Who are the few Israelis that could benefit from Trump’s trade war?

With the US threatening tariffs against China and the European Union – and both parties promising to hit back – many macro-economists are alarmed by the prospect of a budding trade war.

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June 25, 2018 00:32
3 minute read.
A ZIM cargo ship.

ZIM cargo ship 311. (photo credit: Courtesy)

 
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With the US threatening tariffs against China and the European Union – and both parties promising to hit back – many macro-economists are alarmed by the prospect of a budding trade war.

Protectionist policies tend to unravel companies’ sprawling supply chains, leading to slower economic growth and business uncertainty.

Most of the threats have yet to be acted upon, with the US, China and the EU imposing tariffs on a limited range of products – such as steel, aluminum and some agricultural goods.

Any disruption in global trade would hurt Israel more than it would help. The country exports around 30% of its GDP in goods and services, according to the World Bank, a far higher percentage than the US and China.

Yet certain businesses in Israel could take advantage of the squabbling – especially exporters whose products can replace EU, US or Chinese goods hit by tariffs.

“If there’s a trade war between the US and other countries, the exports of China or the EU could be limited in the US, and Israel could supplant those services or goods – like in parts of the defense contractor industry,” Alex Zabezhinsky, chief economist at Meitav Dash Investment House, told The Jerusalem Post.

Israeli exports are disproportionately of hi-tech products, and it’s harder for firms to replace Israeli software ingenuity than for foreign consumers to substitute American soybeans or whiskey.

“That means that even if tariffs are going up and global trade will suffer, it will be hard to replace some – not all – of Israeli products with other products that are cheaper,” Ori Greenfield, Psagot Investment House’s chief economist and strategist, told the Post.

“Some products that we sell are not replaceable, like Intel micro-processing chips, cybersecurity services [and] weapons systems.”

Yet many Israeli hi-tech and cybersecurity companies have set up subsidiaries in the US – in order to benefit from American free-trade agreements with other countries. Those firms would get hit regardless.

If Israeli firms are smart, they could monitor which products were affected by tariffs – and quickly broker deals.

“If China wants to limit US agricultural exports to China, then maybe Israel could take a chunk of that business,” Zabezhinsky said.

When the EU put sanctions on Russian exports – to punish the country for its invasion of Ukrainian Crimea – Israeli agricultural exports increased to Russia, Zabezhinsky added.

The infighting could also propel the Israeli government to solicit more free-trade agreements with other countries.

“We’re trying to push down on the pedal to get more trade agreements,” Ohad Cohen, trade commissioner for the Economy Ministry, told TheMarker last week.

The Israeli trade official added: “In the past two months, we have signed an upgraded trade agreement with Canada and a new trade agreement with Panama. Additionally, we’ve concluded negotiations with Ukraine and we are progressing in talks with South Korea, Vietnam and China – along with trying to renew talks with India. The goal is to create as many opportunities as possible for [Israeli] exporters.”

Economists contacted by the Post poured cold water on the Economy Ministry’s trade negotiations, saying that with more and more countries propping up protectionist barriers, countries are forced to raise tariffs in response.

And it’s hard to stay neutral when countries are going tit-for-tat. Greenfield outlined a worst-case scenario where Israel can’t stay above the fray.

“What are we going to do if the European Union asks Israel to raise tariffs on US imports or else they’ll raise tariffs on Israeli exports? Will we take the EU’s side? The US’ side? We have more trade with Europe, but we’re closer politically with the US."

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