Israeli tech firms in US spared the worst of Trump tariffs, insiders say
Most Israel-founded companies sell software, which is exempt from administration’s levies, but the broader impact affects firms’ investments and markets
Luke Tress is The Times of Israel's New York correspondent.
NEW YORK — Israeli tech companies in the US will likely be spared the worst of the Trump administration’s tariffs, although the broader economic impact of the policies indirectly affects the companies, several experts said.
The tariffs target physical imports and the leading Israeli companies in the US largely traffic in software, meaning their products are mostly exempt, although market volatility and uncertainty bring downsides and also potential opportunities.
“Due to the fact that most of the startups are developing a software rather than producing goods or hardware or physical products, which require also a supply chain, there is a minimal direct tariff impact,” said Guy Franklin, a partner at Israeli Mapped in NY, an investment firm focused on Israeli startups in New York.
The companies will, however, bear the consequences of the tariffs’ indirect impacts, said Aaron Kaplowitz, the head of the United States-Israel Business Alliance, a group that works to foster business ties between the two countries.
“Currency volatility, increased hardware pricing and new trade dynamics, to name a few,” Kaplowitz said.
Many of the firms rely on hardware for research and development, such as servers, routers and sensors, Franklin said. Those products, many of which are developed in China or other countries subject to heavy tariffs, will likely become more expensive, increasing infrastructure costs and making the Israeli products more costly.
The companies also use products like Amazon Web Services, Google Cloud and Microsoft Azure. If those companies increase their costs due to the tariffs, those expenses will also affect Israeli firms’ bottom line, said Franklin, who has been based in New York for 13 years.
The economic uncertainty wrought by the tariffs impacts the companies by shaking investor confidence. The Israeli financial tech company eToro, for example, delayed its planned initial public offering in the US earlier this month due to market volatility.
“You see a real impact on companies and their plans to go and raise money. One example is eToro, which postponed its planned IPO due to the market conditions and uncertainty,” Franklin said.
“For the publicly traded tech companies, they’re currently strapped into the public markets rollercoaster,” Kaplowitz said. The startup community will be hit hardest if investors have fewer funds, or less appetite for high-risk, early-stage investing, he added.
Amir Zilberstein, an Israeli investor in New York with the Team8 venture capital firm, said some companies had slowed down operations while they wait to see how the tariffs play out. He estimated that 70% of Israel’s high-tech exports are software and services. In fields like cybersecurity, ” I cannot see any direct effect. There’s hardly any hardware involved,” he said.
He cautioned that it was too early to tell what the end results will be.
“It’s a complex plan and it’s going to take time to implement, and even when they’re going to finish implementing, it is going to take time to see the consequences,” Zilberstein said.
There is also a grey area regarding what constitutes an Israeli company in the US. Some firms are based in Israel but have offices in the US, and others are headquartered in the US but conduct research and development in Israel, for example. Israelis living in the US also found businesses, such as restaurants, that are not directly tied to Israel or the tech industry. Each company, depending on its structure, will be affected by the tariffs in a different way.
The tariffs could also present opportunities for Israeli tech companies. Investors might prefer deploying capital for longer-term investments, especially in software-as-a-service (SaaS) companies that have more limited exposure to the tariffs and market dynamics, Kaplowitz said. The tariffs will also distance the US from China as a trading partner, creating an opening that Israeli companies could fill with exports, he said.
Zilberstein said that the differing tariff rates could present advantages if Israel has a lower tariff rate than other countries, but “it’s hard to predict anything,” he said. Negotiations could further lower Israel’s tariff rate, for example, but the Trump administration could also remove the exclusions for software. The eventual policies could end up being minor, or momentous, he said.
“If there are going to be significant changes and the market will believe that they’re here to stay, then we will for sure see shifts,” he said.
The Trump administration’s visa policies are also not a major factor for the companies. Usually, Israeli founders move to the US on an L-1 visa, then hire American employees, while uncertainty has largely revolved around H-1B visas. Many founders have also moved to New York since the start of the war because the lack of flights made it difficult and expensive to travel back and forth between the two countries, Franklin said.
Last week, the Israel Innovation Authority said that in the first nine months of Israel’s war with the Hamas terror group, 8,300 tech employees left the country and relocated for a year or more, or about 2.1 percent of the local high-tech workforce. The report also said the number of workers in Israel’s tech workforce declined last year for the first time in at least a decade, sparking fears of brain drain and lost tax revenue in Israel’s crucial tech sector. The report did not specify which countries the workers moved to.
“The brain-drain issue, which has long impacted Israeli tech, could pose a major threat to the start-up ecosystem in Israel,” Kaplowitz said. “It could lead to more US-based jobs, although it’s important to note that studies have shown that trade creates more jobs than foreign direct investment.”
Israel had hoped to avoid US President Donald Trump’s sweeping decree to impose levies on global imports announced this month. Instead, it was hit with a 17% tariff despite lifting all remaining duties on US imports in a last-minute attempt to be spared.
There are more than 400 Israeli startups in New York City, according to Israeli Mapped in NY. Some of the leading fields include cybersecurity, financial tech and business software. New York is home to around 30 Israel-founded unicorns, or businesses worth at least $1 billion, second in the US to California, with 35 unicorns, according to the US-Israel Business Alliance.
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