Recent comments by US President-elect Donald Trump on future US-Israel relations, US Secretary of State John Kerry’s speech and United Nations Security Council Resolution 2334 have all focused on the US embassy in Israel, the Middle East conflict and the legal status of the settlements.
While US-Israel strategic relations are a critical long-term national asset, for most Israelis the impact of the new US administration on their lives will touch other issues, from trade to investment, from energy markets to tourism. And leaving those topics behind would be a horrible mistake.
Trump’s trade policies may change Israel’s economic activities abroad. Israel’s economy is heavily dependent on foreign trade and global export, and thus very vulnerable to significant political and global events, such as Brexit in Europe and Trump’s election in the US. Israeli exports are already in decline due to the slowdown in China, economic uncertainty in many emerging markets, and a global rejection of economic globalization and multilateralism. Last year’s total exports of goods and services declined 7% year-over-year.
Most importantly, Israel’s high-tech sector, which is 50% of total manufactured exported goods and services and is Israel’s economic engine and eternal miracle, is one of the first victims of Israel’s new economic vulnerability.
The Israeli government is working with Israeli manufacturers and exporters to secure Israel’s future cross-border trade. But over-dependence on US and Europe, Israel’s leading trade partners, means that Trump’s administration may reshape the global economic map with potential negative consequences.
Suspension of trade agreements, renegotiation of economic treaties, and more tariffs on imported goods are just some of the measures that can make the US market very expensive for Israeli exporters.
Indeed, the prospect of a strong US dollar and a weak shekel are good news for many Israeli companies. Exchange rates alone, however, cannot save Israel’s manufacturing base.
With respect to investment issues, the US market is still Israel’s primer market for both incoming and outgoing foreign direct investment. This trend is expected to continue.
In fact, Trump’s growing pressure on many US companies to bring back manufacturing to US shores would probably lead to more investment opportunities for Israeli companies which are already committed to the future of US industries.
Yet one of the main factors behind Israel’s recent foreign investment boom is the rise of Chinese investments in Israel. According to PricewaterhouseCoopers (PwC), there were nine Asian mergers and acquisitions deals in 2016 totaling $6.38 billion, six of which were Chinese. The Obama administration has continued to support the policy framework that allowed American investors to keep their dominance in the Israeli market, while at the same time allowing Chinese funds and individuals to increase their participation in the Israeli economy.
The anti-Chinese rhetoric on cross-border economic and defense matters during the Trump’s campaign, mainly criticizing China’s anti-competitive trade policies and over-investment by Chinese entities in America may lead to a more direct economic conflict between the US and China.
As a result, the new US administration may put more pressure on the Israeli government and Israeli companies to change their approach toward Chinese investments. The US-Israel-China triangular renaissance of the Start-Up nation may not last unless the parties are committed to a less protectionist business environment.
Israel’s energy sector is also at stake. The recent Leviathan and Tamar gas discoveries have transformed the Israeli energy market.
They can serve the needs of the local market for many years, reduce electricity prices in the long term for Israeli households and corporations and open new export opportunities, which would strengthen Israel’s strategic positioning in the region. These discoveries will also improve Israel’s public finances through more taxes and royalties.
Following several years of frozen activity in this sector, the government recently approved Leviathan’s development and several gas contacts have been concluded with local companies.
National Infrastructure, Energy and Water Resources Minister Yuval Steinitz already announced that Israel will soon start a bidding process for 24 new licenses. His ministry initiated a soft launch in Europe and Asia but so far the reception has been limited.
Clearly, the various regulatory changes in recent years and the long crisis between the energy companies and the government have made many foreign investors skeptical about the ability of the government to deliver on its promises, stabilize the regulatory framework and help the companies develop their assets quickly.
The Obama administration was very instrumental in supporting the dialogue between the government and the energy industry, including Noble Energy, the leading American energy player in Israel.
Trump’s role in this process should not be underestimated. The continuous support of the new administration is critical to maintain healthy relationships with foreign energy companies and bring new investors and operators to acquire the new licenses and to continue and develop Israel’s oil and gas sector.
The new US approach on economic diplomacy in the Eastern Mediterranean should be followed closely. Israel recently signed a historic agreement to export gas to Jordan, and the new Israel-Turkey reconciliation agreement may lead to gas sale contacts with Turkish companies. Any potential clash between the Trump administration and the Turkish government, around the Syria crisis for example, may jeopardize the slowly improving Israel-Turkey relations.
Moreover, Trump’s energy policy of more energy and cheaper energy on all fronts continues to trigger a gas export renaissance in America. While in theory American gas can complete with Israeli gas in some markets, most experts do not believe this is going to be the case in the coming years.
Yet this reality may change in the future and further threaten Israel’s energy sector, especially in geographies where the US and Russia are increasing their market share.
Finally, Trump and Congress’ new policy toward the UN following recent anti-Israel resolutions and failed UN structural reforms could impact the growing participation of many Israeli companies in UN agencies’ public commercial tenders. There is a need to differentiate between the UN as a multilateral political arm and the UN’s role in economic development and crisis management.
The new Trump administration poses new opportunities and challenges to Israel’s economy and business community. We should not leave them behind.The writer is an international economic law and business professor and adviser, working with governments and corporations on trade, investment, national security and energy projects and policies. Follow him on Twitter: @Chalamish