Israel’s exports to the US now face a 15% import tariff as a result of President Donald Trump’s arbitrary and selective increases to America’s tariff schedules, changes which he, according to the US Constitution, has no authority to alter.
For the record, the Constitution reserves such rights to the US Congress except in extenuating circumstances such as armed conflict, when they can temporarily yield that right to the president. No such agreement was either requested of Congress nor granted in this case. In addition, initial court challenges in the US have supported his lack of authority to make these changes but are now going through the appeals process in the US justice system. Therefore, for the moment, the changes have gone into effect.
I say “arbitrary” because the imposition of these changes fluctuates at the whim of the president. For example, Trump recently signed an executive order doubling import tariffs on Indian exports to the US to 50%, as punishment for the country’s purchase of Russian oil, an action of which Trump disapproves.
In a similar action earlier last month, Trump levied a 50% tariff on imports from Brazil, framed as retaliation over the prosecution of his ally, right-wing former Brazilian president Jair Bolsonaro. Bolsonaro is facing trial over an alleged coup attempt after losing the 2022 presidential election, when his supporters stormed government buildings in Brasilia. Bolsonaro denies the charges, and Trump has slammed them as a “witch-hunt.”
To add insult to injury, not every country has been hit by these tariffs. Those headed by autocrats whom Trump publicly admires – like Russia, Hungary, and El Salvador, for example – have somehow escaped Trump’s new tariff schedule.
Long-standing free trade agreement between Israel and the US forgotten
As for Israel, it seems everyone has forgotten that the US signed a free trade agreement with Israel in 1985, its first such agreement ever concluded with a foreign country that remains in place and has been updated numerous times since. The agreement basically exempts goods exported from the US to Israel and those from Israel to the US from the imposition of any tariffs.
When Prime Minister Benjamin Netanyahu made his second appearance at the White House this year on April 7, Trump told him at their press conference that a 17% tariff was being imposed on Israel. His logic was, as he said, because America buys so much more product from Israel than Israel buys from the US that the balance of trade leans too heavily in Israel’s favor. (Keep in mind that in 2024, the US exported $7.4 billion more to Israel than Israel exported to the US.)
Netanyahu should have, at that moment, reminded the president about the long-standing free trade agreement currently in place between our two countries. Of course, no one wants to “poke the bear,” so instead our prime minister made the impossible commitment that we will balance that out. But there is simply no way to balance out trade between a country like ours of 11 million people and one of 340 million. Of course, by now we know that promises in the confines of the White House never seem to hold much water.
Thankfully, however, the 17% tariff rate was recently reduced to a final figure of 15%. This, of course, is still in violation of our free trade agreement with the US, which everyone seems to have conveniently forgotten still exists, as it is never mentioned. We had hoped that the rate for us, America’s alleged “closest ally,” would drop to the baseline rate of 10%, but that was not in the cards.
What does this do to us?
Repurcussions of new tariffs
Eventually, local exporters of goods to the US, and the Israeli economy in general, will be hurt by the new trade tariff regime. Revenues collected here from corporate taxes will also fall in line with reduced income figures.
According to a recent statement by Ron Tomer, president of the Manufacturers Association of Israel, which he made to The Times of Israel: “We may be in the same situation as many other countries are, but we lost the benefit that we enjoyed with the free trade agreement and need to compete with countries such as Turkey, which previously paid taxes and has lower production costs than Israel. Without the comparative advantage, we are bound to lose sales.”
He estimated that Israeli exports will take an annual hit of $2b. to $4b. due to the new 15% tariffs, which currently do not include pharma, semiconductor components, and services. Those, together, account for 70% of our exports to the US. Should the tariffs ultimately be expanded to cover those areas as well, 20,000 to 33,000 Israelis could lose their jobs, Tomer said.
Trump recently indicated that fresh tariffs on imported pharmaceuticals and semiconductors are under discussion and could be announced in the coming weeks. “If negotiations with the US do not give Israeli exporters waivers on import taxes on these goods to the US, then we are going to lose a lot more of our business activities, with annual losses estimated at least $4 billion,” added Tomer.
Some Israeli exporters will try to address this extra charge by reducing their own operating costs as well as their profit margins on sales where possible. Others, no doubt, will try to increase the selling price of their products to compensate for the tariffs.
Some who are financially positioned to do so will explore setting up production facilities in the US to eliminate the tariff issue altogether. Operating costs there are no longer higher than they are here, and if companies are totally flexible regarding location, they can find counties in the US with higher-than-average unemployment numbers who will be eager to host them and provide significant incentives to locate there.
If there is a silver lining to be found in all of this, it is in Trump’s total misunderstanding of how commercial markets operate. His calculations on how much new income this will generate for the US are based on taking the current trade deficit for each country and multiplying it by the percentage increase of that country’s tariff rate.
What this does not take into account is the market’s ability to switch sources to countries with lower tariff rates.
Brazil is a good example. Over 50% of America’s purchases of coffee beans are from Brazil. While Brazil has some of the world’s best coffee beans, the “coffee bean belt” that exists between the tropics of Cancer and Capricorn includes any number of countries with much lower or zero tariff rates. US importers will, no doubt, seek out those sources to neutralize the effect of Brazil’s tariffs, which will, of course, lower the expected income to the US as well.
Something tells me that no one in the White House is willing to tell this “truth” to the president. After all, no one wants to “poke the bear.”
The writer is the founder of Atid EDI Ltd., an international business development consultancy. He is also the founder and chair of the American State Offices Association, former national president of the Association of Americans and Canadians in Israel, and a past chairperson of the board of the Pardes Institute of Jewish Studies.