Behind the trade deficit, Swiss gold trade becomes the focus of Trump's tariff policy

Switzerland's unique position in global gold trade is making its trade deficit with the United States, caused by the flow of precious metals, a focal point of the Trump administration's tariff policy.

According to CCTV News, U.S. President Trump recently signed an executive order establishing "reciprocal tariff" rates imposed on several countries and regions, with tariffs on Switzerland reaching as high as 39%. This move has caused a stir in the country. Previously, the Swiss government had been confident about avoiding high tariffs.

U.S. Trade Representative Jamieson Greer stated that the tariffs aim to reflect the commercial balance with the United States and the country's willingness to address its trade deficit. This imbalance is largely driven by gold trade; according to Swiss customs data, in the first quarter of this year, Switzerland's gold exports to the U.S. exceeded $36 billion, accounting for more than two-thirds of its trade surplus with the U.S.

However, despite gold being the main reason for the trade surplus, it itself may not be affected by the new tariffs. Meanwhile, the actual economic benefits that Switzerland derives from this massive trade volume are far less than what the data superficially indicates.

How Gold Trading "Distorts" Trade Data

Switzerland is the world's largest gold refining center, and its long-standing reputation for quality and tradition of confidentiality attract billions of dollars in gold flowing in and out, connecting mines from South America and Africa to banks in London and New York.

This flow of precious metals has led to significant fluctuations in Switzerland's trade balance. Simon J. Evenett from IMD Business School points out that gold bars are currently Switzerland's largest export product. However, he emphasizes:

"Gold is special; it is not truly manufactured in Switzerland; describing it as 'processed' is more accurate."

The Swiss National Bank expressed a similar view in a report earlier this year, stating that when analyzing the trade relationship between the two countries, the massive gold exports should not be included. This is because these gold flows reflect more financial market activities rather than the output of the real economy.

Arbitrage Drives Gold Bars into the U.S.

The recent surge in Swiss gold exports to the U.S. is primarily driven by a transatlantic arbitrage opportunity. Due to market concerns that precious metals might be caught up in the U.S. comprehensive import tariffs, gold prices on the New York Mercantile Exchange have shown a premium.

To capitalize on this price difference, European traders need to transport their 400-ounce standard gold bars held in London (the world's largest gold trading center) to Switzerland for re-melting, processing them into the 1-kilogram or 100-ounce specifications required by the Comex exchange, and then shipping them to New York for delivery. This makes Swiss gold refineries a crucial part of this arbitrage trade.

This arbitrage-driven flow of gold is temporary. In the second quarter of this year, as gold was explicitly exempted from Trump's tariffs, U.S. gold prices fell back to levels consistent with London benchmark spot prices, closing the arbitrage window. The flow of funds subsequently reversed, with Switzerland recording over $1 billion in net gold inflows during this period This exemption means that Switzerland's future gold exports are unlikely to be impacted by the newly imposed 39% tariff.

More importantly, although the gold trade volume is enormous, the refining business itself has relatively low added value. Switzerland has only five companies producing investment-grade gold, and most companies employ only a few hundred employees. Although gold prices have soared to nearly $3,500 per ounce this year, refiners typically earn only a few dollars in profit from the price per ounce when recasting gold bars.

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