The US capital markets are reeling. Investors are panicking. Doomsdayers are having a field day. US and world economic analysts are wondering what has become of President Donald Trump’s strategy.
None of the above appears to impact Trump as he goes off for another round of golf, seemingly oblivious to the chaos.
President Trump is the powerful leader of the free world whose economic policies are enigmatic, and currently detrimental. As such, he could be likened to Pharaoh in Egypt – the most powerful leader of his time – whose irrational refusal to let the Hebrews go wreaked economic carnage upon ancient Egypt.
As an out-of-the-box thinker, Trump has taken mixed economic measures that were formerly considered paradoxical, such as cutting wasteful spending through the DOGE (which reduces budget deficits) and extending major tax cuts (which have an opposite impact on budget deficits).
Regarding foreign policy, too, he has exhibited opposing tendencies, implementing cuts in US foreign aid – an isolationist trend – while at the same time intervening in the world by threatening terrorist regimes, such as Iran, and seeking to expand US territory into Canada and Greenland.
Nevertheless, because Trump is so hard to characterize neatly, we should think twice before jumping to conclusions as to where his tariff policies are headed, and what mid- to long-term impact those policies are likely to have on the world economy and the US capital markets in particular. That is especially relevant for Israeli companies traded in the United States.
It is undeniable that the US has imposed its highest tariff levels since 1930, and some countries have reciprocated, which should have the impact of reducing trade, increasing prices globally, and inflicting short-term chaos on a macro-economic level. If the tariff levels were to remain in place in the long term, the world economy would inevitably be hurt in a significant manner, and Israeli public companies traded in US markets would justifiably be extremely anxious.
We know the US president too well
Yet, we should all know President Trump too well by now to think that he would allow himself to be remembered as the US president who destroyed world economic prosperity and capital markets.
The author of Trump: The Art of the Deal, he lives his life and presidency in accordance with his mantra, “Let’s make a deal.” We all experienced it here in Israel in his first term as president when he brokered the Abraham Accords, defying the odds and establishing full relations between our country and some of our neighbors in the Middle East.
Therefore, in terms of his tariff policy, we can expect that he is deliberately hiding his true game plan and waiting for other countries to flinch first and beseech him to negotiate down tariff levels bilaterally. American officials have not yet admitted this, but such reluctance to acknowledge is to be expected, as it would reduce President Trump’s leverage for negotiations if he were the first to propose negotiations or agree to conduct those negotiations too soon.
President Trump seeks a clear victory for the American factory workers who voted him into office for a second term.
The only way that will occur is if American products face reduced tariffs when exported overseas, combined with international companies being provided with increased incentives to open factories in the US and thereby employ more American workers.
Trump is expecting – and we may also expect – that at a certain point, in the not-too-distant future, other countries will begin to come forward and ask the US to negotiate tariff reduction agreements. Once those agreements begin to be entered into, on a country-by-country basis, there will be increased pressure for “holdout” countries to strike their own deal with the US president and thereby provide more favorable terms for American goods to be imported into their countries. That will enable Trump to “climb down from the tree” (a Hebrew expression) and offer a substantial reduction in tariffs on foreign materials and goods being imported into the US.
The positive momentum generated by bilateral tariff reductions would buoy investor sentiment and presumably lead to a significant rally in US capital markets, to a degree substantial enough to make everyone forget the recent decimation the markets have been experiencing. Whether all of that occurs in time to avoid a minor recession is not clear, but in either case, Trump is banking on the positive vibes to quickly turn the tide on Wall Street.
How does all that impact our Israeli companies traded in US capital markets? With all the chaos surrounding tariffs, it is of course, difficult for Israeli companies to currently plan for the short term in their operations or to provide accurate, updated guidance as to the anticipated results of their operations in 2025. And, unfortunately, it is possible that some promising IPO-ready Israeli companies may be delayed in their prospective initial offerings in US capital markets by a couple of – or a few – fiscal quarters, while the current trade barriers remain in place and market prices of traded companies remain weak.
HOWEVER, TO abandon mid- and long-term operational and financing planning due to the current uncertainty would be hasty and self-destructive. Patience is required.
We know by now to know that we cannot predict Trump’s next moves or tactics. One thing is fairly certain, though, he is likely to act in a manner disruptive to conventional wisdom, yet which may well achieve surprising successes.
Along with the increased tariffs have been some early moves by the Trump administration to remove barriers to raising capital in US markets.
The US Securities and Exchange Commission (SEC), under Trump, has already taken steps to deregulate and reverse burdensome climate-related disclosures considered by the Biden administration. It is just a matter of time until President Trump begins to act to try to set a new even keel in world economy as well. After the current disruptions will undoubtedly come some positive developments that resume the long-range trend of rising US capital markets.
It may take some time, but in the end, that will be good news for our Israeli public companies. After all, the Exodus story has a happy ending.
The writer is a partner at Meitar Law Offices in Ramat Gan, where, since 2008, he has played a significant role in the US/Global Capital Markets group practice.
