Openwork: Inside the Watch Industry — Episode Summary

Episode Title

39% Swiss Tariffs – Implications for the Watch Industry, Plus What Happens Next – Episode 46

Release Date: August 2, 2025
Hosts: Asher Rapkin & Gabe Reilly, Co-Founders, Collective Horology

Overview

This special episode tackles the shocking announcement of a 39% U.S. tariff on Swiss goods, including watches, effective August 7th. Asher and Gabe break down the history behind the tariff decision, its legal and political context, and analyze in detail what these unprecedented rates mean for the watch industry, retailers, and collectors in the United States. The episode is a deep dive into economic, legal, and practical implications, paired with insights about industry resiliency, potential future scenarios, and a message of cautious optimism.

Key Discussion Points & Insights

1. Background & Context — What Happened?

• On July 31st, the Trump administration announced a 39% reciprocal tariff on Swiss imports, including watches, effective August 7th. (04:00)
• This follows months of negotiation and a prior “reciprocal tariff” proposal (initially 31% for Switzerland). (04:00)
• The move dramatically increases the cost of importing Swiss goods, making the Swiss tariff the highest for any industrialized U.S. trading partner—even higher than the current rate on China. (05:08)

2. Swiss Response & Political Dynamics

• The Swiss president confirmed direct communications with President Trump, emphasizing her motivation to resolve the issue. The Swiss are “motivated to figure this out and have the access to figure this out.” (00:00, 36:41)
• The key U.S. complaint: the trade deficit with Switzerland—U.S. exports to Switzerland are ~$25B, imports are ~$63B, dominated by pharmaceuticals and precious metals, not watches. (05:57)
• Gabe: “Switzerland is a small country that has a big export business.” (06:35)
• The logic of a trade deficit-based tariff is questioned: “Asking a country of 9 million people to buy as much as a country of 340 million people is a quizzical logic to apply.” (07:46 — Gabe)

3. Legal Foundation and Current Litigation

• The Trump administration is justifying the action under the International Emergency Economic Powers Act (IEEPA), though a bipartisan panel at the U.S. Court of International Trade recently ruled such tariffs illegal and mandated refunds. (08:16)
• Decision is under appeal; an administrative stay means tariffs can be enforced while litigation is ongoing. (12:09)
• Asher: “We have this really interesting situation… tariffs, as they are imposed, and the method by which they are imposed is not legal according to the CIT and is currently being litigated.” (12:18)

4. Tariff Mechanics, Watch Imports, and Supply Chain Complexity

• The tariff targets the country of origin for core watch components, especially movements—even if cased or finished elsewhere. (15:58)
• U.S. Customs has increased requirements for origin traceability; import paperwork now demands origins for movement, case, strap, and even where steel was smelted. (16:59)
• Blended tariffs will apply—e.g., a watch with a German case (15% EU rate) and a Swiss movement (39%) will be taxed accordingly. (18:04)
• Second-order impact: Non-Swiss brands using Swiss movements are also affected, as are U.S. brands sourcing Swiss components. (18:41)
• Asher: “It’s a broader industrial issue…this is an issue that really cascades across the entire Swiss industry.” (18:41)

5. Impact on American Watchmaking & Manufacturing

• Protectionist tariffs can help embryonic industries when paired with grants or incentives—which is not the case here. (19:20-20:22)
• The cost of making American watches increases because Swiss movements and imported machines (e.g., Kern CNCs) become vastly more expensive. (20:32)
• U.S. watchmakers trained in Swiss service centers are also affected; hurting Swiss brands means hurting U.S. watchmaking talent and infrastructure. (21:32)
• “If we hurt the Swiss watch industry, we actually do hurt watchmaking in America.” (21:32 — Gabe)

6. Who Bears the Cost?

• Tariffs are paid by U.S. importers and consumers, not by Swiss exporters. (22:30)
• Tariffs are levied on wholesale (import) value, not retail price. The direct impact is less than 39% on MSRP, but it still erodes already low margin; public watch retailers’ net profit margins commonly range 6–10%. (23:23, 24:36)
• Absorbing the full tariff is not possible at any point in the supply chain; not retailers, distributors, or brands. (25:20, 27:47)
• Marketing and prestige costs are not enough to absorb such a large levy—especially for independents with minimal brand spending. (29:11, 30:56)
• Gabe: “There’s no 39% there.” (29:11)

7. Short-Term Coping & Mitigation Strategies

• Inventory was “front-loaded” into the U.S. prior to the tariff; first-half 2025 Swiss watch imports to the U.S. rose by 20.4%, with a 150% year-on-year spike in April. (31:00)
• The August start coincides with the Swiss watch industry’s annual vacation, when few new shipments were expected anyway—providing a cushion for transition. (32:59)
• Asher: “There is a fair amount of front-loaded inventory here that is going to help absorb a lot of this or at least mitigate this in the near term.” (31:00)

8. Industry Scenarios & Potential Outcomes

• Best case: Swiss negotiate a deal, and tariffs drop to EU (15%) or UK (10%) levels.
• Middle case: Tariff is reduced, but remains higher than EU rate.
• Worst case: The 39% remains for the foreseeable future. (36:58)
• Due to the supply chain, even the worst case won’t mean a 39% MSRP increase. Past 10% tariffs yielded only single-digit price hikes, as brands/retailers absorbed much of the impact. (39:52, 40:19)
• If tariffs remain at 25%–39%, “the cost basis for importing goods into the United States will grow significantly, which just means that the price will increase... But those price increases will not be to the tune of 39%.” (38:36, 43:16 — Asher)
• Brands, especially larger ones, are creating U.S. subsidiaries and importing at “internal cost” to reduce tariff exposure; even some small independents follow suit, demonstrating industry resilience and inventiveness. (43:20)

9. Why Not Just Move Production to the U.S.?

• Practical impossibility: U.S. lacks the necessary industrial base, skilled labor, and incentives for large-scale watchmaking.
• Capital investment, training, and even importing machines face their own tariffs.
• Asher: “Is it even cheaper to manufacture here? Not really.” (47:23)
• For such a move to make sense, the tariff must be both permanent and high—making investment risky if policy changes again. (48:29-49:18)

10. Resilience of Industry and Consumer Demand

• Despite uncertainty, July 2025 was Collective Horology’s best retail month ever, and independent brands are strong.
• Gabe: “Consumers are nothing but resilient…we have seen no less enthusiasm from customers and we've seen strong sales.” (49:32)
• Asher: “No tariff or business environment is going to keep people from loving watches.” (51:53)
• The hosts emphasize not making grand predictions, but expect continued adaptation.

Notable Quotes & Memorable Moments

• “The rationale for these tariffs…is that there is a trade deficit between the country of Switzerland and the United States.” (05:21 – Asher)
• “Asking a country of 9 million people to buy as much as a country of 340 million people is a quizzical Logic to apply.” (07:46 – Gabe)
• “If we hurt the Swiss watch industry, we actually do hurt watchmaking in America.” (21:32 – Gabe)
• “There is no 39% there.” (29:11 – Asher)
• “Prices aren't going to increase, even in a worst-case scenario, 39%.” (43:20 – Gabe)
• “Businesses are nothing if not resilient, resourceful, and creative.” (43:20 – Gabe)
• “No tariff or business environment is going to keep people from loving watches.” (51:53 – Asher)

Timestamps for Key Segments

• Tariff Background & Announcement: 04:00–08:16
• Swiss–US Trade Deficit Context: 05:57–07:46
• Legal Challenges to Tariffs: 08:16–13:23
• Implications for Watch Industry, Movement Component Focus: 13:57–16:59
• Customs Changes & Blended Tariffs: 16:59–19:20
• American Watchmaking Industry Impact: 20:18–22:30
• Who Pays the Tariff? 22:30–24:40
• Margins and Absorbing Costs: 24:36–30:56
• Short-Term Mitigation & Inventory Front-loading: 31:00–33:59
• Possible Scenarios/Industry Resilience: 36:58–49:32
• Final Thoughts: Industry & Consumer Resilience: 49:32–54:48

Tone & Style

• Candid, detailed, and informed—both hosts blend expert analysis with practical insights from the retailer’s perspective.
• Critical but optimistic, focused on facts and “how things actually work” in industry and policy.
• Down-to-earth, with occasional humor and a clear passion for watchmaking.

Conclusion

Asher and Gabe end by stressing that though the tariff news is both disruptive and serious, the watch industry—including brands, retailers, and collectors—has proven incredibly resilient and resourceful. While prices may rise for U.S. consumers, the full impact will be mitigated by strategic inventory management, the structure of the import chain, and ongoing adaptation both legal and logistical. The hosts encourage listeners to avoid panic, follow the legal and diplomatic developments, and remain engaged—ultimately, the love of watches endures.

For deep dives and live updates, check out the episode blog at collectivehorology.com.