Press Conference of US President Trump and Prime Minister Netanyahu revealed what a country has to do to dodge the US tariff bullet. The medicine might be bitter.
On April 7, 2025 US President Trump and Israeli Prime Minister Netanyahu announced at a press conference in the White House that Israel will produce a plan to quickly eliminate its trade surplus with the US and Israeli trade barriers. That’s all we know at this stage. But with respect, we already knew that….Below is our take on what might be happening.
Executive Orders:
President Trump issued an Executive Order imposing new tariffs (import taxes) on April 2, 2025, and proclaimed that to be Liberty Day for Americans. Immediately world stock markets sharply declined. Trump reportedly said: “sometimes you have to take medicine to fix something”. So what’s in Trump’s medicine cabinet?
In the above Executive Order Trump says: “I find that underlying conditions, including a lack of reciprocity in our bilateral trading relationships…constitute an unusual and extraordinary threat to the national security and economy of the United States.” The Order cites both foreign tariffs and other import barriers, licensing restrictions and value added taxes.
So starting April 5, 2025, an additional ad valorem duty applies to all US imports starting at 10 percent and ranging up to 50% for a number of countries e.g. Israel 17%, EU 20%, China 34%, South Africa (Elon Musk’s birth place) 30%, Lesotho 50%.
China retaliated, triggering a tit for tat.
Comment: No reason is given for blaming VAT and no mention is made of US sales tax on e-commerce suppliers after the Wayfair judgment of the US Supreme Court in 2018.
Trump’s call To The World:
Trump says in Section 4(c ) of the Order: “Should any trading partner take significant steps to remedy non-reciprocal trade arrangements and align sufficiently with the United States on economic and national security matters, I may … limit …the duties imposed under this order.”
Some think Trump may offer tariff reductions to countries that: (1) Invest in US factories, (2) invest in US treasury bonds, (3) spend enough on defense, (4) grant the US mineral rights, (5) apprehend illicit drug runners, (6) eliminate trade barriers , (7) refrain from reciprocal tariffs.
That might be a long shopping list, but the US is a plum market of 340 million consumers.
US-Israel Trade:
Israel and the US have a free trade agreement dating back to 1985. It is thought to cover around 99% of US-Israel trade. The remaining 1% apparently relates mainly to certain US agricultural products. So, the day before Trump’s Executive Order, Israel cancelled its remaining duties on US produce.
The US government estimated US goods to Israel at $14.8bn in 2024 and imports from Israel at $22.2 bn, resulting in a surplus to Israel of $7.4bn. If that trend continues a 17% US tariff would yield the US Treasury around $3.8 bn, far more than Israeli customs on $0.14bn (1%) of US goods. Israeli hitech services are not affected by tariffs.
Trump and Israel:
As mentioned, Netanyahu committed Israel to eliminating the US trade deficit with Israel and Israeli trade barriers. The last Israeli tariffs on US goods were repealed this week. That leaves non-tariff barriers. Trump’s Executive Order contains a general checklist of non-tariff trade barriers.
“These barriers include import barriers and licensing restrictions; customs barriers and shortcomings in trade facilitation; technical barriers to trade (e.g., unnecessarily trade restrictive standards, conformity assessment procedures, or technical regulations); sanitary and phytosanitary measures that unnecessarily restrict trade without furthering safety objectives; inadequate patent, copyright, trade secret, and trademark regimes and inadequate enforcement of intellectual property rights; discriminatory licensing requirements or regulatory standards; barriers to cross-border data flows and discriminatory practices affecting trade in digital products; investment barriers; subsidies; anticompetitive practices; discrimination in favor of domestic state-owned enterprises, and failures by governments in protecting labor and environment standards; bribery; and corruption.”
Comment:
The Israeli government will need to ensure that none of these trade barriers exist in Israel.
The most sensitive item may be ” inadequate enforcement of intellectual property rights” if Israel proceeds with the judicial reform as currently planned. Investors in Israeli hitech fret about this if the judiciary becomes less impartial.
Conclusion:
Netanyahu clarified that Israel’s free trade agreement with the didn’t stop Trump imposing a 17% tariff on Israel because of non-tariff trade barriers. What medicine does Trump want Israel to take? All eyes will be on the Israeli judicial reform among other things.
Netanyahu may have a few bargaining chips of his own. Trump is thought to desire a Nobel Peace Prize – peace in Ukraine and Israel would presumably clinch it.
Next Steps:
Please contact us to discuss any of the above matters further, or any other matter.
As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.
Wishing readers a Happy Passover / Easter.
© Leon Harris 8.4.25