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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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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