Trump’s trade war pushes Europe and Switzerland closer to Mercosur
As Washington announces unprecedented tariffs, Europe is turning to other trade partners. The European Free Trade Association (EFTA), led by Switzerland, is pushing ahead with a free trade agreement with the Mercosur states, following the example of the European Union.
Donald Trump’s intention to punish Europe with new tariffs is making headlines. The United States president claims that the European Union has long taken advantage of the US, exaggerating the trade imbalance between the two. In reality, the EU’s trade surplus with the US is only around 3%.
According to Eurostat, the EU statistical office, the US is the EU’s most important destination for exported goods. For imports into the EU, the US ranks second, behind China but ahead of the United Kingdom and Switzerland.
Global GDP at risk of double-digit decline
“The EU and the US must work together to defend multilateralism and a rules-based international order,” the European Commission recently stated in a press release. At the same time, the EU has strengthened its trade defence mechanisms, including an anti-coercion tool designed as a last resort against economic coercion.
The World Trade Organization (WTO) has a dispute-resolution system, but it does not cover cases of economic coercionExternal link, the European Parliament has warned.
During a discussion at the World Economic Forum (WEF) in Davos in January, WTO Director-General Ngozi Okonjo-Iweala urged restraint. She emphasised that decades of efforts to reduce tariffs have boosted global trade, which have benefited economies worldwide.
“If we have tit-for-tat retaliation, whether it’s 25% tariff [or] 60% and we go to where we were in the 1930s, we’re going to see double-digit global GDP losses. That’s catastrophic,” said Okonjo-Iweala, the first woman and first African to head the WTO. She pointed to the protectionist policies of that era, which helped lead to the Great Depression in the US.
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Capitalising on side-effects of US tariffs
According to the EU, it is clear that a tariff war will likely increase the cost of certain products. But it also sees an opportunity. The situation could prompt other affected countries to strengthen ties with Europe as a counterweight to Washington.
The Swiss president and finance minister, Karin Keller-Sutter, showed no concerns at the G20 meeting in Cape Town at the end of February. “Switzerland will not suffer the consequences of a trade dispute between the US and the EU,” she declared.
The world’s largest free trade zone
While Trump plays his cards, Europe is looking to diversify its trade relationships, making concerted efforts to secure ties with South America.
In December 2024, the European Commission and the four Mercosur countries – Argentina, Brazil, Paraguay and Uruguay – announced the conclusion of negotiations on a free trade agreement, after more than two decades of talks.
The deal now faces a complex ratification process before the world’s largest free trade area can become a reality. The EU represents a market of 450 million people, while Mercosur’s population stands at 280 million.
“This agreement is not just an economic opportunity – it is a political necessity,” European Commission President Ursula von der Leyen said last December in MontevideoExternal link, highlighting the current geopolitical landscape.
Swiss free trade deal this year?
Economic policy is also geopolitics, and Switzerland is one of the most strategically astute players in this field. It has made significant progress spearheading its own negotiations with the Mercosur countries, as part of the European Free Trade Association (EFTA), of which it’s a member alongside Norway, Iceland and Liechtenstein.
“The negotiations could be concluded in the first half of 2025 and the agreement signed in the second half,” said Nicolas Bideau, a spokesperson at the Swiss foreign ministry.
Foreign Minister Ignazio Cassis travelled to Paraguay, Brazil and Bolivia in early February to speed up the negotiations. The EFTA met directly with Mercosur’s newest member in La Paz in an effort to strengthen ties, a step Brussels has not yet taken. Bolivia joined the bloc in July 2024, and the EFTA is seeking a closer relationship with the country, which is part of the “lithium triangle,” along with Argentina and Chile.
For Switzerland, the most important trading partner in Latin America remains Brazil. Switzerland ranks among Brazil’s top five investors. Brazil, currently chairing the BRICS group, is also facing tariff threats from the Trump administration. Cassis and his Brazilian counterpart Mauro Vieira have agreed to conclude the negotiations as quickly as possible.
Support in Switzerland is divided
“As an export-driven nation, Switzerland places great importance on new free trade agreements. Recurring global trade conflicts put pressure on the system, and each new agreement helps to improve conditions for Swiss businesses by reducing barriers to trade and investment,” said Jan Atteslander, a member of the executive board of economiesuisseExternal link, Switzerland’s largest business advocacy group.
The agreement with the Mercosur states could soon join the list of free trade deals that Switzerland has concluded, either bilaterally or within the EFTA framework. Recent deals include those with India, Kosovo, and Thailand. Learn more in this article:
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Who benefits from free trade agreements with Switzerland?
The Swiss Farmers’ Association is more critical. “We expect the Swiss government to ensure that an agreement between Mercosur and Switzerland, as an EFTA member, takes into account the special characteristics of our agricultural sector – high costs, stringent production requirements, challenging topography, and so on,” said spokesperson Sandra Helfenstein.
Once signed, the agreement would undergo a ratification process in the Swiss parliament. It could also be challenged in a referendum. The first and only time that an FTA has been put to a nationwide vote in Switzerland was in 2021, when 51.7% backed an environmentally controversial deal with Indonesia.
What could prevent ratification this time? “The red line for me – and likely other members of the Swiss People’s Party – is that our farmers must not be made to suffer the consequences,” said Jean-Luc Addor, a People’s Party parliamentarian from canton Valais.
“For consumers, there is another issue at stake: the agricultural sector in Mercosur countries is not subject to the same rules as ours when it comes to the use of certain products.”
Mercosur states are not in a hurry
“Switzerland already refrains from unilaterally imposing tariffs on goods, meaning the Mercosur countries do not have much to gain – unless Switzerland makes concessions on agriculture,” Cédric Dupont, a professor of international relations at the Geneva Graduate Institute, explained. “But there doesn’t seem to be any concessions. Switzerland is protecting its most important agricultural sectors.”
If the political will existed on both sides, Mercosur and the EFTA would be close to signing their free trade agreement, Dupont believes. “But at the moment, that willingness is not particularly strong in the Mercosur region,” he said. It is difficult to gauge how much political priority they will give to the EFTA agreement, which is far less important to them than the one with the EU, he added.
Dupont is convinced the agreement has taken on greater significance for Switzerland, even though the trade volume with Mercosur countries is still low compared to that with Europe, China and the US.
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Switzerland expands free trade network despite doubts
Amid Trump’s tariff policy and the protracted renewal of bilateral agreements with the EU, “signing the agreement with the South American bloc has a political dimension,” Dupont said. The deal is also of particular interest to the Swiss pharmaceutical industry, among other sectors. With the WTO increasingly deadlocked, Dupont adds, Switzerland is seeking to diversify and thus preserve its global export markets.
A small market with big purchasing power
Oscar Eduardo Fernández-Guillén, an expert in Latin American integration based in Buenos Aires, describes the agreement with the EFTA as of “relative importance” for the Mercosur region. Compared to the EU, the EFTA represents a small market of just 15 million people. “But these countries have some of the highest per-capita incomes in the world,” he said.
Mercosur’s trade balance with EFTA is negative, Fernández-Guillén added. The bloc mainly exports gold, “especially to Switzerland, which is its leading trading partner and well known for its fine jewellery industry,” he noted.
By September 2024, Mercosur exported goods and raw materials worth $3.3 billion (CHF2.98 billion) and imported goods worth $3.9 billion, according to consolidated figures from the Latin American bloc.
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The EFTA market accounts for 1% of Mercosur’s total trade, whereas China makes up 30%. Nevertheless, every negotiation matters because trade agreements establish clear rules for economic relations. Beyond trade, they also establish regulations for investments, both Dupont and Fernández-Guillén pointed out.
Mercosur hampered by competing national agendas
“The challenge facing Mercosur is that its negotiation agenda is in the hands of the rotating chairperson – which, in this semester’s case, is Argentina – without any supranational authorities involved,” said Fernández-Guillén. “Each country conducts negotiations based on its own economic priorities.” This leads to the pursuit of short-term political and ideological goals rather than long-term regional ones, which is why “Mercosur has been dormant since 2000,” he added.
Meanwhile, Trump is attempting to reshape the region, where China – the US’s other major trade rival – has already established a strong foothold. “We are on the brink of witnessing a clash between [President] Lula’s Brazil, which leans towards Russia and China, and [President Javier] Milei’s Argentina, which is pro-US,” said Michel Celi Vegas, president of the Geneva-based Exchange and Cooperation Centre for Latin America (ECCLA).
New development opportunities in response to Trump
“From a geopolitical perspective, Argentina could have a greater interest in negotiating with the US or another country, thus disrupting progress with the EFTA, or it could try to resolve the outstanding issues of the Mercosur-EFTA agreement and bring the negotiations to a close,” said Fernández-Guillén, the Buenos Aires-based expert.
+ US blacklists Switzerland for “unfair trade”
In any case, Trump’s trade war is driving up inflation and reducing real incomes. This is prompting players with high per-capita incomes like the EU or EFTA to seek alternatives and reduce their dependence on the US, the expert added.
The conflict may lead to new trade agreements which, in turn, attract investments and create businesses opportunities, establish production processes, and generate jobs in emerging economies.
Edited by Marc Leutenegger, Adapted from German by David Kelso Kaufher/gw
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