Watch industry plays for time and hopes for tax relief

Swiss watchmakers are clinging to the hope of a reduction in customs duties and are currently relying on their inventories in the United States to absorb the shock, as tough decisions await them if talks with Washington fail.

The watchmaking industry has been devastated by the 39% tariffs imposed on Switzerland by the White House in August. To be able to display the coveted "Made in Switzerland" label, watchmakers have no choice but to produce in the Alpine country, dealing a severe blow to the sector, which employed 65,000 people last year, according to the industry's employers' organization.

On Wednesday, Johann Rupert, chairman of luxury giant Richemont, which owns jewelry firm Cartier and watch brands including Piaget, IWC, and Jaeger-LeCoultre, said he hoped for a negotiated solution.

The Swatch brand has attempted provocation by launching a limited edition that plays on this 39%, with a dial where the numbers 3 and 9 are reversed to form 39, promising to stop selling it "as soon as the United States modifies its customs duties towards Switzerland."

Last week, Economy Minister Guy Parmelin returned to Washington to submit a new offer and spoke of "constructive" discussions, without providing further details. And on Sunday, Donald Trump watched the US Open tennis final from the Rolex box, prompting numerous questions in the Swiss press about the discussions during the match with the head of this flagship Swiss watch brand.

In an interview with CNBC on Thursday, US Commerce Secretary Howard Lutnick mentioned a pending agreement with Taiwan, but also "probably" mentioned Switzerland, saying that things "will be resolved over time."

The United States is the largest market for Swiss watchmakers, accounting for nearly 17% of their exports in 2024. Many therefore rushed to increase their inventories in the United States before the tariffs came into effect. According to the Swiss Watch Federation, their exports to the United States jumped 149.2% in April and 45% in July. But since then, "no one is sending anything to the United States," observes Florent Perrichon, the general manager of the Geneva-based brand Laurent Ferrier, who expects the situation to last, "while stocks are consumed." "Everyone hopes that by then, we'll have a nice surprise," he told AFP.

If it fails, "we would have other issues to face," acknowledges Elie Bernheim, CEO of Raymond Weil. But since "backpedaling is still possible, I wouldn't want to have made major decisions on something that could only be temporary. We have to wait and put things into perspective," the head of this family business explained to AFP. Like his competitors, he is counting on his inventories in the United States to weather the storm, specifying that he has "never had such a large inventory in the United States."

Watchmakers are "in wait-and-see mode," notes Jon Cox, an analyst at Kepler Cheuvreux. While tariff relief is possible, he says, Swiss tariffs are unlikely to drop to the 15% applied to the European Union and Japan, meaning the sector will continue to face "a competitive disadvantage," he warns.