Donald Trump seems inordinately fond of getting into fights. Since assuming office just over a year ago he has taken on North Korea, Mexico, Iran, Russia, the media and even close associates just before he booted them out of their jobs.
So far, these have been wars of words, even in the case of North Korea. But now the president is engaged in something closer to a real conflict and with a power no less than China. Trump’s trade war poses a threat to the entire world. That’s because a trade war, where countries erect ever higher barriers to imports, has an immediate effect on global economic growth.
Israel in particular is vulnerable because its economy is so reliant on international trade. We’re a big exporter of high-tech products and services, and of raw materials, commodities and machinery and equipment. The loss of exports will spell slower economic growth and lower employment; costlier imports, if Israel were to get swept up in a global trade war, spell higher prices to the consumer.
For anyone in Israel who thinks that what we’re witnessing is simply a two-way battle between America and China, think again. These are two of the world’s biggest economies, and we learned from the 2008 sub-prime crisis that what looks to be a local problem for America rapidly becomes a global one for everyone else.
Trump has little good to say about free trade and has declared that trade wars are good and easy to win (at least for America). Perhaps the next time he visits Israel and sits down to a steak dinner, he’ll pause to think.
Depending on whom you ask, the price of fresh meat in Israel has declined by 7.5% (Central Bureau of Statistics) or even 17% (the consumer research firm Nielsen) since 2014. That amounts to a savings of 170 million shekels ($48.3 million) in savings for the Israeli shopper.
Imported fresh meat accounted for 44% of all the meat consumed in Israel as of last September, compared with almost nothing three years earlier.
The reason for this is simple and straightforward: Since 2014, Israel has slashed, and in some cases eliminated, duties and quotas on fresh meat and the result, even in Israel’s not very competitive meat-import market, has been swift and profound.
Before the government acted, Israeli cattlemen and other farmers could count on a barrier of quotas and tariffs to keep lower cost overseas competitors out of the Israeli market. It kept Israel’s farm sector alive but spelled high prices at the supermarket.
The Organization for Economic Cooperation and Development (OECD) estimates that the cost of living in Israel is 10-15% higher in Israel than the average for member countries. On top of that, the cost of all that aid to the farm sector runs at about 6 billion shekels a year.
Until 2011, it was the interests of the agricultural sector that won out over the interests of the consumer. The social-justice protests of that year, which were to a large extent about high food prices (it all got started over the price of a Milky chocolate dessert), shook up the government’s priorities and lowering food prices became a priority.
Meat’s turn for reform came in 2014. Duties on live calves were eliminated and those on fresh meat were gradually cut by half to 6.50 shekels a kilo as of this year. By 2020, the tariff is due to fall to zero. Meanwhile, the quota of duty-free calves has increased from 2,500 in 2014 to 12,500 this year.
Import barriers are by no means the only reason for high prices in Israel. In some markets where import competition doesn’t exist – for example in fresh fruits and vegetables, education and telecommunications – prices are low by international standards (produce prices are also lower because there is no value-added tax on them).
Food prices are still high in Israel for, among other reasons, because of kashrut and excessive regulations. But removing trade barriers is a quick and easy way to lower the cost of living.
Witness Finance Minister Moshe Kahlon, who after struggling for three years to reverse the trend in housing prices, has more recently turned his attention to lowering duties in a wide range of consumer goods.
What Israeli carnivores know, American may have to learn on their own the hard way: That erecting import barriers aren’t simply as easy way to create jobs – there is a price consumers, and even businesses, will pay. For everyone winner, there will be several losers.
Israel should remember the lesson, too, and not let the Trump hysteria cause it to reverse course on trade liberalization. Conditions in Israel are favorable for advancing the process – unemployment and interest rates are low, for instance – so it’s time to act.
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