The US budget existed through ‘Tariffs’ till 1913. It wasn’t until the 16th Amendment to the Constitution was ratified on February 3, 1913, that a permanent federal income tax was established. The amendment gave Congress the explicit power to tax incomes “from whatever source derived,” without apportionment among the states.
Now the US has returned to its old ways. And it’s likely to be a multifaceted success. There will undoubtedly be a transition phase of the inclusion of the sudden losses to the balance sheets that have accrued and are now suddenly visible.
The Pain
Losses that are now becoming apparent because hitherto the US simply paid the price for the global orgy (inflation, printing money, budget deficits, political economy etc.). The USA stopped this ball. The USA is no longer bearing the costs of this global party.
The accounting of and adjustment to these sudden losses will take a few months, if at all, but then a new order, a new, very simple trade regime, will be established. Every tariff will be met with a counter-tariff. No tariffs, no counter-tariffs. In the long term, this will lead to global free trade.
The backdrop: The USA has lost since 1997 about 90.000 factories and about 6.6 million jobs. No economy can survive this.
The Calculation
The US Administration calls this ‘Reciprocal Tariff Calculations‘. The definition reads: “Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners. This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing. Tariffs work through direct reductions of imports.”
The New Formula of Global Trade
Additionally, the US Administration published a 400-page booklet in which country by country is listed and received its homework which has to be accomplished.
On an abstract level, you can summarize that the “tariffs” which trigger a counter-tariff (reciprocal tariff) by the US have three sources:
1. The factual tariffs on US goods. In the case of Israel, they have recently reached 0%.
2. The trade barriers. For example, the purchase tax of about 80% on cars in Israel or the socialist styled import regime.
3. Finally, the trade deficit as such. In the case of Israel, Israel has huge deficits for a decade (2013-2023) with the hostile entities EU/Europe, Russia and China. But with the USA, Israel has a surplus and the USA carry a severe deficit. This insane asymmetry has to change immediately.
US Secretary Bessent instantly had a message for countries hit with reciprocal tariffs: “Do not retaliate. If you do, there will be escalation”
Summary – Trump’s tariff strategy addresses three strategical aims:
3 Effects?Aims of Trump’s Trade Revolution
The first effect was already named: ‘global free trade’. The second effect is a more domestic one but with a global impact. The USA will again become by far largest economy of the world. The United States had its largest share of global GDP in the 1960s, when it accounted for approximately 40% of the world’s total economic output. Today (2023), just 23%. It is very likely that the world will again see a US share of 40% or more of the global gross domestic product (GDP). It will go hand with hand with a dramatic lowering of domestic income tax near 0, falling prices and re-manufacturization of the USA with millions of millions of jobs. The third effect will be even more important. The ‘deep state’s’ foundation, its polit-economic basis, is being axed away. The state is being forced to become a focused state. The ‘state proper’ must rid itself of the ‘deep state’, which thrived on high taxes on and the regulation of everything. By that the ‘deep sgtate’ became powerful in the first place. This polit-economic foundation is now being taken away from the ‘deep state’.
1. Free global trade
2. America First
3. Dismanteling the deep states of the world
Israel – Israel’s Citizens pay too much
Let’s see what is in store for Israel. The homework is huge and an existential challenge. Nothing less than the existence of the democratic, Jewish State of Israel is challenged. To blame are the unelected elites of the left deep state. But that’s another story.
On page 226ff of the said booklet, the US Administration deals with Israel. It is embarrassing how bad Israel treats its greatest ally, the USA, and how good Israel treats one of the most hostile entities to the Jewish state: The European Union. This insanity must change. Quickly.
The US sees a structural trade disadvantage of 33% for the US caused by Israel. This is now being addressed in a first step with a US tariff of 17% on Israel’s products exported to the USA. First step. It’s not the end!
This represents a drastic deterioration of catastrophic proportions for Israel, if not addressed properly and swiftly. Immediate action is required. The technical details can be found in the aforementioned report.
Structurally and macroeconomically, the import trade barriers that disadvantage the US import to Israel can be summarized as follows.
The attack on the tariff structures is not only a smart economic move, as said above, but to destroy the tariff regimes means to destroy the very basis of the deep states worldwide in general, and Israel in particular. A reason to pop the champagne corks.
The Minister of Finance Smotrich does not understand the world anymore. Indeed, he and Israel’s elites wrongly believed that the reduction of the import taxes for US goods to 0% would be good and enough. What a fail.
At best, it was a first, small step, but it does not cope with the wider, global picture. Sidenote: A very typical problem of Israel’s elites, which turned very provincial and chauvinistic in their outlook. That wasn’t always a problem. But that’s another story.
Finance Minister Smotrich wrote on X: “During the night, we studied President Trump’s new order in depth, the rationales and calculation formulas and consequential derivatives for the State of Israel. Since this morning, we have been analyzing its implications for the economy in various sectors and are holding a dialogue with industry and heads of the economy. I spoke with some of them personally, and in about an hour I will bring the Finance Ministry management into the first discussion, to analyze opportunities and risks and formulate courses of action, both vis-à-vis President Trump and his team and regarding the steps required to strengthen Israeli industry.“
Honourable Minister Smotrich, it’s very simple. Seize the opportunity and see the mission to end the socialist-style import regime and the planned economy (from agriculture to food production, etc.), end the Histadrut’s grip on the ports, end the taxes that de facto act as import tariffs, and simply open the Israeli market and allow real competition so that the oligarchic structures are a thing of the past. This is called a free market economy in case you forgot or do not recognize what I’m speaking about. Sincerely Yours. Naftali Hirschl.
The USA understood the “scam” of the socialist styled import and tax regime of Israel. In reality, imported US products are taxed on average by 33%. In other words, 33% which the Israeli citizens pay too much.
A small example out of many: Why are US cars so expensive in Israel? Not because of the tariff. It’s 0%. But suddenly a purchase tax of about 80% lurks around the corner. Are the Israeli government thinking that the US Administration and business experts are fools? The socialist import structures with hidden tax, etc, must be closed down. Especially with a focus on the USA. Can’t be that Israel’s elites f**k our greatest ally; and the citizens of Israel which have the burden of one of the highest costs of living but not earnings. A small oligarchic elite and elites of the deep state take advantage of it.
There are two ways a country can reduce the new US tariffs: first, lower tariffs on US products, and second, import more products from the US.
Israel is now in the fortunate position of being able to pursue both paths simultaneously, thereby reducing the cost of living by a whopping 33%, which will likely trigger a surge of happiness and contentment among the Israeli population. So, kill the 33% of hidden import taxes and open the markets to real competition.
That means: dismantle to 100% the socialist styled import regime of Israel, the grip of Histadrut on the ports of Israel, the highly dysfunctional bureaucracy, dismantle the deep state and the oligarchic economic structure where talks about ‘free market’ are just lip service.
Israel is charged because of the monopolistic import structures, Histadrut’s grip on the harbours, oligarchic structures and bureaucracy, all summarized and seen as trade barriers.
All those structural impediments (plus high income taxes and high VAT) sum up to one of the highest costs of living worldwide due to this socialist styled structure of Israel’s polit-economy.
Thanks to Trump, Israel now knows how much the overpay just for the imports is, which migrates into the purses of the oligarchic, hegemonic elites: 33%.
So the first lever is to bring the import costs down by 33% by dismantling the socialist styled polit-economic structure of Israel.
The second lever is to augment the US imports. As said, the US tariffs may change the socialist styled import structure of Israel, will change the oligarchic retailer structure, which will make imports from the USA finally cheaper and consequently lower the costs of living in Israel.
The second lever is powerful too, and from huge advantage for both the USA and Israel. Israel should buy all the products it buys today (for decades) from hostile states like the EU-states, Russia and China – and Israel has a deep red negative trade balance with them – from the USA: learn the details in the report ‘The USA must become #1 Trade partner of Israel‘.
We speak of a trade volume of $719.54 billion (20213-2023), which can be totally redistributed to Israel’s allies and friends (the USA and all those who have an embassy in Jerusalem). Israel should do it immediately. It is a question of state security and existential survival.
Summary
1. Israel must disempower the unelected deep state and the oligarchic elites and establish an open market and democracy.
2. Starting tomorrow, 90% of all imports must come from the US and allies of Israel (meaning all states with an embassy in Jerusalem). There are hardly any products from the EU, Russia, and China that the US cannot offer. They are often cheaper and of better quality. If Israel has a trade deficit, then it should be with its allies, not with its enemies (EU states, Russia, and China).
3. Last but not least, China must be expelled from the port of Haifa. This is a security issue.
Israel finally needs a free market economy and must also free itself from its dependence on the three socialist/authoritarian blocs: the EU, China, and Russia. It cannot be that the EU, Russia, and China have been running trade surpluses with Israel for a decade, year after year, while the US has a negative trade balance with Israel. That insanity must stop today.