I am pretty sure most of you have bought your own plane ticket for a trip. You probably used one of the websites that allows you to view available flights from various carriers. The airlines have learned that travelers, once they put in their destinations and dates, search for the best fares that they can find. So, if you are an airline and want to be at the top of the list, you keep your fare as low as possible.
The headline message is “we are the lowest-cost carrier”.
But we know, from experience, that this is not necessarily true.
Let’s say you see two fares with similar itineraries, but one lists its fare at $99 round trip, and the other lists it as $320 round trip. If you believe the headline, you want to purchase the $99 flight, right?
But then we drill down a little bit and find that the $99 round trip also requires you to buy seats at $50 each way ($100 for the round trip), it requires you to pay for you bag, at $50 each way (another $100), it requires you to pay for the overhead bag in the plane at $25 each way (another $50), and we won’t include the $4.50 for a bottle of water, or the $15 for the WIFI/entertainment package.
So, the $99 roundtrip actually costs you $349.
It costs MORE than the traditional “higher-priced” flight at $320.
You always need to look past the headline to understand the reality.
FOREIGN TRADE
Which brings us to foreign trade.
(Note: I am NOT an economist; I have never taken classes in economics. I am just trained to look empirically at numbers, and that is what I am doing here. If I am mistaken in my analysis, I hope that you who are better educated will point out my errors.)
Let’s take a moment to look at the trade between Switzerland and the United States.
Mr. Trump attacked Switzerland earlier this year for having “ripped us off” for years, citing the large trade deficit that we have with Switzerland. In response, he placed a 35% tariff on imported Swiss goods to offset this deficit.
Was he correct?
Well, yes and no.
In 2024 (the last year for which there is full data), and according to the US Office of the Trade Representative (USTR), the US imported $106.0 Billion in goods FROM Switzerland, but we exported only $71.1 Billion in goods TO Switzerland.
We had a DEFICIT of just under $35 Billion. And this is the basis for the claims Mr. Trump made and for the imposition of tariffs.
But here is the rest of the story.
We also imported $35.0 Billion in Services FROM Switzerland, and we exported $99.7 Billion in Services TO Switzerland.
We had a SURPLUS of $64.7 Billion in services.
Considering the TOTAL trade between the US and Switzerland, goods AND services, we had a net SURPLUS of just under $30 Billion.
The claim that the Swiss have been “ripping us off”, supported by the claim that we had a deficit in trade with Switzerland is just wrong.
DRILLING DOWN ANOTHER LEVEL (by per capita consumption)
The population of the US is about 350 million.
The population of Switzerland is about 9 million.
Just looking at Goods traded, the Swiss imported $71.1 Billion from the US.
This amounts to about $7,900 worth of US goods imported per capita in Switzerland.
On the other hand, the US imported $106 Billion in goods from Switzerland.
This amounts to about $303 of Swiss goods imported per capita in the US.
Switzerland imported over 26 TIMES the amount of goods per person than the US imported from Switzerland.
And if we look at the total trade between the two countries:
The Swiss imported a total of $170.8 Billion in trade FROM the US
This amounts to about $19,000 of imports by Switzerland per capita.
On the other hand, the US imported a total of $141 Billion FROM Switzerland.
This amounts to about $403 of imports by the US per capita.
Switzerland imported over 47 TIMES the goods and services per person than the US imported from Switzerland.
Who is benefiting the most here?
It certainly does not seem that Switzerland is “ripping us off”.
DRILLING DOWN FURTHER (what are we trading?)
Now, let’s take a look at what is being traded back and forth. This is important because the chief reason for tariffs, at least historically, is to provide a more level playing field between foreign producers and domestic producers. Adding costs to the imports allow domestic manufacturers to better compete with those imports.
Is this the case between the US and Switzerland?
First we will look at goods (the most prominent items discussed publicly).
What does Switzerland export to the US?
(the categories here are the formal ones that the USTR uses for keeping data)
What does Switzerland export TO the US?
Pharmaceutical products: $35 B (about $100 per American)
Pearls, precious stones, metals, coins: $15 B (about $43 per American)
Clocks and Watches: $ 5 B
Optical, photo, technical, medical apparatus: $ 4 B
Machinery, nuclear reactors, boilers: $ 4 B
And what does Switzerland import FROM the US?
Pearls, precious stones, metals, coins: $13 B (about $1,450 per Swiss)
Pharmaceutical products: $ 3 B (about $333 per Swiss)
Works of art, collectors’ pieces and antiques $ 2 B
Optical, photo, technical, medical apparatus: $ 1 B
Aircraft, spacecraft: $ 1 B
You can see from these numbers that the two top categories are the same for both imports and exports.
I want to focus on pharmaceutical products because, I think they are simpler to break down and easier to understand.
On a per capita basis, the Swiss import more drugs from the US than the US imports from Switzerland although the gross numbers are reversed. And why is this so? Because there are Swiss-owned and Swiss-manufactured pharmaceuticals that US citizens need!
Roche, Pentapharm, Rhizen, and RhyGaze are just a few examples of Swiss companies that own the intellectual rights to cancer drugs, treatments for neurologic diseases, eye diseases, Multiple Sclerosis, etc. We CANNOT MANUFACTURE these drugs in the US because we DON’T HAVE THE RIGHT TO DO IT.
And the Swiss MUST import drugs manufactured by American pharmaceutical companies who own the intellectual and manufacturing rights to those drugs.
When we place tariffs on these pharmaceutical imports, like the across-the-board 15% tariffs recently imposed, we increase the costs of those drugs to the American public, because we have no way to make them ourselves, here, to compete.
DRILLING DOWN ON SERVICES
We can do the same analysis on Service exports and imports.
What services does Switzerland export TO the US?
Insurance: $ 9.4 Billion
Charges for Intellectual Property: $ 7.4 Billion ($21 per person in the US)
Transport Services: $ 6.4 Billion
Business Services: $ 6.2 Billion
Travel Services: $ 1.7 Billion
And what services does Switzerland export FROM the US?
Charges for intellectual Property: $27.8 Billion ($3,089 per person in Switzerland)
Business Services: $25.3 Billion
Telecommunications: $ 4.1 Billion
Transport Services: $ 2.8 Billion
Financial Services: $ 2.3 Billion
So, once again, we trade back and forth with Switzerland on services in which we have expertise in exchange for those services in which they have expertise. Charges for Intellectual property CANNOT be altered by “producing” them in the US, or conversely for the Swiss to produce US intellectual property in Switzerland.
Just like shopping for the best airline fare, attempting to make conclusions on trade deficits and surpluses based on just the bottom-line number will often mislead you.