Swiss chocolate, Swiss watches, Swiss army knives, Swiss cheese. You get the idea. These are all products that likely instantly bring to mind an image associated with Switzerland. Perhaps, alpine views and cows for the chocolate and cheese? Maybe precision timing and high quality with the watch? Red plastic covered tools with multiple blades and other useful gadgets folded inside for the knife? Now, imagine those same products without their Swiss connection. In fact, imagine them all being made in the United States instead. Sure, the United States is known for its Hershey bars, Timex watches, Buck knives, and Kraft Singles Cheese slices, but these products, while theoretically similar, are also very different from their Swiss-made counterparts. So, imagine the dilemma facing Swiss companies currently under pressure to produce their iconic products in the United States.

The United States, citing an unfair trade relationship, recently levied a 39 percent tariff on imported goods from Switzerland. Now, to avoid the tariff, companies like Victorinox, maker of the Original Swiss Army Knife, may have to produce at least some of their product in the United States, or risk losing an important market. Yet, the product’s very identity lies in it being the Original Swiss Army Knives. Is a Swiss Army Knife that is made in America still a Swiss Army Knife? Does the product lose intangible value if it’s produced in the United States. Would a Swiss Army Knife produced in Switzerland hold more value than a U.S.-produced knife, thereby potentially creating opportunities for arbitrage? These may be questions being discussed in the board room at Victorinox. The company is no stranger to offshore production. It makes backpacks and luggage in Asia, for example. However, the company has always made the Original Swiss Army Knife in Switzerland. Now, with what amounts to a 39 percent cost increase to contend with, Victorinox may be forced to change its strategy.     

Discussion Questions:

1. Does the Original Swiss Army Knife need to be produced in Switzerland or can in be made in the United States? Would producing it in the United States or China affect its brand equity and pricing compared to manufacturing it in Switzerland?

2. Discuss tariffs as a barrier to the U.S. market. In the case of quintessentially Swiss products like the Swiss Army Knife, do tariffs work as a trade barrier? Will they result in increased domestic production of similar goods? Explain.