A leadership change in the U.S. with Donald Trump returning as president raises concerns for small export-driven economies like Switzerland. While there was a positive dynamic during Trump’s first term, skepticism surrounds prospects for a free trade agreement. Negotiations remain stalled due to unresolved issues, particularly in agriculture, and historical trends suggest limited movement towards such agreements. Incremental sectoral agreements, like those in pharmaceuticals and digital trade, may offer a more feasible path for enhancing bilateral relations.
Impending Leadership Change in the USA
In less than two months, the United States will witness a significant shift in leadership with Donald Trump stepping back into the role of president. Known for his less-than-friendly stance towards free trade, this change raises concerns, particularly for small, export-driven economies like Switzerland that thrive on open markets.
The Future of US-Swiss Relations
Yet, this leadership transition can be perceived from a different angle. During Trump’s initial term, the dynamics between Bern and Washington were relatively amicable. Unlike the current US ambassador to Switzerland, Scott Miller, who has been more critical, Edward McMullen, the previous ambassador, fostered a positive relationship with the Swiss government.
McMullen remains optimistic about the bilateral relationship, recently discussing prospects for a free trade agreement between the two nations. He noted that the lack of progress during Trump’s first presidency was largely due to the global pandemic, despite negotiations advancing to a commendable stage. The former ambassador highlighted that President Ueli Maurer’s meeting with Trump was a significant step, and he believes that discussions can resume seamlessly in Trump’s second term.
However, the reality might be more complex. The State Secretariat for Economic Affairs (Seco) has refrained from commenting on the potential for renewed negotiations regarding a free trade agreement with the USA. Industry insiders express skepticism about McMullen’s optimism, noting that the groundwork for negotiations was far from advanced as he claims. The invitation to the White House in May 2019 was more a gesture of goodwill than a precursor to any forthcoming contract.
Trade discussions between Switzerland and the USA began in late 2018 but were primarily exploratory, aimed at determining whether conditions for negotiations were feasible. These talks barely scratched the surface, leaving many critical issues unaddressed, including the sensitive subject of agriculture. Swiss farmers enjoy substantial tariff protection, making any agreement contingent on their approval.
Switzerland had hoped to entice the USA with a model akin to the Mercosur agreement established in 2019 with South American countries. This agreement allowed for trade concessions without fundamentally challenging Swiss agricultural policies. However, the American side never responded to Switzerland’s proposal for a similar arrangement, leaving uncertainty regarding their willingness to engage in a mutually beneficial trade approach.
Given the current political landscape, skepticism remains about whether the USA will pivot back to pursuing free trade agreements with Switzerland. During Trump’s initial term, the focus shifted away from such deals, and this trend has continued under President Biden. The only significant agreement renegotiated in recent years was the United States-Mexico-Canada Agreement (USMCA), which modernized the existing NAFTA pact rather than establishing new trade frameworks.
In light of these developments, the prospect of a comprehensive free trade agreement with the USA seems dim. Switzerland’s limited negotiating power, particularly in agriculture, poses a significant challenge, especially since the country has already eliminated industrial tariffs as of early 2024.
While the hurdles for a free trade agreement are substantial, it does not eliminate the possibility of incremental trade policy advancements. A more realistic approach may involve sectoral agreements that address specific areas of mutual interest without the need for extensive negotiations. An example of this is the 2023 agreement concerning pharmaceutical manufacturing regulations, which facilitates mutual recognition of inspections between the two nations.
Such targeted agreements can strengthen bilateral relations without the complexities of comprehensive trade discussions. As demonstrated, there is potential for progress in areas like digital trade (e-commerce), where Switzerland advocates for consistent regulations and seamless data traffic.
Ultimately, while the landscape for large-scale trade agreements appears challenging, focusing on sectoral initiatives may offer a viable path forward. The risks associated with embarking on broader negotiations may outweigh the benefits, especially given the unpredictability of the Trump administration’s demands and the potential for unrelated issues to enter the discussion.