If the Israeli Knesset approves and implements a plan to drop tariffs targeting U.S. imports, we will learn a lot from how the Trump administration responds.
There are plenty of Republicans in Donald Trump’s orbit who, like him, appear to regard tariffs as a magical panacea. Those in the GOP who understand that the only things you can count on tariffs to do is raise consumer costs, put downward pressure on corporate profits, and contribute to inflationary pressure will sometimes fall back on the notion that threatening or even imposing foreign trade restrictions is just a negotiating tactic.
Despite Trump’s objective affinity for trade protectionism and its effects, these Republicans insist that what he really wants to see is lower tariff rates across the board. That’s what “reciprocal” tariffs are supposed to achieve: not merely raising the cost of consumer goods and the industrial inputs that go into their production but creating inducements for other countries to lower their trade barriers. Ultimately, this process is meant to give way to a global trade regime that is even freer and fairer than the one Trump inherited. At least, that’s their theory of the case.
From our vantage on the eve of “liberation day,” that sounds like a rationalization. As of this writing — insane though it may be — no one knows precisely what America’s tariff schedule will be tomorrow. But the president has repeatedly floated the prospect of a 20 percent global tariff on virtually all imports, a prospect that has contributed to the worst quarter on Wall Street in three years.
The headlines are dominated by the news that foreign governments targeted by Trump’s tariffs intend to raise their own trade barriers in retaliation, precisely the sort of reciprocity Trump’s conservative defenders insist the president wants to avoid. But that reaction is not universal. Israel, for example, is doing precisely what the president’s most optimistic allies anticipated.
On Tuesday, Israeli Finance Minister Bezalel Smotrich announced and signed a plan to eliminate any remaining tariffs targeting U.S. imports. That initiative does not capture much trade. A bilateral 1985 free trade agreement between the U.S. and Israel eliminated taxes on about 98 percent of goods, sparing primarily agricultural products.
Smotrich’s initiative will still have to be approved by the Israeli Knesset, where agricultural interests enjoy significant influence. There will be a rearguard action in the effort to defend the protectionist schemes from which Israeli farmers benefit. But while the Smotrich plan is not a done deal, Israel’s vital security interests depend so heavily on American support that Israeli domestic interests may have to take a back seat to its near-term foreign policy objectives.
If Trump’s true objective is to compel America’s trading partners to drop their tariffs, to which he would respond by lowering America’s trade barriers, Israel’s maneuver should compel the administration to make some concessions. The American trade balance with Israel isn’t enormous, but it’s not nothing, either. The U.S. imports Israeli commodities like stone, metals, and glass, but it also takes in finished Israeli products like industrial machinery, chemicals, plastics, and rubber.
In 2022, only about 2 percent of U.S. imports from Israel were agricultural products, but U.S. agricultural exports to Israel constituted about 4.4 percent of the bilateral trade balance. If Israel plans to forgo that revenue, it should expect Trump to do the same — even at the risk of exposing U.S. farmers to more foreign competition. That will be a tough pill for this administration to swallow, particularly given reporting that indicates administration officials “have discussed the early contours of a possible farmer bailout with industry lobbying groups and Republican congressional offices.”
Yet if tariffs are merely a tool to achieve a desired end and not an end in themselves, the president and his movement should welcome Israel’s move and prepare to follow suit. If that sequence of events fails to materialize, Trump’s more enterprising conservative defenders will have to find a new talking point.