"I think those laws came to be as an attempt to save American watchmaking, which U.S. policy inadvertently killed by diverting domestic brands (which held a vast majority of the market share) to production of military instruments in WW2. It's sad really, in all likelihood the forums here would read Elgin, Hamilton, Gruen, Waltham Area if not for wartime decree and the ingenuity of the Swiss to capitalize on the situation."
You are right. During WWII, USA watch companies went to military watch, bomb timer, ship chronometer etc production thereby allowing the swiss to gain inroads into the civilian watch market and the US brands never recovered.