Trump's Outsized Influence on Israel's Economy and Security Detailed
U.S. President Donald Trump has been named the most influential person on Israel's economy for the second consecutive year by the economic publication Calcalist, surpassing Israeli officials. His impact is described as akin to a natural disaster, uncontrollable and difficult to prepare for, affecting Israel through geopolitical events, trade policy, monetary policy, and market behavior. A single presidential decree or even a social media post from Trump can significantly move the Tel Aviv Stock Exchange and the shekel, prompting urgent meetings by the Israeli Finance Ministry.
The geopolitical channel of Trump's influence is particularly unique to Israel, where security situations are a primary economic driver. Decisions made in Washington regarding conflicts, such as potential escalations with Iran or the future of Gaza, directly impact Israel's security and, consequently, its economy. Trump's administration has been instrumental in shaping regional dynamics, including the Abraham Accords, and his decisions influence the risk premium associated with investing in Israel. This, in turn, affects bond yields, capital inflows, the shekel's strength, and the cost of government borrowing, impacting mortgage payments and future generations' debt burden.
Trump's "Make America Great Again" trade policy also affects Israel, with Israeli goods facing a 15% tariff in the U.S., Israel's primary export market. Despite Israel's close political ties, it has not secured exemptions, contributing to a growing U.S. trade deficit with Israel. While Israel's service-based economy is less directly impacted by tariffs, indirect effects arise from increased costs of raw materials and supply chain disruptions caused by U.S. trade actions. The unpredictability of these policy shifts hinders long-term planning for Israeli businesses.
Monetary policy, specifically U.S. interest rates and the dollar's value, is another significant channel. While the Bank of Israel is independent, its governor closely monitors the Federal Reserve due to the U.S. economy's global influence. Trump's pressure on the Federal Reserve and his influence on its leadership appointments have implications for global financing conditions, investor risk appetite, and market volatility, directly affecting Israel's borrowing costs. The weakening of the U.S. dollar, partly due to Trump's policies, also raises concerns about its status as the world's reserve currency, impacting Israel's exports, savings, and risk assessments.
Furthermore, Trump's approach to governance, which challenges the role of independent professional institutions, is seen as a dangerous precedent with potential parallels in Israel. This erosion of institutional trust can exacerbate economic problems, particularly for an open economy like Israel's, which is more sensitive to global shifts. While Trump's administration has provided diplomatic support and strengthened security cooperation, the Israeli economy faces a "Trump tax" of tariffs, uncertainty, and planning difficulties, making his influence a double-edged sword.
