After Israel fails to win reprieve from Trump’s tariffs, will its economy be hit?
New US policy set to threaten competitiveness of Israeli exports of machinery and medical equipment, experts say, while potential damage to tech industry is limited
Israel was not spared from US President Donald Trump’s sweeping decree to impose levies on global imports and was hit Wednesday with a 17 percent tariff on products exported to America. This, despite Jerusalem’s blitz action a day earlier to lift all remaining duties on US imports, in a last-minute attempt to preempt the move.
Economists, trade experts, and capital market strategists who spoke to The Times of Israel believe that Israeli leadership, including Prime Minister Benjamin Netanyahu, will seek to negotiate a reduction of the tax penalty to the lower baseline rate of 10%, before it is officially implemented in the coming days, and will eventually attempt to have it scrapped altogether.
Finance Ministry Chief Economist Shmuel Abramzon said Thursday that Israel will negotiate with the US administration about canceling or softening the announced US import duty on Israeli goods.
“We knew that this was going to happen, but we are surprised about the scope of the tariff and are still learning the implications,” said Abramzon, speaking at a conference at Herzliya’s Reichman University. “We have a good channel with the US administration, and I believe that through dialogue and negotiations, we will succeed in making a change to this evil.”
Commenting on the impact of the US tariffs on Israel, Abramzon said that “if the global economy is weakened, our economy will also be affected.”
Late on Wednesday, Trump unveiled a raft of punishing tariffs that range from 10% to 49%, targeting some 60 countries around the world, including some of its closest trading partners, in a move that risks sparking a ruinous global trade war.
Trump says the move is a reciprocal action for taxes imposed on US exports around the world.
A baseline rate of 10% is set to come into effect on April 5, and the specific reciprocal tariffs on April 9. China will have a 34% duty placed on its products imported to the US, the European Union will have 20%, and Japan will have 24%. Trump has emphasized that the rationale behind the new trade tariffs is to address trading imbalances and protect American jobs and manufacturing.
To calculate the rate of the sweeping new tariff policy for each country, the US administration took the trade deficit figure for each country as a benchmark, divided it by the volume of exports from that country to the US, and then divided the resulting percentage into two.
The US is Israel’s largest trading partner. Bilateral trade (imports and exports of goods) between Israel and the US amounted to about $37 billion in 2024, according to US trade data. Israel’s exports of goods to the US, which include diamonds, machinery, optical devices, medicine, pharmaceuticals, and electronic equipment, amount to more than $22 billion as of last year. The trade deficit amounted to about $7.4 billion.
“Trump has launched a global trade war, and Israel is now part of the tremendous global uncertainty,” Leo Leiderman, chief economic adviser to Bank Hapoalim, one of the country’s largest banks, and a former Bank of Israel official, told The Times of Israel.
“Although the new tariff increases have been presented, we don’t see this as a final plan, in the sense that we have seen Trump change his views,” he said. “So there could be room for negotiation for a lower tariff rate, especially given the close relations between Trump and Netanyahu.”
Commenting on the impact on Israel’s economy, Leiderman, a professor of economics at Tel Aviv University, noted that most of Israel’s exports to the US are not in goods but services, including financial and consulting services as well as exports of services in the tech industry, also known as the high-tech industry, the main growth engine of the Israeli economy.
Abramzon said: “The current understanding in Israel is that the new tariffs won’t be imposed on exports of services from Israel to the US, which means that our economy will be impacted more moderately, as more than 50 percent of our exports are services and the country’s high-tech industry is largely likely to be spared.”
In 2023, about 70% of Israel’s tech exports were software services. Of the remaining 30% – physical goods – items like semiconductors and pharmaceuticals are largely likely to be excluded, as they are covered by uniform global tariff regimes. Hence, around 30% of tech exports will potentially be affected by tariffs — mainly machinery, industrial equipment, and similar goods, according to market estimates.
Therefore, Leiderman believes that in certain areas, such as semiconductors, Israel could negotiate special treatment or be exempted, as the US suffers from a chip shortage.
Ron Tomer, President of the Manufacturers Association of Israel (MAI), called the tariff imposition a “worrying step for Israeli manufacturers and exporters,” adding that economic cooperation between Israel and the US is “critical, especially in the security sector.”
Tomer called for the urgent removal of trade barriers, including quotas on the import of advanced chips from the US, which he said constitute a central component of technological and defense cooperation between the countries.
The MAI is working with government ministries to have the new tariffs canceled, but if it remains in place, the association says it will hurt long-standing “trade and investment relations between the two countries,” weaken the competitiveness of Israeli companies in the US market, weaken the competitiveness of Israeli companies in the American market, and harm jobs.
The association is working to “put together alternative strategies to deal with the new situation and seek new markets for Israeli exports,” while also speaking with Washington decision-makers to “soften the negative influences.”
Similarly, President of the Israel Advanced Technology Industries (IATI) Karin Mayer Rubinstein called Trump’s tariffs a “dramatic move with potentially wide-ranging implications for the global economy and the Israeli economy in particular.
“On the one hand, the tariff rate set for Israel is low compared to other countries, which could offer a competitive advantage for Israeli companies over non-American foreign companies,” Mayer Rubinstein said. “On the other hand, the Israeli high-tech industry mainly competes with American companies, so the overall impact may be complex and will depend on the details of the decision.”
Mayer Rubinstein warned that the tariff action will directly impact Israel’s tech industry, but she acknowledged that the direct impact on the sector will be limited should the tariffs apply only to physical goods – such as electronic components, machinery, or food. However, “Potential harm to other sectors of the economy may indirectly affect the innovation ecosystem,” she added.
“If the tariffs also apply to software products, and especially to Software as a Service (SaaS) – the main area of activity for many Israeli high-tech companies – this could fundamentally change the way Israeli companies access the US market and may even deter potential investors and clients,” she warned. “It is also important to examine whether the tariffs will apply to the export of chips, a strategic sector in which Israeli companies have significant and global activity.”
Mizrahi Tefahot Bank’s Chief Markets Economist Ronen Menahem pointed out that although the new tariff regime may negatively affect Israel’s competitiveness by making local products more expensive in the US market vis-à-vis Europe and Asia, the shift could create a relative advantage for Israel. Moreover, should the European Union respond to the US move with reciprocal tariffs, Israel could benefit due to its existing free trade agreement with the EU.
“Israel, from a strategic point of view, whether it is the government or the business sector, should now envision a new world economic order and develop more and closer links and relations with the European Union, China and the rest of Asia, which are going to become more dominant,” said Leiderman.
Menahem said that “Israel is also a major producer and exporter of natural gas,” while more recently, “there is huge demand for the country’s military defense technologies due to the war experience from trade partners in Europe.”
1 comment:
I think maybe is screwing up on this particular issue with this particular trading partner.
Post a Comment