COMMENT - Trump's new tariff shock: Dealing with Switzerland becomes an important signal

Despite numerous business trips to Washington, high-level phone calls, suspended digital taxes, and postponed retaliatory tariffs, Donald Trump is threatening his most important trading partners with even higher tariffs than before the tariff pause. Imports from Canada will be subject to a 35 percent tariff starting August 1.

In the mail that Mexico and the EU received on Saturday, Trump announced 30 percent each. The average tariffs still in effect at the beginning of this year, according to World Trade Organization (WTO) calculations, of 0 percent for Mexico, 0.25 percent for Canada, and 3.5 percent for the EU, seem otherworldly.

Nevertheless, Trump's tariff policy has so far failed to sustainably dampen the euphoria on the American stock market. Investors did react with shock in April. But since the American president suspended his so-called "reciprocal" tariffs and also agreed to a 90-day tariff pause with China, the markets have been betting on "Taco": "Trump always chickens out" – when things get serious, Trump always gets cold feet and gives in. "Taco" supporters interpret his threats as a mere tactic to help him secure better deals.

But Trump's actions of the past few weeks can also be interpreted as a reversal of the trend. To express it with a similar acronym: Perhaps "Taco" will soon be replaced by "Tadie": "Trump always does it in the end."

He's doing what he wants and – unlike in his first term – putting his threats into action. The offers of negotiations were a diversion. Trump wants to use very high tariffs as a universal weapon and meant it when he said in January that the most beautiful word in the dictionary for him is "tariff."

In fact, even during the tariff pause, Trump gradually increased tariffs and initiated procedures to impose new ones. Even without "reciprocal" tariffs, the average tariff rate applied to imports from around the world has already increased from 2.1 to 13.7 percent since the beginning of the year – and the trend is rising.

The White House's handling of Switzerland in the coming days is likely to provide important insights into who is right. The US also has a substantial trade deficit with the Swiss Confederation due to its pharmaceutical and gold imports. Trump initially threatened "reciprocal" tariffs of 31 percent. But Switzerland has already set its industrial tariffs at zero.

Swiss companies are the seventh largest foreign investors in the USA and expect to invest significantly more if the general conditions are right and uncertainty decreases.

Switzerland has reportedly already reached an agreement with Finance Minister Scott Bessent and Trade Representative Jamieson Greer that maintains the flat tariff rate of 10 percent and grants exceptions for pharmaceuticals, among other things. The agreement also otherwise calls for increased cooperation. The draft is now with the White House.

If Switzerland fails to receive a letter from Donald Trump in the coming days, let alone conclude the agreement, this would send a strong signal in favor of the "Taco" community. It would indicate that Trump is sending his letters primarily to increase negotiating pressure and be able to conclude deals soon.

If, however, Trump ignores the negotiated agreement and treats Switzerland in the next few days in a similar way to how he treated the EU, then "Tadie" will hardly be able to be dismissed.

The man in the White House feels even more emboldened by the so far muted market reactions in his protectionist stance. He is disavowing his economically experienced negotiators and is acting in an increasingly authoritarian and unpredictable manner. The only people in charge are Trump himself and a small circle of radical influencers like the unorthodox economist Peter Navarro and the ultra-right advisor Steve Bannon.

One hopes that the "Taco" faction will be right. But there are increasing signs that "Tadie" is a possibility. Then the only way out would be the American courts and voters.