Analysis

Europe, Then China. Now, Israel Is the New Front in Trump’s Trade Wars

In talks starting this week, Washington wants better access for its farm products – a sign of how much the global economy is undergoing risky changes

U.S. President Donald Trump meets with Irish Prime Minister Leo Varadkar in the Oval Office of the White House, March 14, 2019.
Evan Vucci/AP

The United States is turning its guns on Israel as the next target in its global trade war, according to a Bloomberg News report last Friday. Behind the details of the talks, which begin this week and are devoted mainly to farm trade, is a much bigger and more complicated reality of a changing world trade environment. That presents Israel and other countries with a host of opportunities and risks.

Who’s next

The United States is seeking to improve its terms of trade with Israel at a time when the Trump administration has been employing with abandon the weapons of tariffs and sanctions.

>> Read more: The 2008 financial crisis, 10 years on: It's not just the economy, stupid | Opinion  how Israel could become a casualty in Trump's trade war 

At issue in the U.S.-Israel Free Trade Agreement from 1985, under which “virtually any product produced in Israel that can be competitive in the U.S. market can enter the U.S. duty-free,” according to a 2018 report from the U.S. Department of Agriculture. “In contrast, U.S. products continue to face high tariffs in many sectors limiting their access to the Israeli market.”

It’s hard to blame the United States for wanting to restore balance to its trade relations and the fact is Israeli consumers will almost certainly benefit from the removal of barriers to American imports that raise the price of food. But the global dynamics of what the Trump administration is trying to do carry risks.

Last year Trump took steps to penalize the makers of steel, aluminum and electrical products in the European Union, Canada and Mexico. Next he imposed stiff tariffs on Chinese imports. And last week, he ended preferential trade status to Turkey and India.

In the early days of his administration, he withdrew the United States from the Trans-Pacific Partnership, which encompassed the countries of Asia and the Pacific Rim, and pulled out of talks with the EU on the Transatlantic Trade and Investment Partnership.

War on the world order

Decades of globalization and a world order based on multilateral agreements following World War II had been predicated on the assumption that economic development would bring social well-being. That, in turn, would ensure peace among countries.

What it brought was a powerful counterreaction that started with the 2008 financial crisis, gained momentum with the Brexit referendum and in 2016 with the election of Donald Trump as president of the United States. The war against globalization opposes liberal immigration rules, free trade and multilateralism, whether through NATO, the Paris climate accord or big trade pacts.

Permission to visit Europe?

Last Friday the EU announced that, beginning in 2021, American citizens will need to apply for a three-year visa to visit Europe. Today, Americans can visit most European countries without one, but the EU said security considerations demanded that the rules be toughened.

As one of its first acts, the Trump administration moved to restrict immigration and travel to the United States by issuing a presidential order banning visitors from a list of mostly Muslim countries. It has also acted to tighten rules on bringing in skilled foreigners to work in the American high-tech industry.

Immigration has become an explosive issue, as evidenced by the rise of extreme right-wing parties in Europe, South America and elsewhere around the world. Last Wednesday, the EU declared that the continent’s refugee crisis was over. It sharpened its attack on “fake news” and “misinformation” about the issue. The reality is that the news isn’t all that fake and EU governments are still at odds over how to take in the 100,000 refugees that cross the Mediterranean from Africa every year. Italy’s populist government is taking a hard-line stand against them.

Socialism is back

The 2008 global financial crisis exposed the failures of the trickle-down theory of wealth from the richest to the poorest. Economic inequality has been growing in most of the developed world since the 1970s, along with the rise of Reaganism and Thatcherism.

The link between an unfettered free market and overall economic welfare has been largely disproven. Even economists at the International Monetary Fund, which held up the torch of neo-liberalism for decades, have more recently concluded that it doesn’t contribute to economic growth, but does exacerbate inequality.

All this has elicited a reaction more recently from the left rather than from the right. Democratic members of the U.S. Congress are now talking about raising taxes and “socialist” policies. Measures like that have won favor with the young, who fear for their future in a world in which technology threatens their jobs.

One of the consequences of the rise of the new left is a conscious decision to increase fiscal deficits to enable social safety nets to compensate for the failure of the market. The next wave of populism is therefore likely to come from the left, and if it proves to be extremist, it will be no more enlightened than right-wing populism.

Debts and deficits

Since 2008, central banks have enjoyed power unprecedented in history. Lowering interest rates to zero or even below it – quantitative easing – were the weapons of choice for them. The public had virtually no say in the matter. Lowering the cost of credit, allowing asset prices to soar and debt to grow are the risks they took on for the world without knowing what the consequences would be.

Modern monetary theory, which seeks to effortlessly link the policies of central banks with the fiscal policies of governments, is now offering the politicians the intellectual tools they need to increase deficits and spending. Whether or not it will work, the old policy of austerity is now in disrepute. Even IMF economists say so. The world is entering a new era of red ink and Israel seems to be joining it, though so far only quietly: Late Thursday night, the treasury announced that the deficit for the 12 months through February had soared to 3.5% of the gross domestic product.