Here’s some advice for Israeli Trump supporters: Two years from now, when you’re worried about losing your high-tech job and the payments on your mortgage are going up, take a stroll through Jerusalem’s Arnona neighborhood. Enjoy a few moment of pride at the site of the U.S. Embassy.
That’s, in effect, the trade you made with a Trump administration over a Hillary Clinton White House.
Trump gave Israel some sweets, like the embassy move, which taste good. But they provide little nourishment, as evidenced by the fact that apart from Guatemala, no more of the world recognizes all of Jerusalem as Israel’s capital than before.
Trump also pulled out of the Iran nuclear agreement. But his commitment to containing Iranian ambitions is minimal at best as evidenced by his decision to pull American troops out of Syria – leaving it open to little-checked Iranian influence.
Trump supposedly likes West Bank settlement, but that hasn't had any effect. Housing starts in the settlements have been lower during the Trump years than during the Obama era. Why?
Probably because Netanyahu knows better than the rest of the Israeli right that Trump is no world leader in the sense of leading global public opinion or Western allies, or even the American policy elite. The U.S. president is mercurial, unreliable and may not be around for a second term anyhow. Best not rely too heavily on things like Trump's supposed love of settlements to undertake a building boom.
In short, what Israel got from Trump in his first two years in office on the issues so beloved of the right is a lot of empty symbolism. What we are now going to get in the second two years is the real substance of Trump’s policies, not vis a vis Israel but the economy.
Slumping on the Street
The first sign of that is slump on Wall Street, which just had its worst week since the Great Recession. The Nasdaq Composite index, which is heavily weighted toward tech stocks, is now officially in a bear market, meaning it’s down 20% from its last peak.
Naturally, the Tel Aviv Stock Exchange is falling rapidly, too, with the benchmark TA-35 index down 13% from its September peak as of Sunday.
The TASE never enjoyed the same bull market as the U.S. Israeli investors have fewer past profits to offset their latest losses.
The pain being administered by Wall Street doesn’t stop at the TASE. Israel’s high-tech sector relies on the U.S. stock market to ensure a steady flow of investment capital and lift the valuations of startup companies.
Past U.S. market slumps have quickly reached Israel’s tech sector, as a recent note by IVC Research shows. In the wake of Wall Street’s two previous slumps, fundraising by Israeli startups plunged -- 56% in after the burst of the dot.com bubble in 2000 and 36% after the Great Recession set in. Venture capital funds, which supply much of the money startups need, also struggled to raise capital and their recovery time was much longer.
If startups can’t raise capital or can only do it at lower valuations, they can’t hire people, they do less research and development, and in many cases shut down.
Meanwhile, the U.S. Federal Reserve is raising interest rates, most recently last Wednesday, prompting the latest market sell-off.
At this point there is almost nothing the Fed can do or say that won’t make things worse: If it keeps raising interest rates, it undermines the stock market by making shares less attractive; if it keeps them unchanged going forward, it’s a signal that it is worried about the U.S. economy.
The Fed wouldn’t be so anxious, except that one of Trump’s new “accomplishments” was the 2017 tax cut. It not only stimulated an economy not in need of stimulation, it did so at the heavy cost of a ballooning U.S. budget deficit. The Fed has no choice but to take some of the air out of the balloon by raising interest rates, or it will burst in a recession. The Bank of Israel has already followed suit, raising rates here.
The third factor is China. Trump was right to go after Beijing over its trade practices, but he did it in a crude fashion that demonstrates how he still thinks like a mid-sized New York real estate developer rather than as the president of a superpower.
His zero-sum approach of us versus them, with no thought to the wider implications of his policies, Trump has not only risked U.S. economic growth but more critically is pushing the Chinese economy into dangerous waters. That, in turn, poses a threat to the world economy, which is so dependent on Chinese demand. Israel is no exception.
It’s not as if Hillary Clinton was destined to preside over four years of peace and prosperity either. The growth of the American economy and the bull market underway since the end of the Great Recession had to eventually run its course. That’s just how economies work.
But as a paragon of the Washington establishment we could have counted on her policy blandness to have shunned irresponsible tax cuts or a ham-fisted approach to China. The slowdown would inevitably have come, but it would have been kinder and gentler -- not the Trump-engineered thud we face now.
Israel has emerged as a world power disproportionate to its size because of its technology -rich economy – not because the U.S. embassy is in Jerusalem and certainly not because of the settlements. The right’s hero in the White House threatens to undermine it all.
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