the economy and global politics have been clearly felt. With "Liberation Day" on April 2nd and the threat of new tariffs, uncertainty in global financial markets was further heightened. A subsequent trade dispute between the U.S. and China caused additional tensions, but so far, only a few of the announced tariff measures has been temporarily rolled back, waiting for the final results of ongoing negotiations.

All eyes are now on July 9th, which could represent a potential turning point in U.S. tariff policy. Majority of investors now speculate that Trump or some of his targets (Europe?, Japan?) would back down before causing real damage. We share this view as well. A positive market rebound was already observed in May. But what if negotiations fail and Trump follows through on his threats? What would this mean for the Swiss stock market in general and, more specifically, at the company level?

Tariffs pose a risk to the US economy

To what extent the new Trump administration will implement the threatened trade tariffs against China, Europe, and the rest of the world remains to be seen for now. After all, doing so would simultaneously pose significant risks to its own economy, as both China and Europe are among the most important buyers of goods and services from America. Many experts anticipate that if the announced tariffs are fully implemented and both exporters and importers maintain their profits, the costs will largely fall on US consumers, potentially reducing spending and risking a recession if savings don't offset the impact.

An US, and possibly global, economic downturn would be harmful to Swiss companies, as a significant portion of them are dependent on the U.S. economic cycle. Against this backdrop, we share the view that the tariffs are unlikely to be implemented in their originally announced form. Political and economic realities suggest that a comprehensive or strict tariff mechanism seems largely improbable. In the medium to long term, we see the U.S. economy as the main loser of such protectionist measures. The dependency on global supply chains and the risk of potential economic countermeasures from other countries are too great and could jeopardize the competitiveness of the U.S. in the long run.

Around 50 Swiss Companies Examined for Opportunities from Potential Tariff Impacts

The United States is and remains by far the most important export market for Swiss companies. Every year, Switzerland exports goods worth over 50 billion Swiss francs to the United States, highlighting the dependence of many local companies on the development of the American economy. In previous analyses, we have already pointed out this close interconnection and examined in more detail what it would effectively mean for companies that are heavily exposed to the U.S. market.

Nevertheless, the discussions surrounding trade barriers have significantly enhanced our learning curve regarding the tariff sensitivity of Swiss stocks. By analyzing the potential impacts on Swiss companies, we have gained a deeper understanding of which industries and firms might be particularly affected, how they are preparing for these risks, and how agile they are in relocating production facilities. Swiss companies have historically demonstrated that they can respond very flexibly and innovatively to changes in the global trade environment. This reinforces our belief that the potential impact of tariffs on Swiss stocks is likely to remain limited.

Despite the uncertainties, it is evident that many Swiss companies are not only less negatively affected by the tariff issue but are also relatively well-positioned in the global market, with potential opportunities possibly arising from the consequences of the tariffs. The figure illustrates which Swiss companies generate a particularly high proportion of their total sales in the U.S. (horizontal axis: US exposure as % of total sales) and how much of this sales share needs to be imported into the U.S. (vertical axis: Imports to the US as % of US sales). For example, in the figure below: Logitech generates approximately 40% of its total sales in the US (shown on the horizontal axis). Of these US sales, 90% of the products sold are imported into the US (shown on the vertical axis).

Most of the companies analyzed show a significant share of revenue generated in the U.S., averaging more than 30%. At first glance, this heavy reliance on the U.S. market may seem highly negative for many companies, especially in light of the tariff issue. However, with this analysis, we aim to illustrate that tariffs should not be uniformly assessed for all companies. More important than simply examining U.S. revenues in detail is understanding the actual imports of individual companies into the U.S., which would be directly impacted in the event of tariff imposition.

Over the years, many Swiss corporations have already established substantial local production facilities in the U.S. Additionally, there are examples of companies that generate little to no revenue in the U.S. (such as Holcim following the recent spin-off of its North American business "Amrize," Aryzta, DKSH, or Vetropack). However, such companies are relatively rare in the Swiss market, meaning even those with a high share of both revenue and imports tied to the U.S. are not necessarily at a competitive disadvantage. These companies are positioned in the upper-right quadrant of the chart.

Many of these affected Swiss exporters benefit from the strengths of the Swiss economy: high levels of innovation, exceptional cost discipline, strong positioning in niche markets, and the unique Swiss quality, which results in remarkable pricing power. As a result, many companies remain resilient in the face of these challenges.

Examples of Resilient Swiss Companies:

• Lindt & Sprüngli: Thanks to its unique positioning in the premium segment of the chocolate industry, a strong brand, and excellent quality, Lindt & Sprüngli has no difficulty raising prices, thereby achieving continuous margin growth.
• VAT: With an estimated market share of around 70% in the niche market of vacuum solutions for the semiconductor industry, VAT possesses significant pricing power and can pass costs directly on to customers. Therefore, we believe that the company, despite generating approximately 18% of its revenue in the U.S. and having no local production facilities, is unlikely to be negatively impacted by the tariffs.
• Georg Fischer: With diversified production, largely manufactured and sourced locally in the U.S., the company minimizes risks.
• Belimo: Despite certain dependencies on exports (e.g., for data centers), the company remains competitive due to its high level of innovation and market leadership.

Significant Differences Between Large Caps and Small-/Mid-Caps

Swiss Large-cap companies, as measured by the Swiss Market Index, on average have a higher share of U.S. revenue compared to mid- and small-cap companies. While this makes them more vulnerable to the direct effects of tariffs, their global presence and strong market position generally provide a degree of protection.

Historically, over the past 30 years, Swiss small- and mid-cap companies have demonstrated more attractive valuations and higher performance potential compared to Large Caps. However, in the past five years, mid- and small-cap companies have been traded at a so-called valuation discount relative to Large Caps.

This phenomenon is primarily attributed to the tense geopolitical situation in Europe, including ongoing wars, political instability, and high energy costs, where mid- and small-caps have greater exposure compared to large-caps.

With an anticipated economic recovery in Europe, as indicated by metrics such as order intake or PMI statistics (Purchasing Managers' Indices), mid- and small-cap companies have been able to regain value since the beginning of the second quarter this year after a prolonged period of underperformance. We believe this trend is likely to continue and that the Swiss small- and mid-cap segment will benefit disproportionately in the coming quarters. Combined with attractive valuations, we maintain a positive outlook for Swiss mid- and small-cap companies overall.

Summary

The U.S. remains the most important export market for Swiss companies, yet the risks posed by tariffs remain limited. Thanks to their innovation, strong market shares, significant pricing power, and global presence, Swiss companies are well-positioned to tackle potential challenges. Over the years, many publicly traded Swiss companies from various sectors and end markets have become global players in niche markets, demonstrating that they can remain resilient and competitive even in challenging environments.

What is certain is that in this challenging market environment, it is more important to adhere to our high standards of quality in company analysis. Regardless of sector affiliation, geographic revenue distribution, or the end markets in which companies operate, we place a strong emphasis on solid balance sheets, global market leadership, innovation, and an impeccable corporate culture. We remain optimistic that the Swiss economy will continue to seize opportunities, even in the face of ongoing uncertainties. From our perspective, Swiss companies should ultimately prove resilient to the current turmoil.