Israeli economic officials expressed shock overnight Wednesday at the Trump administration's decision to impose a 17% tariff on Israel, calling the decision "unjustified."
The duty on Israel is part of a sweeping set of tariffs announced by US President Donald Trump on Wednesday in which he will impose a 10% baseline tariff on all imports to the United States and higher duties on some of the country's biggest trading partners, in a move that ratchets up a trade war that he kicked off on his return to the White House.
Israel had already moved to cancel its remaining tariffs on US imports on Tuesday.
Officials added that they were convinced that Israel's decision to cancel Israeli tariffs on US imports would prevent US tariffs on Israel.
"It's going to be hard," officials said, adding that they will "work to change the decision," which they called unjustified.
$3 billion economic hit
Finance Minister Bezalel Smotrich said that the ministry has been "analyzing its impact on the economy across various sectors and engaging in discussions with the industry and economic leaders."
He added that he will convene Finance Ministry officials to discuss next steps.
A Finance Ministry official said the announced 17% tariff on certain Israeli goods was lower than those on many other countries.
Speaking on condition of anonymity due to the sensitivity of the issue, he said it was derived from a calculation based on Israel's $8 billion trade surplus with the US, in which Israeli goods exports to the US were some $17 billion in 2024.
The official noted that while the issue was still unclear, tariffs likely do not include services and that about half of Israeli exports are high-tech services. High-tech comprises 20% of Israel's GDP.
But it will likely impact diamonds, machinery, electrical and medical equipment, the official said, urging the prime minister and finance minister to negotiate with Trump officials to try and reduce the tariff to no more than 10%.
Michel Nies, a Citi economist, estimated a potential hit to Israel's economy of as much as $3 billion, or 0.6% of GDP.
Dr. Ron Tomer, president of the Manufacturers Association of Israel, said that if the decision stands, it is "a regression in the trade and investment relationship between the countries, especially considering the long-standing and deep, loyal friendship between the two nations."
"The president's decision to apply tariff policy to Israel could harm Israel's economic stability, deter foreign investment, and weaken the competitiveness of Israeli companies in the US market."
'Unclear decision'
He called the decision unclear and said the association was working to understand the motivation behind the move.
He added that the US claim that Israel imposes a 33% tariff on American goods is "puzzling," adding that this means "the US decision to impose 17% tariffs on Israeli goods remains unclear."
He added that the association hopes and believes that the decision will be short-lived and said that it will work with the Finance and Economy Ministry to make this the case.
The association called for "intensive negotiations" between Israel and the US to change the decision or "at least reduce its scope."
The Israel Export Institute said that the tariffs present a significant challenge for Israel, especially in non-exempt industries, but noted that exemptions "provide a stable foundation for continued economic economic cooperation."
"Israel will need to focus diplomatic and economic efforts on minimizing the damage and finding new opportunities in other markets."
The institute also noted that over 60% of Israeli exports to the US are business services, which they said would not be impacted by the new policy.
It said that the US is Israel's biggest and most important trade partner, highlighting that in 2024, trade between the countries stood at USD 55 billion, 70% of which was Israel export and 30% of which was import.
Israel and the US signed a free trade agreement 40 years ago, and around 98% of goods from the U.S. are now tax-free. The finance ministry noted that tariff collection from US imports - mainly in the agricultural sector - stands at about 42 million NIS a year.
The institute stressed that, while it is still studying the policy, recent reports indicated that there will be exemptions to the tariffs for significant branches of Israeli export, including pharmaceuticals and semiconductors.
The new policy will directly impact Israel's hi-tech sector, said Karin Mayer Rubinstein, CEO of Israel Advanced Technology Industries - an umbrella organization for Israeli hi-tech and life sciences.
"At this stage, there are more questions than answers, and we are waiting for the publication of the final rules that will define the scope of the measure and its practical implementation," she added.
"If the tariffs apply to software products as well, particularly Software as a Service (SaaS) – the main area of activity for many Israeli high-tech companies – this move could fundamentally alter how Israeli companies approach the American market and even discourage potential investors and customers.
Reuters contributed to this report.