The disruptive decision by US President Donald Trump to impose 25% customs tariffs on Canada and Mexico and to add 10% to the tariff on goods from China holds out a big opportunity for Israel, experts say. To understand this, we need to go back to the 1985 free trade agreement between Israel and the US, The agreement stipulates that, in order to benefit from its terms, a product must be at least 35% produced in Israel. The exporter has to state on the invoice the precise percentage of the product that is Israeli. US Customs and Border Protection may check the truth of the declaration, and if it is found to be inaccurate, the US importer has to pay full customs duties.
As in the cases of China, Mexico and Canada, the US runs a constant deficit on visible trade with Israel. In 2023, Israeli exports to the US totaled $40.8 billion, and the trade deficit on the US side was $24.6 billion, which was more than the value of Israeli imports from the US. The numbers are, however, relatively small, and if Trump’s tariff policy continues, it could lead companies in various countries to transfer production lines to Israel.
Dr. Ron Tomer, president of the Manufacturers Association of Israel and co-CEO of generic pharmaceuticals company Unipharm, says that Spanish drug companies with no production facilities in the US have talked to him about shifting some of their facilities, in cooperation with Israel. “These are companies with no activity in the US that seek to diversify production. Israel is considered a safe bet vis-Ã -vis the US.”
Attracting foreign investment
One matter that foreign companies will have to take into account if they come to Israel is the need for direct shipping. If, for example, Israeli goods arrive by ship in Europe and go through customs, they lose their origin, and the free trade agreement does not apply to them. If however they are reloaded from one ship to another in a European port without going through customs, that complies with the agreement.
“Assuming that the tariffs imposed by President Trump on goods from Canada, Mexico and China remain in force, a unique opportunity has been created for Israeli industry to attract foreign investment and to boost exports to the US,” explains Elad Barshan, an expert on international logistics and customs, and founder of digital supply chain platform SlickChain. “This opportunity is particularly attractive for advanced companies with high-value products, for which the cost of transferring production lines to Israel and shipping to the US is lower than the loss arising from the new tariffs. Technological products, industrial components, and medical equipment could be ideal candidates for such a move,” he says.
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Other agreements that could be relevant are the QIZ (qualifying industrial zone) agreements that Israel and the US have with Jordan, Egypt, and the Palestinian Authority, which provide an exemption from customs duties when 11.7% of the cumulative value of a product is from Jordan, 8% is from Israel, while 15.3% can be from a combination of Jordan, Israel, the US, Judea and Samaria, and the Gaza Strip.
Over the years, the agreement was expanded, and it awards an exemption from customs duties on the entry of products into the US when up to 24.5% of the cumulative value is Egyptian inputs and at least 10.5% is Israeli inputs. “These agreements enable foreign investors to take advantage of the cheap labor in Egypt, Jordan, Judea and Samaria, and the Gaza Strip, while maintaining free access to the US market. This means that companies can reduce production costs, and still benefit from the advantages of the free trade agreement with the US,” says Barshan.
Israel’s advantage
Dr. Tomer adds that in his view the tariffs that the US president has imposed on China and other countries will endure, while those on Canada and Mexico could be short-lived, and the situation vis-Ã -vis European countries will continue into the medium term.
In the coming years, he says, the problems in international trade could benefit the Israeli economy. “A halt in trade from east to west requires alternatives, and it would be enough for us in the Israeli economy to receive 3% of what will be subtracted from Chinese exports to the US, and through the free trade agreement there’ll be a big boom.
“Israel has advantages in productivity, know-how, capabilities, and flexibility that the Americans don’t have. It’s true that for that $10 billion that could be added to Israel’s GDP we will be dependent on the US, but we already depend on them in areas such as security.”
Published by Globes, Israel business news – en.globes.co.il – on March 5, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
