The government of Benjamin Netanyahu is facing a threat to economic relations with three partners at once - the US, the EU and Great Britain. Despite their different measures of influence on Israel, they are united by their focus on solving Western, rather than Middle Eastern problems, while demonstrating the critical level of Israeli dependence on Europe and the US, which hinders West Jerusalem’s search for foreign trade alternatives.

       The first blow to Israeli interests was dealt by Washington under Donald Trump, who positions himself as “the most pro-Israel president in American history”. The April “Declaration of Economic Independence of the United States” set a 17 percent tariff for the country’s main Middle Eastern ally, conditionally placing it somewhere between Zambia and Malawi. This situation symbolically brought the state closer to the EU with a tariff of 20%, but significantly distanced it from the base rate of 10% proposed for more than a hundred countries, from Monaco to Afghanistan. As a result, according to the current estimates of the Manufacturers Association of Israel, its budget, which continues to suffer losses from the war with Hamas as well as the war with Iran, risks losing more than $2 billion due to new American tariffs.

       The economic consequences of this step are certainly significant, but the political effect for Israel seems, perhaps, more significant, and has several components. First, the status of special relations as such was not enough to automatically receive the most favourable trade conditions from Washington. Moreover, on the eve of the American tariff “liberation day,” Israeli Finance Minister Bezalel Smotrich announced the abolition of all duties on imports from the United States, clearly reflection the assumption that the preventive measure would preserve the country’s preferential treatment. However, the United States calculated the tariff for Israel based on its own 33% import duty, which came as a surprise to officials in the Middle Eastern country, since according to Israeli rhetoric 99% of products imported from the United States were exempt from duties under a 1985 free trade agreement. Second, it turned out that, despite repeated assurances to the contrary, Benjamin Netanyahu does not have sufficient leverage to either prevent an increase in American duties or quickly achieve their revision through diplomatic channels.

       The United States has not publicly positioned its actions as an element of pressure on Israel in response to its unwillingness to end the war in Gaza or make concessions on the Iranian nuclear issue and the issue of normalising relations with Saudi Arabia. However, it is possible that Washington is trying to make Benjamin Netanyahu more accommodating through economic instruments, as well as at least partially compensate its own budget for the already-incurred and probable future costs of supporting Israel, which are expected to grow due to the ongoing attempt to resolve the Iranian nuclear problem by force.

       In a broader context, the reasons for the American decision seem to be far removed from regional politics. Ever since his first presidential term, Donald Trump has been persistently trying to involve Israel in American trade wars, which mainly target China. In 2019, under the first Trump administration, the Advisory Committee for Evaluating National Security Aspects of Foreign Investments was created. It is primarily tasked with monitoring Chinese investments, while diligently ignoring Indian ones. Despite reforms, this body has never turned into an analogue of the Committee on Foreign Investment in the United States (CFIUS). This time, the White House is supposedly acting in a substantive manner, putting forward the maximum reduction in cooperation with China as a condition for Israel to receive the basic tariff.

       Not without the influence of US policy, which set the tone for the influence on the government of Benjamin Netanyahu, the United Kingdom froze negotiations with Israel in the second half of May to update the basic agreement on trade continuity concluded after Brexit. This news has been positioned by the media as an unpleasant surprise for the Middle Eastern state, which had publicly expressed hopes to sign the “most comprehensive” free trade agreement with London in the near future. However, the first reaction of the Israeli Foreign Ministry reflected deep contradictions with the cabinet of Keir Starmer. Having learned about the incident, the ministry reported that the issue of updating the trade agreement hadn’t been promoted by the current British government from the very beginning, and the hypothetical reason was believed to be “domestic political considerations of the British authorities.”

       The Labour Party has been accused of anti-Semitism for many years; related suspicions led to the defeat of the party under the leadership of Jeremy Corbyn. A demonstrative break with the legacy of his predecessor allowed Keir Starmer to win, returning representatives of the Jewish communities of the United Kingdom to the legislature. New demands among the voting public, including British Muslims and/or foreign-born voters, have necessitated that the party and the government to bifurcate policy regarding Jews: internally, the UK focuses on combating anti-Semitism, but externally it strives to hold Israel accountable for its military actions, which have led to a humanitarian crisis in the Gaza Strip. In addition, the fate of the free trade agreement is also a kind of test of the reaction of political circles and the public, serving as the basis for assessing the consequences of the UK's introduction of an embargo on arms exports to Israel.

       Tensions between the two countries peaked when the United Kingdom took the lead in rolling out personal sanctions against the Israeli Ministers of Finance and National Security Bezalel Smotrich and Itamar Ben-Gvir on June 10, alongside Australia, New Zealand, Canada and Norway. The cabinet members were accused of “incitement to violence” and “serious violations” of human rights in the Palestinian territories.

       Since the second issue, according to the Attorney General of England and Wales Richard Hermer, is also relevant in the context of the IDF operation against the Iranian nuclear program, there are no grounds for returning British-Israeli relations to their pre-crisis level yet. However, preconditions are emerging for increasing American pressure on the Starmer government, where Trump’s tariffs, initially set for London at a basic level, can act as a lever of influence.

       The UK’s position has prompted the European Union to join in influencing Israel via its decision to assess compliance with the Israel-EU Association Agreement. The Jewish State was suspected of violating Article 2 of the document, which links the relationship between the parties to the principle of "respect for human rights." According to the authors of the initiative, Israel has systematically neglected this.

       The example under consideration is yet another example of the EU's foreign policy interests prevailing over economic ones when it comes to the Middle East conflict, ranking on a par with the special labelling of goods produced by settlers in disputed territories. Like the other two cases, there are also accumulated disagreements in related areas. This could be about the alleged European misuse of funds to support the Palestinians, which Israel has carefully emphasized. Such funds have been spent on textbooks for Palestinian schools, which, according to the Israeli authorities, foster hostility among children and young people; medical institutions in the Gaza Strip, which, according to the IDF, have been used as Hamas command posts; as well as left-wing Israeli NGOs that not only defend the rights of Palestinians, but also support the opposition to Benjamin Netanyahu.

       The escalation of the conflict between Israel and Iran could slow down the revision of the Association Agreement with the EU, which, however, is due not so much to Brussels' desire to express support for the Netanyahu government, but to the intention to weaken Iran due to its proximity to Russia.

       Moreover, as practice shows, regardless of the outcome of the current discussion, both at the level of member states and MEPs, the issue of influence on Israel, including economic, will be raised again, apparently until it leads to the desired result.

       The emerging erosion of Israel's trade and economic cooperation with the EU may contain echoes of the American tariff war. In parallel with attempts to achieve a change in US tariffs, Bezalel Smotrich has suggested a diversification of export routes, hoping to compensate for losses by expanding cooperation with the European Union. Such developments could potentially exacerbate the contradictions between Brussels and Washington, and therefore the former could well take preventive measures to stop Israel's attempts to approach new markets.

       In general, despite ongoing efforts to challenge US tariff policy and the revision of the Israel-EU Association Agreement, the leadership of the Middle Eastern state is already taking its trade partners’ signals very seriously. Assessing their possible consequences, the Ministry of Finance has revised its forecast for economic growth this year from 4.3% to 3.6%, excluding the consequences of the conflict with Iran, stating that the new scenario reflects both the incomplete war with Hamas and possible negative consequences for foreign trade. No less significant are the accompanying political effects, including Israel’s disappointment over the unjustified expectations regarding the replacement of Joe Biden with Donald Trump and Josep Borrell with Kaja Kallas.

       However, there is one problem that Benjamin Netanyahu’s government seems unable to comprehend. It is that the attempt to firmly fit into the Western world has effectively deprived Israel of the opportunity to participate in the alternative integration projects that are currently actively developing, precisely those aimed at minimizing the pressure that the country is increasingly beginning to face.

       Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.