The End of US Aid is No Cause for Alarm
President Trump surprised just about everyone (as always!) when he announced last week that military aid to Israel would be discontinued by the end of this year.
In Israel, the decision evoked fear, anxiety, and – inevitably – accusations that somehow Prime Minister Netanyahu had brought this existential disaster upon the country’s head.
This is more than an over-reaction. It is a total misread of the situation.
Replacing the patron/supplicant relationship between the US and Israel with a relationship which leaves the two countries on a more equal footing represents an opportunity for Israel to strengthen itself militarily, economically, and diplomatically.
Let’s start with the economics. Given legal and administrative constraints, it is essentially impossible to end the aid program by the end of the year. It will be a year or two before the program winds down. But for the sake of brevity let’s assume that Israel no longer receives any aid from January 2027 on. What happens then?
Well…nothing.
We are talking about $4 billion. That comes to a “whopping” one half of one percent of Israel’s current GDP. With the Bank of Israel forecasting that the country’s real GDP growth will be 5.6% in 2026 and reach 7.5% in 2027, the average Israeli is not going to perceive any economic impact from the cessation of aid.
This loss of $4 billion, however, assumes that Israel – as it transitions from being a recipient of American largess to being a paying customer – will continue to buy the exact same weapons and systems on the exact same terms. That is unlikely.
Once freed from the requirement to spend $4 billion on American systems, there will be many opportunities to transition from US equipment to less expensive alternatives made in Israel or in other friendly countries such as Germany, India, Korea, Singapore, or even Ukraine. As a result, it will cost Israel less than $4 billion to obtain the same capabilities achieved with $4 billion of US aid.
Now, as mentioned above, most Israelis won’t even notice financially that that the aid has stopped. But one group will – people who work or invest in Israel’s defense industry. For them, the cessation of aid will bring a bonanza in its wake. And this too will offset the already minor economic impact involved in the cessation of aid. Indeed, it might result in economic benefits so considerable that – in a strictly economic sense – Israel will be a bit better off after the cessation of aid.
The reason is that the global defense industry is characterized by specialized goods, oligopolistic suppliers, and increasing returns to scale in production. In these types of industries, it is possible to apply ideas articulated by Nobel Laureate economist Paul Krugman in his seminal 1986 book on strategic trade theory.
What Krugman shows is that a country could gain meaningful economic advantages by subsidizing exports from industries characterized by increasing returns to scale. Countries could also benefit by providing such industries preferential access to their domestic markets.
Now, ending US aid does not mean that Israel will start to subsidize its domestic armaments industry. What it means is that the US aid has been subsidizing American defense contractors at the expense of Israel’s industry, and that will stop. As a result, Israel’s defense industry will grow stronger.
In addition to the economic benefits that brings, the IDF’s greater reliance on Israeli equipment will lessen Israel’s dependence on America, while greater exports will increase Israel’s diplomatic influence on the countries it supplies.
The main Israeli proponent of eliminating US aid – the late Moshe Arens, who served as Defense Minister under Begin, Shamir, and Netanyahu – understood all this. By accepting US aid, Israel was sacrificing the long-term strategic advantage of having a stronger defense industry in order to enjoy the short-term benefit of getting some armaments for free.
None of this is meant to imply that Israel doesn’t need US support – both military and diplomatic. But it needs to be clear that the President has no intention of limiting Israeli access to cutting edge American defense technology, cutting off intelligence cooperation, or abandoning Israel at the UN.
Far from distancing the US from Israel, the Pentagon is actively looking for opportunities to replace the aid relationship with far deeper defense cooperation. This is reflected in the “United States-Israel Defense Technology Cooperation Initiative” proposed as part of the 2027 National Defense Authorization Act.
The idea is that America will bring its scale and its technology. The Israelis will bring their creativity and the extraordinary “venture capital” ethos they apply to defense research and development. And both countries will benefit.
Finally, it is important for Israelis to understand the internal politics in the US that is driving the President’s decision. Contrary to hysterical media reports, there is strong support for Israel among traditional Democratic and Republicans. Both parties, however, have got…serious problems.
The Democrats face an infestation of “woke” progressivism while the Republicans are dealing with a tsunami of isolation sentiment. What these two perspectives have in common – besides their predilection for magical thinking – is that they are overtly anti-Zionist and covertly anti-Semitic.
Both the progressives and the isolationists gain considerable political traction by exploiting American aid to Israel as a political talking point. While they oppose defense cooperation and intelligence sharing as well, those things aren’t salient to American voters. What voters care about most are their pocketbooks, and it’s easy to say “billions are going to the Jews!” That is a lot more compelling to voters than “we are sharing intelligence with the Jews and they are sharing intelligence with us!” or “Israel is helping us deploy advanced technologies faster!”
So there you have it. Eliminating the aid program will at worst do trivial harm to Israel’s economy, and at best may actually prove to be a net positive. It will lessen Israel’s military dependence on the US and facilitate strengthened defense relationships with other allies. And it will assist Israel’s many genuine friends in America – be they President Trump or soon to be Speaker of the House Hakeem Jeffries – is their effort to preserve and even strengthen the US relationship with Israel in the face of intense hostility to the Jewish people among a large and influential minority of the American electorate.
There is literally no downside to this, and Israelis – rather than wring their hands – should embrace the opportunities that the end of America’s aid program represents.
