Joe or Donald? The weight of the US vote on the Swiss economy

US 2020

The results of the US presidential elections will mainly affect individual sectors - But for analysts, the economic recovery after the 2020 crisis will be decisive for Swiss business

Joe or Donald? The weight of the US vote on the Swiss economy
Joe or Donald? The weight of the US vote on the Swiss economy © Shutterstock

Joe or Donald? The weight of the US vote on the Swiss economy

Joe or Donald? The weight of the US vote on the Swiss economy © Shutterstock

Joe Biden or Donald Trump? Today, Americans will decide who will rule their country for the next four years. From an economic point of view, a decision that will also have significant impacts on many Swiss companies. The United States is in fact an important trading partner for the Confederation: just think that last year the largest surplus in the trade balance was reached with the USA, for around 28.3 billion francs. Most economists believe that a Biden presidency overall would be more favorable to Switzerland. Given the diversity of electoral programs between the two candidates, in reality the impacts of the outcome will likely be very different across sectors.

Meanwhile, Jan Atteslander of the Economiesuisse economic association points out, the next US president must first of all put the economy in crisis due to the coronavirus on its feet. The speed with which this will happen will be decisive: ‘the influence of the US economy on Switzerland is very strong, and as an exporting nation we are also feeling the collapse of US GDP here’ he explained.

Both Biden and Trump have said they want to create economic momentum with a stimulus package and an expansionary fiscal policy. But the modalities are very different: Biden focuses on high public spending and on the dismantling of the opponent’s tax legislation. Trump on tax cuts: During his tenure, he lowered corporate tax rates from 35% to 21% - which also benefited Swiss companies with a strong presence in the US. But for some sectors, such as banks, paradoxically, an increase in rates could be positive in the short term, because in reality they could be offset by the losses recorded in recent years.

Regarding trade, Trump’s protectionism over the past four years has created a lot of nervousness. Also in Switzerland, often involved in global and European production chains. Trump reiterated that in the event of re-election he will also be tougher on those who hinder US trade. On the other hand, Zurich economics professor David Dorn warns, the US has lost a lot of competitiveness and jobs since the 1990s in various sectors, starting with heavy industry. So the trend towards protectionism will persist even with Biden in power.

The revival of the US economy will mean a long period of low rates with both presidents. This is potentially disadvantageous for Switzerland. If the dollar remains weak, the SNB needs to intervene more in the foreign exchange market to counter the strong franc. Furthermore, these interventions, combined with the strong trade surplus vis-à-vis the US, are not liked by the White House, which already with Obama had accused Switzerland of being a manipulator of exchange rates.

The trade agreement

As an exporting country, clear rules are particularly important to Switzerland, and the Confederation has been trying for some time to reach a trade agreement with the USA. But neither with Biden nor with Trump the issue is a priority for the United States, as the former American ambassador to Switzerland, Donald Beyer, pointed out in an interview. In fact, trade relations between the two countries have been growing for years. So - explains SGKB investment expert Caroline Hilb - the benefits of a future deal are likely to vary between sectors depending on the president-elect. At the same time, he noted, ‘one way or another, the US side will focus on pharmaceutical companies in any trade deal’.

Indeed, the US market is the most important for the export of Swiss medicines and both candidates have promised to fight against the freedom of the industry to raise prices. Trump signed four decrees in the summer to lower drug prices and spoke of reductions of up to 90%, which would cost companies hundreds of millions in revenue. Biden instead offers discounts negotiated between the industry and the Medicare health system. Between the two evils, this time the pharmaceutical companies seem to side with the dem, according to the generosity of the funds paid for the electoral campaign. By contrast, the Swiss watch industry (the third largest exporting after pharmaceuticals and machinery) does not expect major changes of direction: ‘As we have already seen in 2016, the outcome of the elections did not have a very strong impact on our exports. Rather, it is the economic situation that plays an important role’ explained Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry (FH).

Still at the level of individual sectors, Biden is focusing on energy with a «green deal» and on greater regulations, especially in the financial sector. On the contrary, Trump wants to ease the regulations on sectors such as finance and oil.

But winners and losers will also depend heavily on the future presidency, as Credit Suisse economist Nannette Hechler-Fayd’herbe summarizes. In fact, major reforms can only be implemented with the support of both houses of Congress. ‘The most likely outcome, however, is a President Biden with a majority of Democrats in the House of Representatives and a Republican majority in the Senate’ which would force various arms of force before arriving at any reform.

Goods, services, jobs: a few numbers for orientation

The USA is our second largest trading partner after Germany. In 2019, Switzerland exported goods overseas worth 43.6 billion francs and imported 18.7 billion francs. In terms of services, Switzerland is the sixth partner for the US, with a volume of trade in 2019 of 65.8 billion. The repercussions on the labor market are also important: around 500 Swiss companies are based in the USA, creating 333,000 direct jobs for the Americans. While the nearly 1,000 US companies in Switzerland employ around 90,000 people.

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