Global markets took a nosedive following US President Donald Trump’s announcement last Wednesday of a 10% baseline tariff on all trade partners, with additional duties for many countries, including 17% tariffs on Israeli goods.
Theories circulated online, with some alleging that Trump was purposely tanking markets, while others said he was using a shocking negotiation maneuver and would soon tone down the policy.
Analyses, predictions, and opinions surrounding the new policy abound, so here are some of its ramifications on global markets and how it might affect Israel:
Stocks continue to fall since announcement
• Stocks jumped off a cliff following Trump’s tariffs announcement and fell more over subsequent days.
The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite posted their largest two-day declines since the emerging coronavirus pandemic caused global panic during Trump’s first term. For Thursday and Friday, the Dow was down 9.3%, the S&P 500 declined 10.5%, and the Nasdaq fell 11.4%.
Some $5 trillion in stock-market value was wiped out for S&P 500 companies by Friday’s close, which was a record two-day decline.
On Saturday, J.P. Morgan ratcheted up its odds for a US and global recession from 40% to 60%, as brokerages scrambled to revise their forecast models with tariff distress threatening to sap business confidence and slow down global growth.
Stock exchanges around the world, including the Tel Aviv Stock Exchange (TASE), were also shaken by the move. Many leading TASE indexes opened down on Sunday.
Global recession, inflation fears abound
• Trump’s tariffs bring with them a real risk of global recession and increased inflation. The tariffs were larger than expected, Federal Reserve Chairman Jerome Powell said Friday, adding that they would lead to slower growth and higher inflation.
“We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation,” he said.
Tariffs will hit Israeli goods
• The tariffs might have a significant impact on Israel, as a US recession could raise the risk for recession around the world, including in Israel.
Even if Prime Minister Benjamin Netanyahu manages to convince Trump to lower tariffs on Israeli goods or to cancel them, Israel would be impacted by tariffs on other countries, as they slow growth and raise inflation in the US.
More than half of Israel exports to the US are of services, which should not be impacted by the new policy, and other key Israeli sectors should be exempt. Nevertheless, the policy could be devastating to Israel’s economy through its impact on the US, regardless of how large the direct impacts on Israel’s exports are.
Israel’s economy has been battered by 18 months of war. The return to fighting in Gaza and to advancing legislation related to the contentious judicial reform mean its position is all the more precarious as the global shock waves of Trump’s new policy begin to roll out.
Trump's agenda behind the tariffs
• Theories online abound that Trump is causing the crash to “push cash into treasuries,” which would force a Fed interest-rate cut, according to a TikTok video posted by user wnnsa11 and shared by the US president on his Truth Social account.
In response, Israeli economist Itamar Caspi said he has seen people say that “everything that happened is actually good, because long-term yields are dropping, the Fed will lower interest rates, and that will help deal with the national debt and benefit the stock market.”
In a post on X/Twitter, he said the new policy is “kind of like having a dirty car, and instead of taking it to a car wash, you set it on fire and then celebrate when the firefighters come to wash it off.”