Israel could get hurt in Trump’s trade war with China

Israel’s hi-tech sector is already suffering from a relatively strong shekel.

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June 18, 2018 09:08
2 minute read.
Israel could get hurt in Trump’s trade war with China

US President Donald Trump gesticulates as he returns from a trip to trip to Annapolis, Maryland, in Washington, US, May 25, 2018.. (photo credit: REUTERS/CARLOS BARRIA)

 
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With the US and China implementing new tariffs on a whole host of goods and threatening to further retaliate, the world economy is in for some shock.

Last week, the Trump administration announced tariffs of roughly 25% on $50 billion of Chinese goods, with Beijing responding hours later – imposing $50b. of tariffs on goods such as beef and cars.

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A full-out trade war – with different countries jostling to put in place tariffs of 10% on average – could cost the world economy some $470b. by 2020, according to a Bloomberg estimate.

At the very least, the tariffs will fracture multinational corporations’ sprawling supply chains, forcing companies to devise back-up plans and likely raising costs on consumers.

In the process, the Israeli economy could be hit hard. Israel exports around 30% of its GDP in goods and services, according to the World Bank, a far higher percentage than the US and China – and any trade war would aim squarely at those products.

If world trade declines, that will especially hurt countries like Israel – small economies with a large proportion of exports in the GDP.

Many of those exports come from Israel’s vaunted hi-tech sector. Yet because many local exports are in intellectual property, which is harder to supplant, it is possible that Israel could get hurt less than other countries.

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Israel’s hi-tech sector is already suffering from a relatively strong shekel – given that almost all firms and start-ups sell their products in dollars or euros but pay local employees in shekels.

Separately, in March, the US announced steep tariffs on metal imports from China.

For Israel – a steel and aluminum importer – it could lead to spiraling metal costs – squeezing the global supply chain and raising prices for Israeli consumers.

The prices of commodities and foods could go up, Alex Zabezhinsky, chief economist at Meitav Dash investment house, told The Jerusalem Post.

“Israel, as an open economy that imports almost all kinds of rare materials, consumer goods and intermediate goods for industry, could be hurt because of increased import prices,” Zabezhinsky said.

A number of variables remain unknown, including how extensive the American tariffs will be; the responses of trading partners such as the European Union; and the timeline for enacting all of the customs duties.

Trump has argued that tariffs are necessary to reduce chronic US trade deficits with much of the world, as well as punish China for alleged theft of intellectual property.

Israel currently had a trade surplus with the US in 2017 worth some $9.4b.

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