President Joe Biden extended the terms and privileges of duty-free reciprocal trade for Israel, covering various agricultural products, for an additional year, set to conclude on December 31, 2024. The White House announced that the extension would allow additional time for both governments to negotiate a new agreement to replace the 2004 agricultural trade accord between the two nations.
Since 1985, the United States and Israel have shared a free trade agreement, the first such accord ever entered into by the United States, which remains in effect. Since then, the United States has signed 20 free trade agreements with countries across different continents, including three Arab nations: Jordan, Oman, and Morocco. Although the original agreement with Israel was pioneering, it was not as comprehensive as more recent ones, focusing primarily on easing trade and investment between the two countries. The agreement eliminated tariffs on most manufactured goods they exchanged, but agricultural products were excluded to protect American farmers.
The free trade agreement has been a boon to the economic relationship between the two countries. Bilateral trade has increased more than eightfold since the agreement went into effect, making it a vital tool for supporting Israel's economy.
More than $50 Billion in Trade
According to data from the Office of the U.S. Trade Representative, the trade volume in goods and services between the two nations surpassed $50 billion in 2022. American exports stood at $20 billion, while imports reached $30.6 billion, resulting in a trade deficit of $10.7 billion for the United States.
American firms exported $14.2 billion in goods and $5.8 billion in services to Israel. Key exports included machinery, mechanical appliances, glass, metals, and chemicals, with a focus on the transportation, travel, and financial services sectors for U.S. service exports to Israel.
Conversely, Israeli companies exported goods valued at $21.4 billion — most notably fertilizers, precious stones, electronics, and medical products — and $9.2 billion in services to the United States in the same year. The direct foreign investment (FDI) of Israeli companies in the U.S. amounted to $10.6 billion in 2022, particularly in real estate, hedge funds, and manufacturing.
The U.S. FDI in Israel reached $42.5 billion in 2022, focusing on manufacturing, information technology, and professional, scientific, and technical services.
Since the free trade agreement's inception in 1985, the United States has become Israel's most significant trading partner, with bilateral goods and services trade increasing eightfold. To facilitate economic cooperation, the Joint Economic Development Group (JEDG) meets annually to discuss economic partnership and areas of potential growth. Additionally, several mechanisms coordinate efforts between the U.S. and Israel, such as the science foundations, agricultural research and development, industrial R&D institutions, and the American-Israeli Education Foundation. In July last year, the U.S. and Israel held a high-level strategic dialogue on technology partnership in critical and emerging technologies to address global challenges.
Security Assistance and Cooperation
The United States has a steadfast commitment to Israel's security, highlighted by continuous military support, including a 10-year Memorandum of Understanding (MOU) signed in 2016 worth $38 billion ($3.8 billion annually). According to the MOU, Washington provides $3.3 billion annually in military financing and an additional $500 million for missile defense funding.
The missile defense funding supports cooperative missile defense programs, and since 2022, Washington has provided an additional $1 billion in supplemental funding to replenish Israel's Iron Dome intercept missile stocks. By 2020, the United States had provided $146 billion in military aid to Israel, with some experts estimating the inflation-adjusted total at $236 billion.
Promoting Israel and Guaranteeing its Economy
AIPAC, the largest Israeli lobby in the U.S., promotes the notion that "Israel invests in the American economy, creates American jobs, and encourages American innovation." It highlights that Israeli investments in the U.S. employ nearly 100 thousand Americans. At the same time, AIPAC stresses that the United States is the largest investor in Israel.
Israel offers substantial business opportunities to over 2,500 American companies. Israeli firms represent the second-largest source of foreign listings on the NASDAQ, more than those from India, Japan, and South Korea.
For decades, Washington has provided Israel with loan guarantees worth billions of dollars, initially set until Fiscal Year 2005. Since then, Congress has extended the program six times, currently through to the end of Fiscal Year 2028. Overall, Israeli officials perceive the U.S. loan guarantees as a contingency option in case of economic downturns, usable if domestic and international unsecured bond issuances become prohibitively expensive.
Even though they haven't used the loan guarantees in the past 18 years, Israeli officials believe maintaining the program bolsters the country's financial standing among international creditors, especially during periods of tension, such as those experienced by Israel since the start of the "Al-Aqsa Intifada."
