US President Donald Trump has reignited old trade wars in 2025, doubling down on the protectionist policies that defined his first administration.
During his initial term, Trump launched a series of aggressive tariffs, particularly against China, triggering a prolonged trade conflict that disrupted global supply chains and shook financial markets. His administration also imposed levies on European goods, renegotiated NAFTA into the USMCA, and frequently used tariffs as a tool for economic and political leverage.
Now, in his renewed push for “America First” trade policies, Trump is imposing even steeper tariffs on imports from China, the European Union, Mexico, and Canada. Beijing has responded with retaliatory measures, the EU is weighing WTO action, and North American trade partners are seeking ways to shield their industries from economic fallout.
Israel, though not a direct target of these tariffs, will experience ripple effects. As a trade-reliant economy, Israel must brace for currency fluctuations, potential inflation, and shifts in trade dynamics. The shekel-dollar exchange rate could see significant volatility, requiring swift policy responses to mitigate economic disruption.
The global ripple effect: Businesses caught in the crossfire
Trump’s renewed trade wars in 2025 are sending shock waves through the global economy, forcing businesses to adapt to rising costs, shifting supply chains, and increasing uncertainty.
Multinational corporations are struggling to navigate new trade barriers. Auto manufacturers, electronics companies, and agricultural exporters face rising prices for raw materials and components, disrupting global supply chains. Businesses that once relied on stable trade flows must now make difficult decisions – whether to absorb costs, pass them onto consumers, or relocate production.
Currency markets are also in turmoil. The uncertainty surrounding global trade is driving fluctuations in major currencies, including the US dollar, the euro, and emerging market currencies. This volatility will have far-reaching effects, especially for trade-dependent economies like Israel, where exchange rate movements can significantly impact exports, imports, and inflation. The question now is how nations will adjust to this new economic reality.
Israel in the trade war crosshairs
Although Israel is not directly targeted by Trump’s 2025 trade war, the economic ripples are unavoidable. Israel, as a globalized economy, is exposed to the shifts in global trade flows, supply chain disruptions, and currency market volatility.
Then again, we shouldn’t discount the possibility that Israel, or specific segments of the Israeli economy, may be targeted for tariffs in the future. In 2017, President Trump publicly stated his desire to reduce the US trade deficit with Israel.
Trade shifts: Risks and opportunities for Israeli businesses
The new wave of tariffs could affect Israeli exporters in unexpected ways. Many Israeli technology firms sell products and services to companies in the US and China, both of which are now embroiled in a tariff-driven economic standoff. If American firms face higher costs for Chinese components, they may cut spending in other areas – including Israeli software, cybersecurity, and hi-tech services. Additionally, Israeli companies that manufacture abroad may experience increased costs if they rely on supply chains running through tariff-affected regions.
On the other hand, there may be opportunities as well. If US businesses seek to reduce reliance on China, Israel could position itself as an alternative supplier in certain high-value industries like artificial intelligence, semiconductors, and defense technology. However, to capitalize on this, Israel must move quickly to strengthen trade agreements with the US and other key partners.
Shekel volatility: The currency shock factor
One of the most immediate and significant consequences of global trade wars is currency market instability. Historically, Trump’s protectionist policies have led to fluctuations in the strength of the US dollar. A stronger dollar relative to other currencies can have mixed effects on Israel’s economy:
A stronger dollar makes Israeli exports more competitive in US markets, benefiting tech firms and manufacturers. However, a stronger dollar also raises the cost of imports for Israel, potentially fueling inflation.
A weaker dollar, on the other hand, could hurt Israeli exporters by making their goods and services more expensive in the US, their largest trading partner. If the shekel strengthens against the dollar, it could erode profits for Israeli companies that rely on foreign sales. In contrast, if the shekel weakens, inflation may rise, increasing costs for businesses and consumers alike.
Furthermore, the dollar-shekel exchange rate is highly correlated to US equity markets, especially the S&P500. The higher the stock market indices, the stronger the shekel becomes. The looming trade war has caused equity markets to stumble, fueling shekel exchange rate volatility.
In such an environment, businesses should be protecting themselves from currency volatility by enacting clear hedging policies to reduce the financial risk to their bottom line. However, with these economic forces at play, Israeli authorities must also take proactive steps to mitigate risks and capitalize on emerging opportunities.
Protecting Israel’s economy: Policy moves for stability
As Trump’s 2025 trade wars disrupt global markets, Israel must take decisive steps to protect its economy from potential shocks. While Israel is not a direct target of US tariffs, the indirect effects – currency fluctuations, inflationary pressures, and shifting trade patterns – require a strategic response from both the government and the Bank of Israel.
Diversifying trade and strengthening alliances
Strengthening trade agreements with the European Union, Asia, and emerging markets could help reduce dependence on American demand. Israel should capitalize on the shifting global supply chain by positioning itself as a stable and innovation-driven alternative for hi-tech, defense, and pharmaceutical industries.
Encouraging domestic manufacturing and reducing reliance on imported raw materials could also help cushion the economy from external shocks. Government incentives for Israeli firms to expand operations locally and seek alternative suppliers outside of tariff-impacted countries can mitigate rising costs caused by global disruptions.
The Bank of Israel’s role in managing shekel volatility
The Bank of Israel plays a crucial role in stabilizing the economy during trade wars. If a stronger shekel threatens Israeli exports, the central bank may need to intervene in currency markets to prevent excessive appreciation. Conversely, if trade tensions weaken the dollar and fuel inflation, the Bank of Israel could consider raising interest rates to curb price spikes.
In addition, monetary authorities must closely monitor inflation trends. If tariffs drive up global commodity prices, Israeli consumers and businesses could face higher costs. Adjusting fiscal and monetary policies accordingly will be essential to maintaining economic stability.
By proactively adapting, Israel can seize new opportunities in the evolving marketplace.
From this aspect, it is a bit concerning that Prime Minister Benjamin Netanyahu has not extended the term of central bank deputy governor Andrew Abir, who is expected to leave the bank as a result. Abir has been instrumental over the past years in formulating and carrying out the Bank of Israel’s foreign currency policy. A sense of continuity in the politically independent leadership of the central bank is important in uncertain economic times.
Turning crisis into opportunity
Rising tariffs, supply chain shifts, and currency fluctuations will present both challenges and opportunities for the Israeli economy. The ability to navigate these disruptions will depend on how quickly and effectively policymakers and businesses respond.
The growth of the Israeli economy relies heavily on exports. For Israeli exporters, a volatile dollar-shekel exchange rate could mean uncertainty in pricing and profitability. The government must act swiftly to diversify trade agreements. Meanwhile, the Bank of Israel must remain vigilant, ensuring that currency fluctuations do not undermine economic stability.
History has shown that Israel thrives under pressure. Whether facing geopolitical turmoil, financial crises, or global economic downturns, the country has consistently adapted, innovated, and emerged stronger. This moment is no different. By embracing agility, foresight, and strategic policymaking, Israel can transform the risks of Trump’s trade wars into opportunities for growth and expansion.
Trade wars create uncertainty, but they also open doors for those prepared to step through them. The question is not whether Israel will be affected – it will be. The real question is: Will Israel seize the moment and turn economic turbulence into an advantage? The answer, as history suggests, lies in Israel’s resilience and adaptability. And the country’s recent history leaves room for optimism.■
Benjamin Avraham is the founder and CEO of Okoora, an enterprise-grade solution for multi-currency business operations. He has advised major companies and governments institutions in Israel and Europe regarding trades and ways to minimize their risk exposure.
