Swiss Gold Refining's Role in the US Trade Imbalance

The US President Donald Trump's imposition of hefty tariffs on imports from Switzerland, driven by a trade imbalance, has its roots in a small but vital industry: gold refining. Renowned for its quality and discretion, Switzerland stands as a global hub for gold refining. Billions of dollars worth of gold flow from mines in South America and Africa into Switzerland, then on to banks in London and New York. Even though Swiss refiners only garner a small fraction of the trade's value, the movement of this precious metal causes significant fluctuations in the country's trade balance. According to Simon J. Evenett of MD Business School, gold is the country's largest single export. "Gold is special," Evenett says. "It's not really made in Switzerland. ‘Processed’ is a better word."

Tariff Impact on the Gold Refining Industry

With the Trump administration focused on reducing trade deficits, the impact of tariffs is more important than ever. Swiss customs data reveals that more than two-thirds of Switzerland's trade surplus with the U.S. in the first quarter of this year came from a record-breaking over $36 billion in gold exports. Trump's decision to impose a 39% tariff on all Swiss imports sent shockwaves through the country, whose government had previously been confident that it could avoid heavy levies. U.S. Trade Representative Greer stated that the tariffs reflect the commercial balance with the U.S. and the country's willingness to address its trade deficit.

Arbitrage Opportunities and Gold Flows

The recent surge in gold imports to the U.S. was primarily in response to a potentially lucrative transatlantic arbitrage opportunity, spurred by fears that the precious metal could become subject to broad U.S. import tariffs. European traders sought to ship gold bars to New York to capture a premium, but first, they needed to recast 400-ounce gold bars, common in London (the world's largest gold trading center), into the 1-kilogram or 100-ounce bars required on the U.S. Comex exchange. This made Swiss gold refiners a crucial linchpin in the arbitrage.

Reversal of Gold Flows After Tariff Exemption

In the second quarter, this flow reversed after gold was exempted from Trump’s tariffs, causing U.S. gold prices to fall back in line with London benchmark spot prices. During this period, Switzerland saw net gold inflows exceeding $1 billion. The exemption means that future Swiss gold exports are unlikely to be affected by the new 39% tax.

Trade Volume vs. Industry Size

Despite the massive sums involved in bullion trading, the refining itself is a relatively small industry. Switzerland only has five firms producing investment-grade gold, most of which employ just a few hundred people. Although the price of gold flowing through refineries has soared to nearly $3,500 an ounce this year, refiners typically earn just a few dollars for recasting the bars.

Swiss Central Bank's Caveat

The Swiss central bank has addressed the issue in an earlier report, arguing that huge gold exports to the U.S. shouldn't be factored into an analysis of trade relations between the two economies. The bank believes the focus should be on sectors that reflect real economic activity and sustainable trade exchange.