About 30 minutes into the press conference in the Oval Office, with Prime Minister Benjamin Netanyahu sitting on his right, US President Donald Trump provided his first comment on the question that has been casting a shadow over the Israeli economy over the past week. Will Israel be granted relief from Trump's tariff plan, or is the 17% tariff on Israeli goods the final word?
Trump's answer was short, ambiguous, and noncommittal. As befits a businessman at the beginning of talks worth trillions of dollars with countries around the world, in which Israel is just a minnow, he said, "We're talking about a whole new trade agreement," he began, turning his head toward Netanyahu, in a moment of optimism on the Israeli side. Then, Trump interrupted himself mid-sentence, tilted his head in the opposite direction, and said: "Maybe not. Don’t forget we help Israel a lot. We give Israel $4 billion a year. That’s a lot," referring to US military aid to Israel.
Senior officials alongside the politicians
In the coming days, contacts will begin between senior officials at Israel's Ministry of Finance and Ministry of Economy and their counterparts in Washington. However, the dynamics of the dialogue on tariffs with the US administration are highly centralized. The understanding on the Israeli side is that President Trump reserves the sole authority to decide on the issue. The US Secretary of Commerce, Howard Lutnick, a Jew who loves Israel and is in charge of Trump's tariff plan and met with Netanyahu separately, can only move forward so far, but the decisions remain in the hands of the president himself.
Thus, talks between Israel and the US are expected to proceed on two parallel tracks: the first track is a professional dialogue between officials at Israel's Ministries of Economy and Finance and the US Department of Commerce - here the technical details will be discussed. For example, clarifying the question marks about products at the seam between services that are exempt from customs duties and goods that will be subject to customs duties. This is mainly relevant in the tech industry, which is supposed to be largely excluded, but there is no clarity, for example, regarding hardware associated with software and cybersecurity services.
In this regard, key issues that arise are US demands on reciprocal procurement: a mechanism in which the Israeli government requires foreign companies that win tenders in Israel to buy part of their production from local suppliers. The Americans see this mechanism as an obstacle for their companies, especially small and medium-sized businesses that have difficulty meeting these requirements.
The second track is a direct political channel between the Prime Minister's Office and the White House. Here, strategic decisions are discussed, and in this case, the issue of tariffs as well, but not in isolation but as part of a broader set of mutual interests.
Concessions in exchange for political moves?
The fact that senior officials from the Ministry of Finance did not accompany Netanyahu on his visit to Washington indicates the nature of the meeting. Minister of Finance Bezalel Smotrich also remained in Israel, although he wanted to join the delegation to the White House, as the person directly responsible for handling the issue of tariffs and their implications for the Israeli economy. The decision to keep the professional echelon in Israel was born from the understanding that the meeting was primarily political and diplomatic and not economic and technical. At this stage the dynamic is between the two leaders and not between the professional teams.
Senior Israeli figures believe that behind closed doors the meeting was more positive than in the public statements. More reassuring messages were conveyed in the closed talks, perhaps also signals that there is a way to reach a solution, but that the process will be gradual and will include demands that Israel must fulfil.
The tariff negotiations are not being conducted in a vacuum. Israel and the US are in talks on a variety of strategically important issues - from Iran and its nuclear program, to normalization efforts with Saudi Arabia, to the issue of the war and hostages in Gaza, and possible post-war arrangements.
In discussions between two leaders with so many shared interests, an economic aspect such as tariffs may be integrated into a broader fabric of deals. A final deal may come in the form of a deal: tariff relief from the US in exchange for progress on political tracks that are important to Trump.
Ultimately, from the perspective of the US administration, the main goal of the tariff move is directed at major players in the global economy, such as China, the EU, and Japan. Israel is in the second tier of importance economically, but in the first tier politically, which may allow for relative flexibility.
A sharp fall in exports, thousands of layoffs
While the political echelons are engaged in negotiations and believe that an agreed solution can be reached, concern is growing in the business sector. President of the Presidium of the Business Sector Dubi Amitai, has forwarded an analysis of the significant risks to the economy to the Prime Minister, Minister of Finance, and Minister of Economy.
The analysis warns of reduced demand for Israeli products in the US market due to their 17% increase in price; damage to GDP growth due to reduced exports, which constitute a central component of GDP; job losses in export-oriented industries (about 10% of jobs in Israel depend on exports); reduction in foreign investment in Israel; and the risk of closing businesses or moving operations from Israel abroad to circumvent the tariffs. In his letter, Amitai wrote "We are examining with concern the risks to the Israeli economy." He recommended that the government act "With great caution, while understanding the context of the decision and the sensitivity of the fabric of relations with the US president."
At the same time, the Manufacturers' Association has presented worrying data: According to an analysis it has conducted, the new tariffs could lead to a fall of $2.3 billion in annual Israeli exports to the US. Manufacturers Association president Ron Tomer warned that if additional tariffs were also imposed on the pharmaceutical and chip industries, which are currently exempt, the decrease in exports would reach $3 billion. The Manufacturers' Association stressed the human dimension of the crisis: between 18,000 and 26,000 Israeli workers in export-intensive industries could lose their jobs. The impact would be particularly felt in industries such as biotech products, plastics and metals, chemicals, robotics, and electronics.
A number of question marks remain
A big question mark hangs over other major industries. The diamond industry, which exports over 50% of its exports to the US, worth about $3.5 billion a year, is still waiting for clarification on whether it will be exempted from the tariffs. Its exemption could also significantly reduce Israel's trade deficit with the US, on which the new tariff is calculated, to less than 17%.
As for the defense industries, which constitute a significant pillar of Israeli exports to the US, it is still unclear whether they will be exempted from the tariff policy. On the one hand, their exclusion makes sense due to the close security cooperation between the countries, but on the other hand, there is no official commitment to this.
Meanwhile, the steps already announced by the government - the abolition of all Israeli tariffs on US products imported to Israel and expansion of recognition of US standards - are seen as gestures of goodwill that could assist the process.
Published by Globes, Israel business news - en.globes.co.il - on April 8, 2025.
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