Switzerland: New Free Trade Agreement with China

The new free trade agreement with China also improves the business environment for Swiss watches—but it does not automatically solve the “China problem“

At first glance, the news sounds very positive: Switzerland and China have concluded negotiations on improving their free trade agreement. This is expected to significantly improve access to the Chinese market for Swiss exporters. In the future, 99.8 percent of current Swiss exports of goods will be able to enter China duty-free. Until now, this applied to only about half of Swiss exports, while Chinese goods could already be imported into Switzerland largely duty-free.

For the Swiss watch industry, this is generally a positive sign. Despite weak growth, China remains one of the most important international markets. Furthermore, watches were already among the product groups given special attention in the original 2014 free trade agreement. At that time, Chinese import duties on key watch categories were not completely eliminated but were reduced by 60 percent over a period of ten years. The Federation of the Swiss Watch Industry estimated the resulting duty rates at that time to be approximately 4.4 to 5 percent.

Market Access Is Improving

The key point of the new agreement, therefore, is not an immediate surge in demand, but rather improved trade conditions. If Swiss watches can be imported into China duty-free in the future, their competitive position in terms of price and structure will improve. For manufacturers, this could ease pressure on margins, open up pricing flexibility, or strengthen official distribution channels relative to other sourcing channels.

The agreement is also significant from a trade policy perspective. China is Switzerland’s third-largest trading partner after Germany and the U.S. Reuters estimates bilateral trade for last year at 51.2 billion francs; the agency already projects 46 billion francs for 2026. This demonstrates the economic significance of the agreement far beyond the watch industry.

However, the timeline is important. The agreement has not yet entered into force. According to the Swiss State Secretariat for Economic Affairs (SECO), the conclusion of negotiations was announced first; the formal signing is expected to take place by the end of 2026. This will be followed by the respective domestic approval processes. For the watch industry, this represents a medium-term prospect rather than an immediate market impact.

Demand remains the real problem

This is precisely where the key distinction lies. Lower tariffs improve market access, but they are no substitute for stable demand. The Chinese market has become significantly more challenging for Swiss watches in recent years. In 2025, Swiss watch exports to China fell by 12.1 percent, while exports to Hong Kong declined by 6.5 percent. The Federation of the Swiss Watch Industry cited a challenging market environment overall, with Asia in particular performing more weakly.

The latest monthly figures also show that China remains a challenging market. In July 2026, Swiss watch exports rose by 9.6 percent overall to 2.628 billion francs. China, on the other hand, saw another significant decline of 18.5 percent; Japan and the United Arab Emirates also posted weaker results.

As a signal of trade policy, the agreement is undoubtedly positive. However, it does not signify an immediate turnaround for Swiss watches in China. The real question is: Will lower import costs be enough to offset consumer caution, weaker confidence, and shifting luxury priorities in the Chinese market?

The luxury tax remains a factor

Furthermore, the previous customs duty was only one part of the pricing structure. For high-end watches in China, a separate luxury tax or excise tax also plays a role. Even in the original free trade agreement, it was noted that watches above certain price thresholds may be subject to a 20 percent excise tax in addition to the import duty. This tax was not part of the tariff reduction at that time and remains a mitigating factor in current reporting.

For Swiss manufacturers, this means that even a complete elimination of tariffs does not necessarily lead to significantly lower retail prices. However, it can improve cost calculations, make legal import channels more attractive, and structurally strengthen official distribution channels.

A positive sign, but not a sure thing

For the Swiss watch industry, the optimized free trade agreement is an important step in trade policy. It can improve competitiveness in China, reduce costs, and strengthen official distribution channels. At the same time, the market remains challenging. Export data continues to show declines, and demand for luxury watches in China has not yet recovered sustainably.

The actual finding is therefore this: The agreement improves the supply side. The market has yet to bring about a shift in demand.

Sources: SECO / Swiss Confederation, Reuters, Federation of the Swiss Watch Industry FH, Radiocor/Borsa Italiana, SWI swissinfo.