United States President Donald Trump has caused a worldwide uproar, seemingly targeting any country with tariffs. He has even targeted his own allies, and now he is threatening a 20% tariff on European auto imports.
The sharp tariffs are being met with backlash around the world, with countries imposing tariffs against U.S. goods.
The shekel’s strength has already started to impact the hi-tech sector, but the sector can also be impacted from tariffs. Bloomberg suggests that the world’s economy may suffer from $470 billion in losses by 2020. And this information is based off of a modest tariff of 10% if a full-out trade war begins.
China hit back against the U.S.’s tariffs of 25% on $50 billion in goods with their own tariffs against the auto and beef industry, equaling an estimated $50 billion.
Israel hasn’t been a direct target of Trump’s tariffs yet, but I’m envisioning a chain reaction that will occur over a slow period of time. Multinational corporations will start to feel the pressure of their large enterprises in countries that now have massive tariffs.
Consumers will eventually suffer from higher costs, as businesses try and work out plans to keep their finances at adequate levels. The World Bank is estimating that Israel may suffer from around a 30% hit to the GDP in the goods and services sector.
Israel will be hit harder than the United States and China, with the majority of the impact being absorbed by the hi-tech sector. Local employees prefer to be paid in shekels, and with the shekel remaining strong, this means that businesses are already feeling an impact, as startups often sell their goods in euros or dollars.
Tariffs paid on metal imports may also come back to harm Israel. Israel remains a prominent importer of steel and aluminum, but as tariffs begin to squeeze these companies, it will lead to higher prices for Israeli consumers even if there are no tariffs put in effect that target Israel specifically.
Israel also benefits from a trade surplus with the United States that was around $9.4 billion in 2017. Trump has vowed to reduce chronic U.S. trade deficits, but Israel’s low surplus may make it a less likely target.
Asian stock markets are already feeling a direct impact from tariff. The market hit a six-month low, as trade wars have intensified. Markets across Asia are falling. Even South Korea, which is a close ally with the United States, experienced losses so severe that the KOSPI hit a nine-month low.
Investors are fearful that the trade talks between China and the US will not be fruitful. Tariffs against China are to be imposed on July 6th. Talks before then are expected to fail, as investors and analysts are losing hopes that talks will result in any positive action.
Israel, as well as other world economies, will start to feel the impact of tariffs from around the world. As an economic turnaround is occurring in many countries, higher prices for consumers may result in a slowing of economic growth by the end of the year.