Analysis

Trump’s ‘Deal of the Century’ Is Coming. Israel Is Already Being Handed the Bill

Netanyahu is likely to sacrifice Israel’s interests in industries like potato chips or milk and not risk its security interests, including the high-tech sector

U.S. President Donald Trump looks at supporters before boarding Air Force One after addressing a Trump 2020 re-election campaign rally in Montoursville, Pennsylvania, U.S. May 20, 2019.
\ CARLOS BARRIA/ REUTERS

U.S. President Donald Trump will soon present the economic portion of his “deal of the century,” his attempt to bring peace to the Middle East. The details haven’t yet been published, but Israel is already being handed the bill. According to all the forecasts, the agricultural trade agreement between the United States and Israel will undergo changes that will exact a heavy price from Israeli farmers growing things including apples, pears and almonds, the dairy industry, as well as food manufacturers including wineries and major companies such as Osem and Elite.

In Israel, a fight is raging over the price that farmers and food manufacturers will pay. The effects could be far-reaching, including the collapse of Israel’s dairy sector, as the country finds itself flooded with cheap American cheeses, wine and potato chips. No one in the Israeli government rules out the possible economic effects.

In many ways, this was predictable. Israel has essentially been violating its agricultural trade agreement with the United States since it was signed in 1985. Some might say that this isn’t intentional but rather a remnant of old agricultural policy. The United States used to protect its agricultural products with tariffs, as many countries did, but over time it switched over to direct subsidies to farmers. Israel, however, is stuck with the more antiquated policy of tariffs and industrial planning – a government-imposed cartel in the egg sector, for instance.

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Thus Israel’s agricultural exports to the United States – slim though they may be – are exempt from import duties, while U.S. exports to Israel are blocked by thousands of different duties – and thus very little takes place.

Since 1985, and mainly since 2008, when the agreement expired, the Americans have been gently pushing to make the deal slightly more balanced. Israel has rejected these gestures, and not so gently. Thanks to the warm relations between the two countries, the Americans have kept quiet. But now one of Trump’s main platforms is that the United States must stop being on the losing end of trade deals, and he’s demanding that America’s trading partners offer equal conditions for American exporters. The most famous target is China of course, but Israel is also in the crosshairs.

The result is that the Trump administration has handed Israel a tough list, and people familiar with the Economy and Industry Ministry’s talks with U.S. officials say the Israeli market simply can’t handle some of the items. The Americans are demanding that Israel cancel all import duties and quotas for agricultural goods. If this happens, entire industries in Israel’s agricultural sector could be wiped out. Israeli companies that process food are also likely to take a serious blow.

No one is afraid of American vegetable exports. Despite the incredible size difference between the United States and Israel, the latter is very competitive when it comes to vegetables. The problem involves several kinds of fruits with relatively long shelf lives, fruits where America has a significant competitive advantage. The three products most likely to be at risk are apples, pears and almonds.

America’s best-selling apple, the Pink Lady, is grown around the world, while competition over Pink Ladies in Israel is limited. For most of the year, these blushing beauties sell for 10 to 15 shekels ($4.17) a kilo. American growers could send this price plummeting in a moment with their massive production volume. American farmers could also swamp Israel’s market with corn – American corn is much better than the Israeli variant – but given that Israel’s corn industry is pretty small, it’s less of a worry.

Another major reason for worry relates to products that can be easily imported, namely processed food, particularly cheese, wine and items such as frozen vegetables and potato chips. Currently, all that Israel imports is Pringles because this chip is made from potato flour and not actual potatoes, so it’s not subject to import duties. Israel’s potato chip manufacturers have been protected by the duty on importing potatoes, but the Americans are demanding a change.

The American demands touch on 40 industries that particularly interest the U.S. government. U.S. negotiators have apparently hinted that they’re willing to be flexible – to forgo some of these 40 items and accept that the changes will occur over years. But the list of American demands is longer, more demanding and more inflexible than ever. Trump’s uncompromising stance is being felt.

“We all know that one phone call from U.S. Vice President Mike Pence to Israeli Prime Minister Benjamin Netanyahu and we’ll have no choice but to give in,” said a source familiar with the talks. “We’re preparing a compromise so that it doesn’t come to that.”

Theoretically, Israel could say no. In practice, given the Americans’ insistence, that’s not an option. If a trade war begins, the United States could hit Israel with sanctions on high-tech exports. Israel couldn’t handle that. It’s unlikely that Washington would level sanctions on Israel; Pence’s phone call to Netanyahu would obviate the need.

In the meantime, Israel’s Agriculture and Rural Development Ministry is investigating which Israeli industries would be hurt most by free trade with the United States, and is begging for their lives. One of Israel’s most delicate sectors is the dairy industry, currently protected by a government-enabled cartel that makes Israeli dairy products among the world’s most expensive. While the United States is unlikely to start exporting raw milk to Israel, massive quantities of cheap American cheese are definitely an option. In this case, while Trump may be the trigger, Israel’s dairy industry is years overdue for a change.

Netanyahu, for his part, is likely to sacrifice Israel’s interests in potato chips or milk and not risk Israel’s security interests. Ultimately, that’s understandable.