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Copyright © 2019 The American Israel Public Affairs Committee

The Growing U.S.-Israel Economic Relationship

Delegations from Israel and the United States held talks on Oct. 22 in Jerusalem during the annual meeting of the U.S.-Israel Joint Economic Development Group. (Photo: Matty Stern/U.S. Embassy Jerusalem)

Recent events and agreements have illustrated the growing relationship between the United States and Israel in the non-security realm, including cooperation on mutually beneficial economic issues. On Oct. 22, the U.S.-Israel Joint Economic Development Group convened for its annual meeting to discuss opportunities to enhance the economic relationship between the two countries. Before the meeting, Israeli Prime Minister Benjamin Netanyahu reiterated the strength and importance of the U.S.-Israel relationship in all spheres. Of note, also in October, the U.S. Environmental Protection Agency and Department of Housing and Urban Development signed agreements with their Israeli counterparts, furthering U.S.-Israel collaboration. As ties between the United States and Israel grow, both nations should continue to expand their joint economic cooperation.

Binational foundations foster innovation and economic growth.

The U.S.-Israel economic relationship has greatly expanded in recent decades due in part to the activities of binational foundations created to increased trade, innovation and commercial activity. In 1977, both countries established the Israel-U.S. Binational Industrial Research and Development (BIRD) Foundation to facilitate mutually beneficial research and development (R&D) between U.S. and Israeli companies. Since its inception, the BIRD Foundation has sponsored more than 950 collaborative projects—in fields such as agriculture, communications, electronics, homeland security, renewable and alternative energy and other technology sectors—which have accrued cumulative sales totaling more than $10 billion. BIRD’s efforts have created innovative technologies such as the ReWalk exoskeletal system, which allows paraplegics to regain their mobility.

Similarly, the U.S.-Israel Binational Agricultural Research and Development (BARD) Fund sponsors mutually beneficial agricultural projects, particularly focusing on agricultural productivity in hot and dry climates. BARD has funded more than 1,300 projects since its inception in 1978. Although BARD is more focused on research than commercialization, a 2011 study found that just ten BARD projects had resulted in nearly $2 billion in U.S. economic benefits. Moreover, these projects have helpedAmerican farmers to operate more effectively and efficiently.

Lastly, the U.S.-Israel Binational Science Foundation (BSF), founded in 1972, promotes collaborative research projects in a wide range of basic and applied scientific fields. The BSF has supported more than 5,000 research projects, many of which have led to important scientific, medical and technological breakthroughs with wide-ranging practical applications. Grant recipients have won Nobel Prizes and developed marketable technologies including widely adopted cancer diagnostic tools, promising Alzheimer’s disease treatments and an innovative therapy to reverse brain defects.

Through these foundations, funded equally by both countries, the United States and Israel have developed mutually beneficial and innovative technologies that improve both of their economies and the world.

Strong trade relations benefit both nations.

Innovative trade policies enacted by the United States and Israel also helped lay the foundation for strong bilateral commercial ties. Signed in 1985, the U.S.-Israel Free Trade Agreement (FTA) was the first FTA implemented by the United States. Following its enactment, trade between the United States and Israel rapidly expanded. Within the first decade of the agreement, bilateral trade tripled from $3.9 billion to $12.4 billion per year. By 2017, trade again tripled, reaching $47.1 billion per year.

Today, the United States constitutes Israel's largest import and export market. In 2017, Israel was the United States’ 24th largest goods export market and the 18th largest goods import market by value in the world—making it one of the top U.S. trading partners in the Middle East, despite comprising only about 3 percent of the region’s population. Per capita, Israel is ranked among the top importers of U.S. goods and services in the world.

Following the success of its FTA with Israel, the United States now has similar agreements with 20countries, increasing global commerce through lower regulations and trade barriers. Through their FTA, U.S.-Israel economic cooperation has greatly increased trade between both nations and pioneered the expansion of global market activity.

The United States’ economic cooperation with Israel has led to the creation of considerable economic benefits at home. In 2015, U.S. exports to Israel supported an estimated 73,000 U.S. jobs. Israeli-owned companies provided an additional estimated 20,000 jobs to U.S. workers in the same year. Israel is the eighth-fastest-growing source of direct investment in the United States, totaling approximately $11.9 billion in 2017. Through the United States’ long-standing relationship with the Jewish state, its workers and companies have directly increased revenue and employment.

Deepened economic ties between the U.S. and Israel have been a boon to technological innovation. In 2017, Israel spent more than any other developed nation per capita on R&D, totaling 4.5 percent of its GDP. Of the nearly 350 R&D centers located in Israel, 192 are operated by U.S. companies, far more than any other outside country. Some of the most influential U.S. tech companies operate R&D centers in Israel, including Google, Apple, IBM, Cisco and Intel. The strong relationship between U.S. and Israeli companies in R&D has allowed the United States to capitalize on the Startup Nation’s innovation, fueling the production of technologies for markets around the world.

Economic cooperation promotes peace.

While clearly advantageous for the United States and Israel, the trade between both countries has also benefited the Jewish state’s neighbors. In 1996, Congress established the Qualifying Industrial Zone (QIZ) initiative as an amendment to the U.S.-Israel FTA, to promote peace through economic cooperation between Israel and some of its Arab neighbors. These industrial zones allow Israelis and their Egyptian, Jordanian and Palestinian neighbors to jointly produce goods that can be exported to the United States under the U.S.-Israel FTA, benefiting all parties involved.

QIZs have helped Jordan to expand its export economy worldwide and allowed Egypt to increase its exports to American markets by nearly 50 percent. Through the QIZ initiative, the United States and Israel have extended the benefits of U.S.-Israel economic cooperation to Israel’s neighbors, increasing the incentive for mutually beneficial relations.

The Jewish state benefits American states.

Even beyond the federal government, state governments across the country have recognized the benefit of working with Israel and Israeli NGOs to effectively collaborate in the fields of commerce and economic development. Just recently, in October, the New Jersey Economic Development Authority (EDA) and the Israel Innovation Authority signed a memorandum of understanding to increase economic ties between New Jersey and the State of Israel.

Later that month, Louisiana’s Water Institute of the Gulf and the Israel-based Zuckerberg Institute for Water Research signed a memorandum of understanding to collaborate on water research for both commercial and civilian uses.

Several other states have signed similar agreements with Israel to promote trade and commerce. These agreements are clear indications of the continued desire of state governments to collaborate with Israel to the benefit of both their economies and residents.

Israel is a profitable investment.

The U.S.-Israel economic relationship has dramatically increased opportunities for investment in the Jewish state. Ninety-five Israel-based companies, worth a total of around $70 billion, are currently listed on the NASDAQ stock exchange—more than any other country besides the United States and China. Multiple Israel-based corporations have U.S. market valuations worth more than $1 billion including Teva Pharmaceuticals, which is currently traded on the New York Stock Exchange. As the United States and Israel have increased their commercial ties, the Jewish state’s economy has become increasingly lucrative for U.S. investors.

In recent years, American corporations have increasingly begun purchasing promising Israeli companies and startups, signifying the mutual commercial benefits of U.S.-Israel economic collaboration. In May 2017, U.S. computer giant Intel purchased Israeli navigation software firm Mobileye for $15.3 billion, the largest acquisition of an Israeli tech company. In May 2018, the American company International Flavors & Fragrances Inc. purchased Israeli food company Frutarom for $7.1 billion. In August 2018, PepsiCo purchased Israel-based beverage company SodaStream for $3.2 billion.

As U.S. corporations increasingly acquire Israeli companies, the economic relationship between both nations will continue to deepen.

U.S.-Israel economic cooperation benefits both nations.

Decades-long economic cooperation between the United States and Israel has produced many tangible benefits for both nations, as well as for the region and beyond. Bilateral agreements have increased trade and investment, produced innovative technology and provided employment for thousands of workers. As the United States and Israel deepen their relationship, the economies of both nations will undoubtedly continue to benefit.

Type: Near-East-Report Near East Report