[f]Import duties on US Swiss watches: What you need to know

I’m sure most of you read last week about Switzerland being hit by the harshest tariffs of all European countries. A 39% tariff on goods imported from the alpine country into the United States came into effect on August 7th. As a result, the world of watches is shaking. Today I would like to see what the US imports into Swiss watches entail and what it means for brands and consumers both in and outside the US.

The new 39% tariffs result from a failed negotiation between Switzerland and the United States. So this latest figure will replace the previous 10% tariffs until notification. Let’s see what is what.

The US imports customs duties on Swiss watches. This is a developing story

The first thing to know is that this is a developing story. In the eyes of the Trump administration, the current introduction of US import duties is a result of the unfulfilled ultimatum. The US sets an August 7 deadline, and 39% will be enforced if no transaction is agreed. What kind of deal, do you ask? Now, the US is calling for measures from Switzerland to reduce its current trade deficit. This means (in short) that the US imports more goods from Switzerland than other ways. A notable caveat is that the deficit is small when services are considered. Unfortunately, this case is treated separately.

Last-minute efforts between the Swiss president and finance minister Karin Keller Sutter and the Trump administration have failed to bring political parties closer. As a result, radical tariffs have been in effect and contrasted, for example, at 15% tariffs that are more likely to paralyze on the EU.

This does not mean that negotiations are over. Switzerland has already proposed a new deal, and talks are underway. This means that more reasonable tariffs could still be agreed to, causing uncertainty in many industries, including the Swiss watch industry.

How do you import customs duties that actually work on Swiss watches?

It is good to know that these tariffs apply to goods of Swiss origin. Therefore, even if you purchase Swiss-made watches from EU-based brands or retailers, a 39% tariff will still apply. Sellers should include so-called “clock worksheets” in which all watches have been shipped to the US. This document specifies the cost of a watch and its components and declares the country of origin for each part. Therefore, a German-made watch with a Swiss movement can pay 39% for the value of the movement and 15% for the remaining. Oh, and if you’re wondering: tinkering with these values constitutes tax fraud.

Please note that duties apply to the import value and shipping costs of the watch. This means that watches passing through the US-based importer/distributor or brand’s own US-based offices will be less affected than consumer watches. After all, importers pay 39% on the purchase price, while consumers pay 39% on the retail price when ordering abroad.

Still, we’ll raise retail prices and compensate as brands are 39% more to acquire watches in the state. It appears that many brands will split additional costs between themselves, retailers and US consumers. It also spreads costs to all customers for brands that plan to raise prices globally due to tariffs.

Delay effect

You may have noticed that the world of watches did not change suddenly on August 7th due to US import duties. First of all, it’s good to know that the US represents the largest single market for Swiss watches (since the decline of the Chinese market), but it’s only 17-20% of Swiss total watch production. Tariffs do not reduce their number to zero, so their effectiveness is important but limited.

You should also know that the effects reveal themselves over time. Local offices and partner brands have been in stock for this over the past few months. They tend to have enough stock to maintain current prices for at least a few months. Their hope is that by then a gentle deal will be launched.

A direct consumer brand like Formex, Christopher Ward, or I happen to own it, has a much more direct impact. Their US-based customers will pay 39% in full from day one, so US sales may fall short. The whimsical nature of these transactions motivates US buyers to delay their purchases. However, as we will see in the next chapter, these brands are reluctant to respond.

The moral dilemma of who pays

While 20% of Swiss watch production may sound relatively modest, the US can represent a much more important share for individual brands. Therefore, by importing customs duties on Swiss watches, the US is beyond nuisance and inconvenience, but represents an existential threat. These brands need to deal with, and this presents a moral dilemma of who pays.

Brands can choose to simply hand over the entire tariff to US consumers. In that case, sales could drop dramatically. Alternatively, they can absorb tariffs and align their retail prices to the non-US market. This means getting a lower margin in the US or increasing prices everywhere. In either case, it technically means that non-US customers pay US tariffs.

As a result, most brands will soon slow down their response in the hopes of a better deal. After all, there’s no perfect way to keep your business healthy and make all your customers happy.

How customs duties imported on Swiss watches affects our base enthusiasts

All of these have a direct impact on American enthusiasts. Most Swiss watches could become even more expensive in the coming months. So, some may be encouraged to visit the ads right now rather than in the near future. In most cases, I think the US is likely to find import duties on Swiss watches to cause anxiety when purchasing watches.

You can also influence the second-hand market. Customs duties apply to second-hand Swiss watches. This means that already makes American watches even more attractive. Will prices in China rise in the US as a result? who knows?

Alternatively, US-based watch buyers may start looking at non-Swiss watches. German and Japanese brands may benefit. Probably, A. Lange & Söhne will become the new Patek Philippe in the US. Finally, it appears that some consumers will simply continue to buy, not being hampered by the additional costs.

Looking ahead

To ensure that it can be read between lines, US import duties are simply too uncertain to make solid forecasts at present. One thing seems to be clear already. Among Swiss watch brands, US-based watch enthusiasts and non-US watch buyers, no one will benefit and everyone will lose to some extent.

If tariffs go to the same level as 15% in the EU, the net price paid by US consumers on Swiss watches for consumers is very close to the net price paid by EU residents due to the high VAT. Psychologically, at least, it reduces the sense that Americans pay more for the same watch, even in the arena. Of course, it’s hard to predict whether it’s enough to continue selling. The story is more opaque to brands with US offices and distributors.

With the spirit of “previously serving Swiss watchmakers to raise prices,” I have seen some vindictive sentiments online elsewhere. I hope the above indicates that this is not related here. Even if they decide to absorb tariffs at their current margins, it has the unintended side effect of actually offering discounts to US-based customers at the expense of non-US customers. So Fratelli, I want to hear this and how you think this should be handled by watch brands? And how do you think this will affect your watch hobby? Let us know in the comments section below!