In a surprising move that has sent ripples throughout the luxury goods industry, the U.S. government announced a staggering 31% tariff on Swiss imports. The decision, while rooted in broader trade tensions, has major ramifications for the Swiss watch industry, a sector that relies heavily on American consumers. The United States is not only one of the largest markets for Swiss watches but also a vital part of the luxury watch ecosystem, where the American market represents a significant share of revenue for many of the most prominent Swiss brands.
In 2024 alone, Swiss watch exports to the United States were valued at approximately $1.3 billion, a number that has steadily grown over the past decade. The announcement of a 31% tariff threatens to slice a sizable portion of that revenue, as it will immediately increase the cost of importing Swiss watches into the U.S. market.
One immediate response from the Swiss watch industry could be to absorb the additional cost of the tariff, at least in part. Many luxury brands, particularly those that have already established a strong market presence in the U.S., may see this as a necessary step to protect their brand equity and customer base. Absorbing the tariff would mean that the price to the end consumer would remain largely the same, but the watchmaker would effectively reduce their margins to offset the impact of the tariff. While this is sustainable on the short term, I do not expect this to be a realistic outcome if this situation lasts longer than a few months.
This strategy might be viable for some brands, particularly those in the mid-tier segment, where customer loyalty and volume play a more significant role in profitability. By choosing to swallow some of the tariff costs, these brands could avoid alienating their customers, who might otherwise be priced out of the market. This could also foster goodwill in a market that is deeply influenced by consumer sentiment, particularly in times of economic uncertainty.
The most straightforward response to the tariff would be for Swiss watch brands to raise prices across the board. The 31% tariff would be directly passed on to U.S. customers in the form of higher prices on Swiss-made watches. For many luxury consumers, particularly in the high-end segment, price increases may not be a dealbreaker if the quality and brand reputation remain intact, the perceived value of the watch could still justify the added cost.
In the short term, such price hikes could lead to a slight decrease in demand, particularly in the more price-sensitive segments of the market. But in the long run, luxury consumers tend to be less price-sensitive, and many Swiss watch brands may be betting that their customers will continue to pay a premium for the craftsmanship and heritage they offer.
The biggest question here is how price-sensitive the U.S. market is, particularly as economic pressures like inflation and rising interest rates continue to affect consumer purchasing power. A sudden price hike could turn away potential customers, especially among the younger demographic, who have become more attuned to value for money in recent years. The risk here is that, with a 31% price increase, Swiss watches could start to feel inaccessible for a broader swath of the American market, leading to a potential slowdown in growth.
Another potential response, though completely unrealistic, would be for Swiss watch brands to explore alternatives to importing their products into the U.S. market. One potential strategy could be onshoring some of their manufacturing operations or setting up assembly lines in the U.S. to circumvent the import tariffs. This is seemingly the aim of the tariffs in the first place, but when it comes to watches that pride themselves of being made in Switzerland, I just do not see this happening in any way, shape or form.
Finally, as this tariff represents a major challenge to the Swiss watch industry, it is highly likely that industry associations and trade groups will work behind the scenes to appeal the decision. The Swiss watch industry is not only one of the country’s most important economic drivers but also a key part of its cultural identity. The Swiss government and watch industry bodies are likely to lobby the U.S. government for a reduction or exemption on these tariffs, citing both the economic harm it could cause to the Swiss economy and the broader implications for international trade.
It’s also possible that Swiss watchmakers could seek legal recourse through international trade organizations or pursue alternative diplomatic channels to reduce the burden of the tariff. Time will tell. But this is certainly perfectly timed with this week’s Watches & Wonders!
Price increases incoming?