The new tariffs imposed Wednesday by US President Donald Trump on goods from various countries have triggered global economic turmoil, with the highest rates targeting Cambodia (49%), Laos (48%), Vietnam (46%), Burma (44%), and Sri Lanka (44%). These measures align with the reciprocal tariff policy Trump announced during the previous year.

President Trump stunned financial markets with his declaration of a 17% tariff on numerous countries. The announcement prompted sharp declines during extended trading hours on Wall Street. Since futures contract trading has not yet commenced, investors' complete reaction remains unclear, though initial indicators appear negative.

For Israel, the situation represents a significant economic challenge – a 17% tariff on exports to the United States, which stands as Israel's most crucial trading partner alongside the European Union.

This tariff rate could deliver a substantial blow to entire economic sectors, particularly the defense industries and the high-tech sector, which is already battling investment shortages due to elevated interest rates and ongoing political instability in Israel.

The concept of "transfer pricing" has emerged as a popular but controversial tax planning strategy in high-tariff environments. This approach involves establishing a US-based company and conducting sales through what tax professionals call "transfer pricing." In theory, businesses create American companies, sell goods to them at reduced prices while paying tariffs on smaller amounts, then complete the full transaction through an American company under Israeli ownership.

For Israeli manufacturers or developers selling products in the American market, product prices will effectively increase by 17% unless they choose to absorb these additional costs themselves.

This widely-used planning strategy carries substantial risks, potentially crossing into illegitimate tax planning territory. While exporters might be willing to navigate tax procedures in Israel, the regulatory landscape in the United States operates under entirely different rules. Industry observers recommend monitoring how Israeli tax experts analyze this new situation in coming days, particularly regarding the popular but complex strategy of "transfer pricing."

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The Houthis created significant concerns in Israel's economic system. Their control over the Gulf of Aden and the Bab el-Mandeb Strait threatened one of Israel's main shipping routes through the Red Sea and Suez Canal. Houthi attacks on merchant vessels led to the diversion of international shipping to a longer route, circumnavigating Africa via the Cape of Good Hope. In Israel, there were fears of dramatic effects on our global trade that would lead to price increases for many products.

This concern was certainly well-founded. Rising shipping costs during the COVID-19 crisis were a major factor in the global increase in consumer product prices. The blocking of the Suez Canal between 1967 and 1975 also caused significant damage to Israel's international trade and economic growth.

However, a new study by the Bank of Israel, conducted by Haggay Etkes and Nitzan Feldman, shows that the Houthis' impact was relatively limited. From the start, only about 5% of Israeli exports are shipped by sea to Asia and Oceania, and about 20% of civilian imports to Israel. The analysis revealed that total Israeli imports from Asia and Oceania did not decline unusually following the Houthi attacks. Import prices to Israel also did not rise significantly, partly because maritime shipping costs are a small portion of the merchandise price, so their impact on the final price is minimal.

The Houthi attacks in the Red Sea didn't only affect Israeli vessels or those bound for Israel but impacted global maritime transport worldwide. Other Mediterranean countries actually felt the impact of these attacks more strongly. Imports in countries like Greece, Turkey, Italy, France, and Spain declined for six months due to Houthi attacks but managed to recover by the spring of 2024. The diversion of shipping routes initially raised transport costs, but this increase moderated within several months. Ironically, Israel, which was the declared target of Houthi attacks, showed reduced impact compared to other Mediterranean coastal nations.

It's no wonder the Houthis themselves are beginning to worry. The Shiite axis is crumbling across the Middle East, and their harmful influence on a major maritime trade route is weakening as the world finds alternative solutions and demonstrates flexibility in shipping routes. The Houthis remain alone in the broader Iranian campaign, where they weren't the strongest player to begin with. This week, the US and Britain attacked a Houthi facility in Sanaa, and later, Israel also struck several targets in Yemen, while the emerging Trump administration is not expected to treat them favorably.

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In a new report, the Organisation for Economic Co-operation and Development (OECD) says Israel exhibited a strong rebound in economic activity during 2021, and projected solid future GDP growth for the country.

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The report, December's Economic Forecast Summary on Israel, explained that the state "is projected to grow robustly by 6.3% in 2021, 4.9% in 2022 and 4% in 2023."

An earlier OECD report from May attributed Israel's economic growth to the country's "very high rate of inoculation."

The report also anticipated "strong growth" in Israel's technological exports, but warned the country's economic "recovery could be slower if the health situation deteriorates again, or the increase in inflation is stronger or more persistent than assumed in the projections."

In order to financially strengthen the nation, the report also called on Israel to implement a series of reforms designed to encourage economic recovery.

The OECD report recommended a focus on "upskilling and education" to address high poverty rates among the country's ultra-Orthodox and Arab Israeli communities, noting that income inequality in Israel exceeds that of most advanced economies.

Additionally, the report addressed a need for strong public transportation infrastructure, explaining "Traffic congestion is a major problem in Israel."

"Costs of congestion are estimated at around 2% of GDP, above levels in other high-income economies," the review said.

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Foreign Minister Gabi Ashkenazi and Economy and Industry Minister Amir Peretz were scheduled to depart for a two-day working trip to Seoul, South Korea, on Sunday to sign a bilateral free trade agreement.

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The free trade deal between Israel and South Korea is expected to provide a major boost to bilateral trade, free from customs taxes.

In addition to the trade deal, representatives of both nations were scheduled to sign an agreement to double the funding for the Korea-Israel Industrial R&D Foundation, which supports innovative research and development projects conducted by Israeli and Korean commercial companies in cooperation.

Ashkenazi and Peretz were also slated to meet with South Korea's foreign and industry ministers as well as head of its national assembly and senior officials to discuss matters of geopolitics, the economy, and security.

South Korea is home to the 12^th-largest economy in the world. When the free trade with Israel is inked, it will become the first Asian nation to enter into an agreement of this kind with Israel, or any nation in the Middle East.

South Korea is already Israel's third-largest trading partner in Asia. When the agreement takes effect, over 95% of Israeli exports to South Korea will be exempt from customs taxes.

Ashkenazi said his visit to Seoul with Peretz marked the end of "several years of intensive work, both political and economic, by Israel to promote the free trade agreement that will strengthen Israel's economy and reduce the cost of living in Israel."

Peretz added that "South Korea is one of the world's leading economies and an important trade partner for Israel. The agreement will cancel the export duties, and I hope that Israeli citizens will benefit from less expensive cars, phones, and other equipment that arrives from South Korea."

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To facilitate the program, the government will be distributing grants to companies that open internship positions to new graduates.

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According to a report on the status of human resources in Israel's high-tech sector for 2018, published by the Innovation Authority and Start-Up Nation Central, one of the sector's main challenges is in integrating university graduates into technical jobs and development roles.

The report indicated that 41% of Israeli high-tech firms that participated in the survey said that in the first half of 2018, they had not hired employees with no work experience.

To address this issue, an internship model has been designed for newly-hired graduates. The government hopes to incentivize high-tech companies to make new positions available to potentials employees with newly-minted degrees.

In addition to opening a door for academically qualified but inexperienced workers, the program hopes to address the problem of a lack of experienced manpower the sector faces.

Every company that participates in the program may take on two to 10 new employees. They will receive grants in accordance with the number of new hires, and the money will be available for a period of 18 months.

To be eligible for one of these internship positions, a candidate must be a resident of Israel, age 18 or over, and hold a BA or an engineering qualification in the computer science, computer engineering, programming, or electronic engineering.

Recently, the number of positions in Israeli high-tech surpassed 300,000 to reach 307,000 people directly employed in the sector.

High-tech now accounts for 8.9% of the Israeli labor market, compared to 8.3% in January 2018. In the past five years, high-tech exports approached 50% of Israel's total exports.

The internship program is slated to launch as a pilot in October 2021. Once the pilot is complete, the Innovation Authority will decide if and how to keep it going.

Meanwhile, the sector is suffering from a lack of experienced workers. According to a 2017 report from the Innovation Authority, there were 2.5 as many positions opened as there were qualified applicants.

In the past two years, a number of high-tech firms have taken the reins into their own hands and, without waiting for government backing, initiated courses to provide rapid, focused training for existing and potential employees.

As of June 2018, there were 15,000 open high-tech positions in Israel, compared to 12,000 in 2017, according to a report published in December 2018 that surveyed 362 Israeli high-tech firms that employ 82,000 workers.

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According to the report, EU countries accounted for 41% of imports, whereas 14% of imports were of US origin. Imports from Asia accounted for 23% and 22% were from the rest of the world.

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Israel's trade deficit stood at 7.2 billion shekels ($2 billion) for that period, the report said.

For the period of January to May 2019, Israel's trade deficit stood at 8.6 billion shekels ($2.4 billion), compared to 3.2 billion shekels ($890 million) in the comparable period in 2018.

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According to new figures, in 1936, prior to independence, the number of industrial companies in Israel stood at 1,500 and employed some 28,000 people.

In 1948, there were 2,500 industrial companies. In 1952 98,000 people were working in industry, and by 1965 that number had jumped to 223,000. In 2017, there were about 13,500 industrial companies in Israel, which employed 378,641 workers.

In 1948, Israeli industrial exports totaled $18 million. In 1980, that number had risen to $5 billion, and in 2000 industrial exports surpassed $30 billion. In 2018, they totaled more than $60 billion.

In contrast to the industrial sector, Israeli banking has not seen the same growth. The five groups that control banking were all founded before the state itself. Bank Hapoalim was established in 1921 as the bank of the Histadrut Labor Federation; Bank Leumi was established at the Zionist Congress of 1902 followed a decision by Theodor Herzl; Discount was founded in 1935; and Mizrahi-Tfahot in 1923. The only bank of the five that was established after the state is the First International Bank of Israel.

In the same period – 1948-2018 – Israel's gross domestic product has grown by a factor of 12, from 10,000 shekels ($2,800) per capita in the 1950s to some 120,000 shekels ($33,500) per capita today.

Data from the Export Institute also points to an enormous leap in the overall amount of Israeli exports – from $6 million when the state was first established to over $110 billion today. Standout export sectors include high-tech and energy.

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"America's decision that Iran's oil exports must reach zero is a wrong and mistaken decision, and we won't let this decision be executed and operational" Rouhani said.

"In future months, the Americans themselves will see that we will continue our oil exports," he said.

If the United States is able to stop one method for Iran to export oil, then it will find other ways, Rouhani said.

Oil prices hit their highest since November last week after Washington said all waivers for sanctions-hit Iranian oil would end this week, pressuring importers to stop buying from Tehran and further tightening global supply.

The United States demanded last Monday that buyers of Iranian oil stop purchases by May 1 or face sanctions, ending six months of waivers that had allowed Iran's eight biggest customers, most of them in Asia, to continue importing limited volumes.

Ordinary Iranians are the ones who feel the pressure from U.S. sanctions, Rouhani said.

Meanwhile, Saudi Energy Minister Khalid al-Falih told Russian state news agency RIA on Tuesday that Saudi Arabia is ready to meet oil consumers' demand by replacing supplies from Iran after the United States ends waivers granted to buyers of Iranian crude.

Falih said that the global deal to coordinate oil production levels could be extended after June.

"We will look at [global oil] inventories – are they higher or lower than the normal level and we will adjust the production level accordingly. Based on what I see now … I am eager to say that there will be some kind of agreement," Falih told RIA.

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The Trump administration told five nations, including allies Japan, South Korea and Turkey, that they would no longer be exempt from U.S. sanctions if they continued to import oil from Iran.

Trump decided not to reissue the waivers when they expire in early May, White House press secretary Sarah Sanders said.

"The decision is intended to bring Iran's oil exports to zero, denying its principal source of revenue," Sanders said in a statement.

In a Hebrew tweet, Netanyahu said that the Trump administration's decision was "extremely important" in increasing pressure on the "Iranian terror regime."

"We stand alongside the U.S. in its determined [stance] against Iranian aggression, and this is the right way to stop it," Netanyahu's tweet said.

Secretary of State Mike Pompeo planned to provide details about the administration's decision not to renew sanctions waivers for the five countries when they expire on May 2. The other countries are China and India.

It was not immediately clear if any of the five would be given additional time to wind down their purchases or if they would be subject to U.S. sanctions on May 3 if they do not immediately halt imports of Iranian oil.

Sen. Ted Cruz, R-Texas, applauded the end of oil waivers for Iran.

"This decision will deprive the ayatollahs of billions of dollars that they would have spent undermining the security of the United States and our allies, building up Iran's nuclear and ballistic missile programs and financing global terrorism," he said.

The administration had granted eight oil sanctions waivers when it re-imposed sanctions on Iran after Trump pulled the U.S. out of the landmark 2015 nuclear deal. They were granted in part to give those countries more time to find alternate energy sources but also to prevent a shock to global oil markets from the sudden removal of Iranian crude.

U.S. officials now say they do not expect any significant reduction in the supply of oil given production increases by other countries, including the U.S. itself and Saudi Arabia.

Since November, three of the eight – Italy, Greece and Taiwan -  have stopped importing oil from Iran. The other five, however, have not, and have lobbied for their waivers to be extended.

NATO ally Turkey has made perhaps the most public case for an extension, with senior officials telling their U.S. counterparts that Iranian oil is critical to meeting their country's energy needs. They have also made the case that as a neighbor of Iran, Turkey cannot be expected to completely close its economy to Iranian goods.

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The ministry said on Wednesday that despite the drop, the 2018 figures were a "major success" and the second-highest level in the past decade.

It said the $9.2 billion of defense exports in 2017 were "out of the ordinary" but was unable to explain the drop in 2018, saying only that the global market is "dynamic."

The largest share of Israel's exports consisted of missiles and air defense systems. Unmanned aerial vehicles, radar systems and ammunition also represented crucial exports.

Nearly half of Israel's sales went to Asia and the Pacific region.

Israel is the world's eighth-largest arms exporter, according to the Stockholm International Peace Research Institute.

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