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China has leveraged its sizeable gold trade with Switzerland to forge and expand a key free trade agreement with the Swiss. This agreement is important not just because it opens the door for increased trade with Switzerland in other goods and services, but also because it gives China a foot in the door for increased trade throughout the European Union (EU).
A look at China, Switzerland, and the gold trade shows the Chinese making yet another important inroad into the world economy. China has been aggressively and steadily expanding its global economic power base over the past decade. Its efforts have been very successful, including the forging of strong economic alliances such as the BRICS group, the Belt and Road Initiative, and the Shanghai Cooperation Organization. However, acting through those key alliances doesn’t mean that the Chinese aren’t also making significant moves on their own.
One of China’s major moves in international commerce has been the free trade agreement with Switzerland that it made in 2013, which significantly lowered or eliminated tariffs on imports/exports for the two countries. Switzerland isn’t following the increasingly anti-China stance of the US and its Western allies. Instead, it is increasing its economic ties with China. There’s historical precedent for this. The Swiss have, in short, always been more concerned with money than with politics. It was among the first nations, in 1950, to recognize the People’s Republic of China. This historical “money first” stance of the Swiss makes it unlikely that Switzerland will knuckle under to any possible pressure from the US and the EU to curtail its China trade or attempt to impose any economic sanctions on the Chinese.
The free trade agreement has been a profitable one for both the Chinese and the Swiss. In 2022 alone, its estimated that Switzerland saved nearly $200 million in customs duties on goods imported from China. Swiss and Chinese authorities are currently at work on an update to the agreement – an update that is expected to further increase back and forth trading between the two nations. China has fared even better under the free trade agreement than Switzerland has, by about $25 million in savings from reduced tariffs on goods imported from the Swiss.
The underlying force behind the agreement has been a large, ongoing trade in gold. Gold exports from Switzerland to China have more than doubled over the past decade. Gold accounts for more than half of the total value of Swiss exports to China. This should be no surprise, given the fact that Switzerland has four of the world’s five largest gold refineries. That has put it in a prime position to feed China’s ever-increasing push to increase its gold reserves. In 2023, Swiss gold exports to China totaled approximately 25 billion Swiss francs. That’s a massive increase from just four years earlier, 2019, when the total value of Swiss gold exports was less than 10 billion francs.
(Other than Antarctica, I don’t think there’s any continent in the world where the Chinese aren’t voraciously acquiring gold. And if there is any gold in Antarctica, well, then I’d look for Chinese mining companies to arrive on its frozen shores any day now.)
However, the free trade agreement between the Swiss and the Chinese isn’t just about gold. Swiss exports to China, exclusive of gold – as shown in the graphic below - have also expanded substantially – by about 75% since the agreement was put in place. As of 2023, the total value of Switzerland’s exports to China, beyond its gold trade, have, overall, increased by more than 15 billion francs. Switzerland’s famous watchmaking industry has reaped substantial gains from Chinese import demands. Other beneficiaries include a wide swath of companies in the Swiss machine industry, along with pharmaceutical companies.
Switzerland has made significant gains in market share in China over its primary competitors, the US and other countries that are in the EU.
Not everyone in the Swiss government is joyously delighted with China’s increasing inroads into the Swiss economy. One particular move that’s unpopular in some circles is Chinese acquisition of Swiss companies. Just as it’s been doing in the US and elsewhere, Chinese companies have been on a buying spree of snatching up companies in Switzerland, either buying them outright or securing financial control through stock ownership. Just recently, the Swiss House of Representatives moved to stop the ability of Chinese firms from outright takeovers of major Swiss companies.
Earlier this year, a Green Party member of Switzerland’s Parliament, Nicolas Walder, tried to get the free trade agreement rescinded altogether because of human rights violations by China, but that initiative fell flat.
In the end, these pushbacks against Switzerland continuing to cozy up to the Chinese economically are mostly just quickly and easily brushed aside by the primary movers in the Swiss business sector. They remain eager for expanded trade and economic cooperation between the two countries.
Asia specialist, Patrick Ziltener, sees the China-Switzerland free trade agreement as a sort of test run for China making similar agreements with other countries in the EU. Ziltner stated that, “China used this agreement to study how free trade agreements work in Europe”. Such an agreement with internationally respected Switzerland also serves to bolster China’s trade credentials in future trading agreements it seeks with other countries.
Gold will, in all likelihood, continue to be the dominant commodity traded between Switzerland and China, but the long-term effects of their free trade agreement are likely to be most noticeably evident in increased tariff-free trade in other goods. However, the massive gold buying that China does gives it considerable leverage in getting the Swiss to make further concessions in other areas of trade that China desires.
According to Fabian Maienfisch, spokesperson for the Swiss State Secretariat for Economic Affairs (SECO), a primary aim of Switzerland in an update to the agreement is to “expand tariff reductions for industrial products”. Currently, 20% of machinery exports to China are either partially, or not at all, exempt from import tariffs. Switzerland is also seeking further tariff reductions for the pharmaceutical industry. The Swiss are also hopeful that the Chinese will eliminate their consumption tax on luxury goods, a tax which applies to the Swiss watch industry.
A secondary goal for the Swiss is further enabling of Swiss companies to make major business investments in China. However, there’s a rather delicate tight rope balance to walk on that desire of the Swiss, given the contrary wishes of some in the Swiss government to eliminate China’s ability to invest in Swiss companies.
There is also talk of including environmental and human rights issues in a new agreement. But such attempts by other nations in the past have met with little to no success. The Chinese consistently frown on – and firmly reject - efforts by any other country to interfere with how they run their own nation.
As for the Chinese, Ziltener thinks that one of China’s main goals in a new agreement will be including the export of labor – securing the ability of Chinese specialists to obtain work permits in Switzerland. However, Ziltener is unsure about China’s chances of success on that count.
At the least, the main goal of the Swiss – further reductions in trade tariffs – is likely to be met in a newly negotiated agreement, and the overall upward trend in China-Switzerland trade is undoubtedly likely to continue.
China’s about-to-be-expanded free trade agreement with Switzerland is one more step forward for China in its economic march around the world. This agreement with the Swiss has boosted China’s trade balance and put it solidly in position to make future free trade arrangements with other major countries in Europe. And buying 25 billion francs worth of gold gives China a lot of leverage to use to tilt the negotiations of an updated agreement in its favor. When you tack this agreement with Switzerland onto China’s far-reaching Belt and Road Initiative, you can see China gradually creating a clear, smooth overland path of international trade that extends all the way from Beijing to London.
China’s insatiable appetite for gold has enabled it to simultaneously establish beneficial trading agreements with significant new trading partners, create key economic alliances with multiple countries, and strengthen its own financial house. At the same time, it has followed Russia and other countries in rapidly decreasing its exposure to the US dollar, dumping US Treasuries by the tens of billions and using the cash to acquire more gold and silver.
The China-Switzerland free trade agreement is just further evidence of the gradual shifting of global economic power from West to East. A new economic world order is forming, and China appears to be sitting firmly at its head. Since the turn of the century, China has steadily and substantially broadened and strengthened its economic power base, stretching and amplifying its international trade market north, south, and west, and reaching all the way across the Pacific to South America. China seems to be making all the right moves, while the US and the EU appear to just be continually stumbling their way into deeper debt and further economic troubles. And underpinning China’s increasing economic power is its ongoing relentless acquisition of gold and silver reserves.
Sources:
https://www.eurasiareview.com/03102024-why-switzerland-seeks-deeper-ties-with-china-analysis/
https://www.statista.com/chart/27688/chinas-share-of-global-gdp-vs-the-us-and-the-eu/
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