Spending money to avert disaster? Switzerland proposes investing in the U.S. refining industry to reduce Trump's 39% tariff

In order to escape the extremely high punitive tariffs imposed by the Trump administration, Switzerland is considering spending money to mitigate the situation, a strategy that highlights the difficult position of small countries under the pressure of U.S. trade protectionism.

On Monday, September 29, media reports indicated that Switzerland has proposed to U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer to invest in the U.S. gold refining industry, hoping to persuade the Trump administration to reduce the import tariffs that began last month. These tariffs have impacted Switzerland's exports to the U.S. and dragged down growth expectations.

According to CCTV News, on August 7, local time, the U.S. officially imposed import tariffs of up to 39% on Swiss goods. This unprecedented punitive measure has made Switzerland one of the countries most severely affected in the current U.S.-Europe relations.

After the news of Switzerland's intention to invest in the U.S. refining industry emerged, U.S. stocks saw spot gold maintain an intraday gain of about 1.8%, stabilizing above $3,830, and later refreshed the intraday high record to above $3,833, gaining nearly 2% for the day.

Switzerland's Gold Industry Concession Plan Emerges

On Monday, media cited sources familiar with the matter stating that Switzerland proposed to the U.S. that Swiss refineries shift their lowest-margin businesses to the U.S. This includes melting down 400-ounce gold bars traded in London and recasting them into 1-kilogram gold bars that are more popular in the New York market.

Sources also indicated that at least one Swiss refinery is considering accelerating its investment plans in the U.S.

The U.S. Treasury Department did not respond to requests for comments on the above news. The Swiss government declined to comment on specific arrangements in the gold industry, stating that it has "optimized the conditions proposed to the U.S. to reach an agreement quickly," and noted that diplomatic and political exchanges between the two countries "will continue in hopes of quickly reducing the additional tariffs."

Christoph Wild, president of the Swiss Precious Metals Producers and Traders Association, stated that all association members have plans for further investment in the U.S. in the medium to long term. However, he pointed out that it remains uncertain whether the low-margin business of recasting gold bars can be economically viable without subsidies from either the Swiss or U.S. governments.

Criticism of the Gold Industry in Switzerland

Switzerland's largest gold refining center, Ticino, has become the focus of attention, as in the first quarter of this year, Switzerland's trade surplus with the U.S. surged, with gold trade accounting for more than two-thirds of it. This trade distortion has sparked criticism of the gold industry.

From Swatch Group CEO Nick Hayek to Swiss Green Party Chair Lisa Mazzone, various voices within Switzerland are calling for taxes on gold exports. Mazzone proposed a 5% tax on the industry, arguing that there is a risk of "dirty gold" but limited net contribution to the economy.

However, it is not accurate to portray Swiss refiners as the culprits behind the trade surplus in 2024. Last year, the actual trade surplus of about $3.6 billion between the U.S. and Switzerland was significantly altered by a large influx of gold into New York in the first quarter of this year Simone Knobloch, CEO of Switzerland's largest gold refining company Valcambi, stated that there is a lack of commercial basis for the company to build a new refinery in the United States, considering the low profit margins and market saturation.

The Gold Refining Industry Faces Transformation Pressure

Switzerland's gold refining industry has a long history but thin profit margins. Although spot gold prices reached a new intraday historical high again this Monday, less than a week after the previous peak, media reports indicate that refineries can only earn a few dollars in profit per ounce when re-melting gold bars.

The Swiss refining industry originated from the Zurich Gold Pool established by three Swiss banks in 1968, which made Zurich a major gold trading center. Since then, while the ownership structure of the industry has evolved, profit margins remain slim.

Wild pointed out that the need to process gold in Switzerland when transporting it from the UK to the US is a market inefficiency that could be addressed by increasing refining capacity in the US. However, this requires sufficient demand in the US to support the feasibility of such projects.

The refining industry opposed Hayek's proposal to impose a 39% tax on gold bars exported to the US, stating that the US could easily source gold bars from elsewhere, and an export tax would almost certainly end this trade.

Switzerland Has Been Reported to Be Formulating a Plan Over Two Weeks Ago

As early as over two weeks ago, Switzerland was reported to be formulating a plan similar to the concessions made to the US this Monday.

According to media reports on September 11, Switzerland proposed that its gold industry build refineries in the US or increase local processing capacity as part of a plan to reduce US trade tariffs.

Swiss Economic Minister Guy Parmelin held "constructive" talks with senior economic officials from the Trump administration on September 5. The aforementioned media learned that a gold investment plan was already in place at that time, and negotiations between the two countries were ongoing.

According to the media, Switzerland is working to present a comprehensive proposal to the Trump administration that includes purchasing US goods and increasing investments in the US. In addition to the gold industry, the proposal also involves increasing the procurement of US military products and enabling the US to sell more liquefied natural gas (LNG) through Switzerland