Liberation Day finally came, but as we now know it wasn't April 2, when U.S. President Donald Trump announced his reciprocal tariffs program and sent the world's financial markets into a swoon. Instead, it was April 9, when he announced he was suspending the plan for 90 days while he negotiated tariff deals with dozens of countries.
There's been no dancing in the streets, but who needs to do a jig when the S&P 500 rose 9.5 percent in the hours after Trump's announcement?Buy now, dance later. The Tel Aviv Stock Exchange was also celebrating, with a gain of 2.8 percent midday on Thursday for the benchmark TA-35 index.
On the surface, the celebration seems premature. After all, Trump didn't cancel the tariffs, he just postponed implementation for 90 days and in the meantime is imposing a 10 percent rate across the board (except for China, which is still subject to a 125 percent rate). In Israel's case, that's an improvement over the 17 percent rate it faced under the original plan, but the moratorium leaves it worse off than before.
Moreover, Trump says he is still angling to impose a specific tariff on pharmaceuticals, which is a major Israeli export.
The real reason to celebrate isn't the economic ramifications but the political ones. The White House is spinning the whole affair as not the policy disaster and epic flip-flop that it self-evidently was, but a calculated act of genius by the president.
"You have been watching the greatest economic master strategy from an American President in history," Stephen Miller, a Trump adviser, said over X. Looking at the replies to Miller's post, it would appear that a lot of Americans are buying this version of what happened.
Just like Israel's Bibi-ists, America's MAGA-ists never accept that their leader makes a mistake. If things go wrong, it's due to conspiracies against the great leader or the failure of his enemies to recognize his cunning, long-term strategy. Perhaps in a world of deep and often irrational political polarization that view will win out, at least with Trump's loyal base.
However, given the size and scale of the carnage he wrought and the fact that it was entirely self-inflicted, it is more likely that Trump has damaged himself politically and that the damage is irreversible. Less than three months into his second term, Trump is at a huge risk of becoming a lame duck.
His core MAGA base may remain true to their leader, but Wall Street, Silicon Valley, much of the Republican establishment and independent voters aren't going to accept his verdicts on tariffs, tax cuts, slashing the Federal bureaucracy, dissing allies and a host of other issues. They had all given Trump the benefit of the doubt after he took office in January, but the tariffs fallout had begun to undermine their confidence in him. Wednesday's U-turn isn't likely to restore it.
In one way, at least, this is a shame. Trump had the chance to change the narrative of American economic policy, much as he so successfully did vis-a–vis competition with China in his first term.But because his tariff policy was so poorly conceived and executed, the headlines were swallowed up by the resulting trade wars, collapsing stock and bond prices, and fears of imminent recession.
Many of the reasoning behind the tariffs was based on fundamental misunderstandings of how international trade works, among them the assumption that if the United States has a trade deficit with any country, the latter must somehow not be playing fair. That might be true of sometimes, most notably China, but it isn't true across the board, which is how an island inhabited solely by penguins was slapped with a 10 percent rate. (The answer, according to the U.S. Commerce Department, is that some shifty Spheniscidae might try to turn the island into a transshipment center for goods from other countries.)
But the Trump administration also had some good reasons for imposing higher tariffs.
The first was to reverse the deindustrialization of America. Deindustrialization has made the U.S. strategically vulnerable – reliant on imports of everything from rare earths to semiconductors, which is not a good position to be in amid the growing rivalry with China. Deindustrialization has imposed immense social costs, among other things, exacerbating economic inequality.
The second goal was to try to correct the enormous and growing imbalances in world trade (the U.S. has run current account deficits for the past 25 years) and in U.S. fiscal policy (which has been in chronic deficit for almost as long).
Economists disagree about how critical the first is, but there is a consensus that the second is not sustainable.
It's a pity that the Trump tariff program in part had some laudable goals, but it was unlikely to solve these problems. America can't reasonably go back to the Joe Lunch Pail days of legions of well-paid auto and steel workers.Factory automation and high U.S. labor costs preclude that. Meanwhile, the White House grossly exaggerated how much revenue tariffs would bring the government or how effective they would be in rebalancing U.S. trade.
The majority of Israelis who view Trump as a friend of Israel should be happy to see the president cut down to size. Prime Minister Benjamin Netanyahu's visit to the White House earlier this week amply demonstrated the danger Israel faces from a president who confidently exercises his power to issue orders even to friendly countries while badgering and threatening them.
On Iran, Netanyahu was told without any advanced notice, much less consultations, that the U.S. was resuming direct negotiations with Iran on a nuclear deal. On the economy, Trump made clear that Israeli measures to assuage him on tariffs would not lead to any immediate relief. There was no question who was setting the agenda.
But the most worrying remark was one seemingly spoken casually by the president when the issue of lowering tariffs on Israeli imports arose: "Don't forget, we help Israel a lot. We give Israel $4 billion a year. That's a lot. Congratulations, by the way. That's pretty good." The message was that Israel is like other countries that take from America without giving back.
Ending the bilateral trade deficit is one way Israel can make good on the "debt" it's run up with America over the years. But if Trump, as he is wont, uses a bean-counter formula – one that looks at bilateral relations in dollar terms without considering the non-money benefits that accrue from an alliance – closing the trade gap won't begin to repay decades of American aid.
Since 1946, the U.S. has provided Israel $310 billion (adjusted for inflation) in economic and military assistance. Netanyahu promised to close Israel's trade surplus with America, but it was just $7.5 billion in 2024.It would take decades to repay the U.S. just for all past aid.
Could Trump make the same demands on Israel as he has done on Ukraine, i.e., insist on obtaining the rights to natural resources? It is hard to believe, especially since Israel doesn't have extensive deposits of anything apart from natural gas. Could he decide to end or sharply reduce assistance when the current framework expires in 2028?That seems more likely.
Or, it did seem more likely until this week. A weakened president is less likely to pick fights on an issue like Israel, which enjoys wide support in the Republican party. The threat remains, but has been reduced thanks to Trump's own blunders.