As one of Israel’s most senior and veteran macroeconomic commentators, Leo Leiderman, Bank Hapoalim chief economic advisor and professor of economics at Tel Aviv University, has seen almost every type of possible economic crisis. Now, he believes that Trump’s tariffs could be the black swan of 2025, and sees a possibility that the president could back down from his aggressive steps. He also analyzes how the scenario that could also affect Israel?
Why are you afraid that President Trump’s tariff hike could be a black swan?
Leiderman: “As is known, the concept of a black swan refers to an exceptional event that is difficult to predict in advance and that surprises the markets and usually causes sharp declines and an increase in economic risks. The imposition of tariffs on Mexico, Canada and China could plunge the world into a trade war that would lead to a slowdown in growth, damage to international trade, a rise in inflation and interest rates, and a decline in living standards worldwide. In a trade war, everyone loses.”
Could Trump back down?
“Everything is possible. Measures to impose the tariffs are not expected to take effect until midnight on Monday, US time. Until then and in the coming days, there may be talks between Trump and the leaders of some of the above countries, and a partial or complete withdrawal from the new measures is possible.”
The tariffs are not just a punishment
One of the main questions that now arises is what Trump is trying to achieve by imposing tariffs. “First, he wants to reduce the size of the US current account deficit with each of the countries in question,” explains Leiderman. “Second, he wants to increase the state’s revenue from taxes (including tariffs) to finance cuts in other taxes. Third, he believes that the measures will protect domestic industries from cheap competing imports. Finally, in his view, the imposition of tariffs is intended to “punish” Canada and Mexico for the lack of tough policies to curb illegal immigration and drug trafficking.”
What is your opinion of the thinking behind these aims?
“Theory, economic research, and experience accumulated over the years indicate that trade wars have very negative effects on economic activity, employment, and living standards. Over the past three decades, the world has seen how the removal of some restrictions on international trade and the move towards free trade have contributed to improving living standards and reducing poverty in most regions of the world.”
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What will be the effects on Israel?
“Israel is not at the center of the developing trade war, and that’s a good thing. In fact, our international trade is spread evenly between North America, Europe, Asia, and other regions. Assuming that Trump does not impose new tariffs on us, most of the effects will be indirect. If inflation and interest rates in the US rise, and at the same time there is a slowdown in international trade and global activity, then we will feel the impact. It will be important to continue to spread the geographical risks of our exports and imports. It is very good that Israel is somewhere in the middle of the current global turmoil.”
Published by Globes, Israel business news – en.globes.co.il – on February 4, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
