Swiss firms start State sponsored short-work in response to US tariffs

The Swiss newspaper Blick reports that several Swiss brands exporting to the US have asked the Swiss government to pay for short-work.

Short-work is a political instrument that allows firms to ask the state to pay the employees during political or economic hard times. This avoids job losses, the employees stay employed and the state pays 80% of their salaries. This instrument is used for hard situations when the firms are not responsible for their business losses. The Corona Pandemic was such a situation and 20% of Swiss workers were put on short-work – which did cost the Swiss government and at the end the taxpayer CHF 16 billion.

It may not be justified to charge the taxpayer the losses of those mainly US oriented firms.

On the one hand, it is not evident why the sudden introduction of tariffs by one single country may represent a hardship. On the other hand, those firms now complaining about the new tariffs may have made a managerial mistake not to diversify enough their export markets, focussing mainly on the, until recently, highly profitable US market. These Swiss firms, probably since tens of years, were profiteering from the absence of US tariffs which made them rich but also dependent on the US market. The sudden introduction of US tariffs was certainly awaited, probably since long, as the US trade deficit grew to a level which became highly dangerous for the US economy and the introduction of tariffs was the way out.

It would be unfair to financially support those firms that were so much focussing on and taking in profits from the US market while their products were only competitive due to the absence of tariffs.

And finally, even 39% of tariffs is not a hardship: this level of tariffs is charged only on the price of the imported goods, ex factory. It does not increase production costs. Most of the Swiss goods, in particular, luxury goods or top branded goods are sold in the US via a distribution network and retail chains which usually double or tripple the import prices.  As such, there are huge margins on all levels, from production, via distribution to retail – yes, and there is, unfortunately for those firms, the need to adjust the margins in order to remain competitive. But with negotiations between the factory, the imorters and the retail, this can be settled in short time.

As consequence, there should not be state payments for short-work and those few Swiss firms which are too much relying on the US market must adapt quickly and change the export strategy and conditions, adapt pricing and distribution and, yes, this may be painful for a moment, but it was the sole mistake of their managements to build their business mainly on the US market.

And finally, 39% charged by the US on the ex-factory import price is not that much and can be mitigated – it’s for sure not a Corona situation. It seems that also in Switzerland, there are some people more equal than others …

The Swiss government payments specially for firms working for and exporting to the US market may be considered as illegal subsidies. A subsidy granted by a WTO member government is prohibited by the Subsidies Agreement if it is contingent, in law or in fact, on export performance, or on the use of domestic over imported goods. These prohibited subsidies are commonly referred to as export subsidies and import substitution subsidies, respectively. They are deemed to be specific and are viewed as particularly harmful under the Subsidies Agreement and U.S. law.