The Escalating US Tariff Threat and Its Ripple Effect on Swiss Watch Exports

The imposition of a 39% tariff on Swiss luxury watch exports by the US government in August 2025 has sent shockwaves through the Swiss economy and its iconic watchmaking sector. This move, the highest in the developed world, targets a market that accounts for 16.8% of Swiss watch exports—valued at CHF 4.4 billion in 2025—and threatens to disrupt a sector that has long relied on the US as a critical growth driver. For Swiss watchmakers, the tariffs expose deep-seated vulnerabilities in their supply chains and pricing models, while forcing a reevaluation of long-term resilience strategies.

Sector-Specific Exposure: A Double-Edged Sword

The Swiss watch industry's reliance on the US market is both a strength and a weakness. The US is one of the last major markets with growing demand for luxury goods, particularly in a post-pandemic world where European and Chinese markets have shown signs of saturation. However, the 39% tariff—intended to address a $39 billion trade deficit—has created a perfect storm for Swiss exporters. Mid-tier brands like Tissot and Oris, which operate on slimmer margins and cater to price-sensitive consumers, are particularly vulnerable. Analysts at UBS estimate that these brands could face mid-single-digit declines in pre-tax earnings if tariffs persist.

High-end brands such as Rolex, Patek Philippe, and Audemars Piguet, however, are better positioned to weather the storm. Their strong brand equity, long waiting lists, and perceived exclusivity allow them to absorb or pass on cost increases without significant volume loss. For example, Rolex has already raised prices in response to a prior 10% tariff, and its loyal customer base appears unfazed. Yet even these brands face challenges: the secondary market for pre-owned watches has surged by 30% in 2025, creating a fragmented landscape where new and pre-owned watches compete for attention.

Supply Chain Vulnerabilities: The “Swiss-Made” Conundrum

The Swiss watch industry's supply chain is uniquely constrained by its own regulations. The “Swiss-Made” label requires at least 60% of a watch's components and final assembly to occur in Switzerland, a mandate that precludes offshoring to reduce costs. This localization strategy, while a source of prestige, has left the industry with limited flexibility to mitigate the tariff's impact. Unlike other industries that might shift production to avoid tariffs, Swiss watchmakers cannot replicate their craftsmanship elsewhere without losing the essence of their brand.

To address this, some companies are exploring incremental changes. For instance, Omega has integrated AI and blockchain into its supply chain to reduce production delays and improve transparency. However, these innovations are more about efficiency than cost-cutting. Meanwhile, the industry is accelerating diversification into Asian markets like India and Vietnam, where rising middle-class demand could offset US losses. Yet this shift introduces new risks, including currency volatility and geopolitical instability in emerging markets.

Hedging Strategies: Currency, Inventory, and Diplomacy

Swiss watchmakers have adopted a mix of financial and operational strategies to hedge against the tariff's fallout. Currency hedging has become a priority, with brands like Patek Philippe using forward contracts and dollar-denominated bonds to stabilize margins amid a strengthening Swiss franc. The Swiss franc's 8% decline against the dollar since mid-2024 has compounded the tariff's impact, making these tools essential for preserving profitability.

Operationally, companies have stockpiled inventory in the US ahead of tariff deadlines. The Swatch Group, for example, built up US warehouses in early 2025 to buffer against immediate cost spikes. While this provides short-term relief, it is not a sustainable solution. Diplomatic efforts have also intensified, with Swiss officials lobbying the US administration for a reduction in the tariff rate. However, these negotiations have yielded little progress, leaving the industry in a state of uncertainty.

Long-Term Brand Resilience: Innovation and Diversification

The Swiss watch industry's long-term survival hinges on its ability to adapt to a fragmented global market. High-end brands are leveraging their heritage and exclusivity to maintain pricing power, while mid-tier brands are pivoting toward digital transformation and smartwatches to attract younger consumers. The Swatch Group's investment in e-commerce and direct-to-consumer platforms is a case in point, offering a way to bypass traditional retail channels and reduce reliance on US imports.

The pre-owned market has also emerged as a lifeline. Platforms like Rolex's Certified Pre-Owned (CPO) program and online resellers like Chrono24 are thriving, creating a parallel ecosystem where tariffs have less impact. This shift could redefine the industry's value proposition, with pre-owned watches becoming a separate asset class.

Investment Implications: Navigating the New Normal

For investors, the Swiss watch sector presents both risks and opportunities. Brands with strong pricing power, diversified market exposure, and robust hedging strategies—such as Rolex and Patek Philippe—are likely to outperform. Conversely, mid-tier brands with limited margin flexibility may struggle unless they accelerate digital and geographic diversification.

Currency hedging remains a critical consideration. Investors should monitor the Swiss franc's trajectory and its impact on export margins. Additionally, exposure to Asian markets—where Swiss brands are expanding—could offer growth potential, albeit with higher volatility.

In the long term, the industry's resilience will depend on its ability to innovate while preserving its heritage. Brands that successfully balance tradition with modernity—whether through smartwatches, sustainability initiatives, or digital engagement—will be best positioned to thrive in a post-tariff world.

Conclusion

The US tariff on Swiss watches is more than a trade dispute; it is a catalyst for structural change in an industry that has long relied on stability and prestige. While the immediate impact is painful, the crisis has forced Swiss watchmakers to rethink their strategies, from supply chains to market diversification. For investors, the key lies in identifying brands that can adapt without compromising their core identity. In a world of escalating trade tensions, the Swiss watch industry's ability to innovate and endure will determine its place in the global luxury landscape for decades to come.