I was pleased to host Noach Hacker at the American Enterprise Institute this week. Mr. Hacker is the minister of economic affairs at the Israeli Embassy in Washington, and he gave an informative presentation documenting the remarkable resilience of Israel’s economy and persuasively argued that Israel has good opportunities for international investors. He also put a human face on Israel’s economic resilience. You can check out the video here.
I have been very critical of the Biden administration’s use of industrial policy, including the Inflation Reduction Act (IRA) and the CHIPS Act, and I asked Minister Hacker how those policies are affecting Israel. Our exchange, edited for clarity:
Strain: I’ve been very critical of the U.S.’s use of industrial policy, in part because of the effect it has on other nations. It creates a permission structure for other nations to relax their subsidy rules. It put stress on international alliances. The president of France, for example, warned that the IRA could “fracture the West,” in part by launching a global subsidy war. Tell me, how does this look from Israel’s perspective?
Hacker: First of all, I completely agree. And this subsidy war, Israel is a part of it. We see that in Intel. They wanted to upgrade their factory in Israel. And they came to the Israeli government and said, “If you want us to upgrade our factory here, you need to subsidize us, just like the U.S. is subsidizing, and just like the E.U. now is subsidizing because of the U.S.”
And I think that’s a very big challenge for us. You saw the costs of war for Israel, and now we have to add onto that, subsidies for companies to stay in Israel. It’s not that we’re not doing it. We’ll manage to do it, but I think it’s not the smartest way for us to spend our money, especially now.
And we see the subsidy for the Intel factory now. It’s huge. It’s about $3 billion — huge for us. And it’s something that I don’t think the U.S. intended to happen, especially to Israel, even if it intended to bring in factories from different places.
The same with the Inflation Reduction Act. We’re seeing work positions taken from Israel. Again, I don’t think that was the objective of the American government. I think it’s in the Israeli and American national-security objectives to keep Israel’s economy strong. So I don’t think it was intended to take work from the Israeli economy. But again, that’s part of the effect.
Minister Hacker has a request for the U.S. government:
And I think that’s what we’re asking for — and that’s my last slide that I showed — that just as America is treating, let’s say Mexico and Canada differently on the Inflation Reduction Act, or we saw in the CHIPS Act, they’re treating several countries differently than others — the U.S. could include Israel in those carve-outs.
Though I agree with you that if those laws weren’t in place at all, then we wouldn’t have this problem.