Tariffs and New Watch Sales

Switzerland is not a happy place at the moment.

The watchmaking industry, the country’s third largest export sector accounting for some 17%-20% of total annual exports, has a major problem. Their largest foreign market, responsible for around $5.44 billion a year, has suddenly decided to levy an enormous 39% tariff on all new watches coming into the country. 

That country is, of course, America. And the introduction of this most recent round of tariffs has got the Swiss very worried indeed.

Why the Tariff?

The move to impose these tariffs is part of the present U.S. government’s revived trade policy agenda, which is aimed at penalizing countries believed to have benefitted unfairly from existing trade laws. One of the laws being particularly held accountable is DST, or Digital Services Taxes. 

Introduced in 2020, DST is a 2% tax on the revenues of multinational tech companies providing certain digital services; search engines, social media, online marketplaces, etc. Several European nations implemented these DSTs aimed at the likes of Google, Amazon, Apple and Facebook and the U.S. sees the taxes as disproportionately targeting American companies. The latest punitive tariff is in retaliation and applies not just to watches but also to a broader package of luxury products from Switzerland and other countries. But the Swiss have been hit especially hard as they are highly dependent on export into the U.S.

The hope is that the move will help rebalance trade by raising the price of Swiss watches in America, making them less competitive and thus pressurizing Switzerland to negotiate its DST or drop it completely.

Why Watches?

Luxury Swiss watches are an obvious target for this sort of reprisal. They are expensive, high-margin products, mostly exported to wealthy U.S. buyers and the American market makes up 18.8% of total sales. 

As you might imagine, Switzerland has strongly objected and stated they may appeal to the World Trade Organization. But the U.S. is standing firm in its resolve to continue the enforcement unless a new trade deal is negotiated. 

What Does This All Mean For You?

The long and the short of it is that watches are likely to get a lot more expensive very soon. 

Swiss brands are in full panic mode, racing to import as much as they can into the States before the 7^thAugust deadline—the date the tariffs go into effect. 

Nick Hayek, CEO of the Swatch Group which owns the likes of Omega, Tissot and Longines, told Reuters there is now a three to six month surplus in warehouses in the U.S. as a buffer, but after that ‘prices will go up for sure.’

This is in addition to the 10% rise instigated earlier in the year following the government’s first tariff announcement in April.

Ironically, it is Swiss watches’ major selling point which has become one of its biggest problems in all this. In order for a timepiece to wear the ‘Swiss Made’ label, among the most distinguishable guarantees of quality in any luxury industry, at least 60% of the components have to originate in the country. That means moving production to another location not impacted by the tariffs is challenging. Making fine watches in Switzerland is an expensive undertaking, and absorbing a 39% tax on top is pretty much impossible. 

But does that mean all Swiss watches sold in the U.S. automatically become 39% more expensive? It’s possible, but probably unlikely. Experts seem to be of the opinion that manufactures are going to have to do a spot of tightrope walking in regards to all this. With America being the biggest market, brands are going to be reluctant to land the entire increase solely on them and are more liable to spread it internationally, meaning everyone is going to see prices go up by a smaller margin. Alternatively, a short term solution may be that the brands’ network of suppliers will be shouldering some of the costs by essentially taking a pay cut. That is a real possibility as the U.S. government has stated the tariff is not necessarily a permanent one and could be open to negotiation.

Which Brands Will Be Hit Hardest?

As we all know, there are different levels of watchmaking. Or to put it another way, there are different pricelevels of watchmaking. 

At the top of the pile, we have brands such as Patek Philippe, Audemars Piguet, Vacheron Constantin, A. Lange & Söhne, etc. This is where you go if you have the means to spend $20k-$30k at a minimum. These maisons will probably be least affected; the reason being their customer base thinks little of spending that much (and potentially a huge amount more) for a watch, so paying a bit more on top is like water off a duck’s back.

Where the industry is really going to suffer is with the mid and entry level brands. Imagine you’ve worked your butt off and saved $6,000 or so for a brand new Omega Seamaster Diver 300M. Are you really going to fork over another chunk of change (potentially as much as $2,000+) on top to cover the cost of the tariffs which the importer has had to pay and is now passing on to you? Even if you could afford it, would you? 

And the lowest priced watches aren’t safe either. From 29^th August, the ‘de minimis’ exemption is being suspended for all international imports. This was the rule which allowed goods valued at less than $800 to enter the U.S. duty-free. When that goes, a flat fee of between $80-$200, or a value-based fee (ad valorem) will be charged. 

What Are the Ways Round It?

So it’s all pretty bleak for American watch enthusiasts at the moment. If a settlement can’t be reached, there’s little doubt prices are going to go up—although whether it’s by the full 39% is doubtful.

But what are your options for bypassing the whole thing?

Probably your best bet is to buy early. Swiss brands are reacting to the news by importing as many watches as they can before the tariffs hit, but they can only bring in so many. If you were on the fence about pulling the trigger on that dream piece, now is the time to hop off the fence and hightail it to your local AD.

Another possibility is to buy on vacation overseas. This is what happened in China when their government imposed luxury taxes—consumers just went shopping in Hong Kong and Macau. The next time you’re abroad on your holidays, don’t be surprised if you’re inundated with watch ads everywhere you turn; especially if you’re on a cruise ship. 

In our next article we’ll explore how all this impacts the preowned industry which, if history’s shown us anything, will definitely be affected.