AI chip access is "a top priority" for Netanyahu ahead of Trump meeting
AI chip access is "a top priority" for Netanyahu ahead of Trump meeting
Israel seeks exemption from US export restrictions to protect tech and defense sectors.
U.S. President Donald Trump will meet with Israeli Prime Minister Benjamin Netanyahu in two days, marking their first meeting since Trump’s re-election. While discussions will naturally focus on the hostage deal, the end of the war in Gaza, post-war strategies for the Gaza Strip, and the normalization process with Saudi Arabia, there is another critical dimension to this visit: economic issues. All parties involved are on high alert, and Netanyahu has been thoroughly briefed on key matters affecting Israel.
“The Prime Minister will receive a briefing on various economic issues,” said his economic advisor Avi Simhon in response to a question from Calcalist, though he declined to provide details. Among those involved in the briefings are Shmuel Abramson, Israel’s chief economist, responsible for managing the Ministry of Finance's economic relations with the U.S., and Noach Hacker, the ministry’s representative in Washington. They have maintained close contact with Netanyahu, working alongside Finance Minister Bezalel Smotrich. The Ministry of Economy is also engaged through Yoav Saidel, Israel’s economic attaché in Washington.
Economic Issues on the Table
The economic agenda can be divided into two categories: issues the U.S. will raise and those Israel will prioritize.
U.S. Priorities:
The Americans are expected to focus on foreign trade, particularly in light of Trump’s decision to impose tariffs on imported products. The U.S. trade deficit is a key issue for the new administration. According to updated data, the deficit is projected to reach $1.2 trillion by the end of 2024, up from $750 billion when Trump was first elected in 2016—a jump of about 60%.
“The U.S. market is strategically important for Israeli industry and remains the most significant globally. For us, it’s crucial that Israel be exempt from any new tariffs,” said Saidel in a conversation with Calcalist. “We are working closely with our U.S. counterparts to ensure that the special relationship between the countries remains unaffected.”
Despite Trump refraining from imposing new tariffs during his first days back in office, aggressive measures began today with the imposition of 25% tariffs on imports from Mexico and Canada—America’s oldest trading partners—and a 10% tariff on Chinese products. This has fueled speculation that a universal 2.5% tariff could soon apply to all countries.
In Trump’s first week back in office, he issued a memorandum instructing the U.S. Trade Representative (USTR) and the Treasury Department to review all trade agreements, their implications, and strategies to reduce the trade deficit. Israel, which signed a free trade agreement with the U.S. in 1985 (eliminating most tariffs by 1995, except for certain agricultural products), could face new challenges despite these long-standing agreements.
Israel’s Concerns Over Tariffs
Israel faced a similar situation during Trump’s first term. In July 2018, when the administration imposed tariffs on metals, Israel was not exempt, despite the free trade agreement. Ohad Cohen, then head of foreign trade at the Ministry of Economy, met with Daniel Mullaney, the U.S. Trade Representative for Europe and the Middle East, but the talks yielded no results. The tariffs affected Israeli metal exports worth $25 million, resulting in losses of $2.5 million (10%). Though only four companies were severely impacted, they were located in economically vulnerable areas. Despite appeals from then-Economy Minister Eli Cohen, Netanyahu chose not to raise the issue directly with Trump, likely to avoid straining relations over what amounted to just 9 million shekels in damages.
Today, Israeli officials are openly concerned about the possibility of new tariffs, whether broad-based or sector-specific. This is especially critical for key export sectors like semiconductors and pharmaceuticals. According to Israel’s Central Bureau of Statistics, pharmaceutical exports totaled around $2 billion in 2024, while electronic components, including chips, reached $6.5 billion—together accounting for roughly 12% of Israel’s industrial exports.
The U.S.: Israel’s Most Important Export Market
Despite the war and an 11% decline in global Israeli exports over the past two years (2022–2024), exports to the U.S. have continued to grow. In 2024, they reached $14.2 billion, up 4.5% from 2023. The U.S. now accounts for over 26% of Israel’s total exports, making it the largest and most strategic market for Israeli goods—five times larger than exports to China, Germany, or the Netherlands.
Notably, 85.4% of Israeli companies exporting to the U.S. are small- and medium-sized businesses with fewer than 50 employees. However, with Israel’s trade surplus with the U.S. growing—widening the U.S. trade deficit—there’s concern about how Trump might react. As of 2024, Israel buys 52% more from China than from the U.S., despite the U.S. purchasing five times more Israeli goods than China does.
Services Exports and the AI Chip Dilemma
In addition to goods, Israel’s services exports to the U.S. are booming. Business services reached over $20 billion as of 2021, accounting for nearly half of Israel’s total services exports. In critical sectors like R&D, exports to the U.S. hit $8 billion, representing 83% of Israel’s global R&D exports.
“The trade deficit mainly concerns goods, which is where tariffs apply,” noted Saidel. “Services are more complex and less likely to be directly affected by new tariffs.”
One pressing issue is the Biden-era regulation restricting the export of advanced AI chips to foreign countries. While 18 U.S. allies are exempt from these restrictions, Israel falls into an intermediate category where exports are permitted but with limitations. Israel views inclusion on the exemption list as a matter of strategic importance.
“The U.S.-Israel economic partnership is of paramount strategic value,” said Abramson. “Securing Israel’s exemption from AI chip export restrictions is a top priority for the Prime Minister and Finance Minister during this visit.”
Restrictions not only hurt Israel’s tech sector but also raise concerns about trust between the two allies. “This reflects a lack of confidence in Israel’s national security strategy,” said MK Orit Farkash-Hacohen, former Minister of Innovation.
Military Aid and the Bigger Picture
Military aid will also be on the agenda. Under the current 10-year agreement (2019–2028), the U.S. provides $3.8 billion annually in military assistance to Israel. However, since the October 7, 2023, war, the U.S. has provided an additional $22.76 billion in military support, including $17.9 billion in direct aid and $4.86 billion for operations in the region.
With Israel facing a deep budget deficit and a projected 42% increase in its defense budget over the next decade, every dollar counts. While Trump has excluded Israel from recent foreign aid cuts, officials worry he may use economic levers like tariffs as political pressure, particularly given the influence of hardline ministers like Bezalel Smotrich and Itamar Ben-Gvir.
Netanyahu knows Trump well. This meeting will be about more than military support—it could shape the future of Israel’s economy and its most critical trade relationship.
