Over the years, disagreements on China have damaged the US-Israeli relationship. At the moment, they are irritants, but if mishandled, they could severely impede strategic cooperation. There are ways to limit the risk, but Israeli and American officials will need to apply themselves.
US relations with China – and therefore China’s relations with the world – entered a new era in 2017, when the Trump administration began. The US intensified its opposition, started tentatively in the Obama years, to hostile Chinese actions in military, diplomatic and economic fields. Washington has won varying degrees of support in this effort from foreign friends.
Israel remains understandably focused on Iran and other regional strategic concerns. It could do itself and its economy serious harm, however, if it fails to position itself properly in the world’s great new strategic challenge.
While today’s US-Israeli disputes over China involve nonmilitary trade and investment, the first two such clashes were about military contracts. In the late 1990s, US defense officials objected to Israel’s plan to sell China an aircraft radar system for air battle management. Named Phalcon, the system was an Israeli version of the US Air Force AWACS (airborne warning and control system). Israel bowed to US pressure, canceled the sale, refunded nearly $200 million and paid the Chinese government more than $150m. in damages.
The second clash occurred during the administration of former US president George W. Bush and involved various defense items, including Israel’s Harpy anti-radar missile. The problem, which was largely about transparency and opportunities to consult in advance about Israeli-Chinese defense transactions, had far-reaching consequences. First and foremost, in 2005, Israel terminated altogether its defense trade with China. Also, the director-general of Israel’s Defense Ministry was fired for losing the confidence of US defense officials, the Knesset enacted new export-control legislation and Israel concluded an information-sharing agreement with the Pentagon. These actions did not just limit harm. They solved problems of policy and communications, cleared the air and laid the groundwork for closer bilateral defense cooperation in the future. The dispute might have done grave damage had it not been managed discreetly and constructively on both sides by officials who valued the US-Israeli relationship.
Yet, even without military sales, Israel’s economic connections with China burgeoned to the point that China is now Israel’s second-largest trading partner, after the US. In 2018, according to the Israel Export Institute, China imported more than $4.6 billion of Israeli goods and exported to Israel more than $10.9b. of Chinese goods. These numbers are up dramatically from 1992, when Chinese goods imports totaled only $38.7m. and exports $12.8m. Trade in services is also way up, but the data are sketchier. As we shall see, Chinese investment in Israel in recent years has also boomed.
Relations between the US and Israel now are strong and remarkably harmonious, yet China has once again become a problem. At issue are Chinese-Israeli ties that are commercial and not strictly military. How the US and its friends should regulate commercial relations with China for national security purposes is a question that poses difficult intellectual challenges. The world order has never before been challenged by so potent a rising power that plays so large a role in the global economy.
US officials generally did not – until recently – view nonmilitary business with China as a strategic problem. For forty years and more after the famous Nixon-Mao meeting in 1972, the US championed China’s economic growth, aiding China’s technological development and entry into the World Trade Organization. Such policies, US officials believed, would promote Chinese liberalization, which in time would make China less repressive at home and less threatening abroad. The hope was that China and the world’s democratic countries would converge.
President Xi Jinping, however, has effectively killed these liberalization and convergence theories. Under his leadership, which began in 2013, the Chinese Communist Party (CCP) has not sought economic growth through liberalization. Instead, it has relied on greater state support for, and use of, technology, while increasing domestic repression and adopting aggressive courses of action toward neighboring countries, toward the US and toward others. Chinese officials are pursuing military predominance – at a minimum in Asia – aiming to end the US military role in upholding international order. Among their measures to grow and assert Chinese strategic power are the Belt and Road Initiative (BRI) and the no-holds-barred pursuit of technology transfer from innovative countries to China.
The BRI has made China the financier, builder, owner, and/or operator of airports, seaports, warehouses, highways and other infrastructure projects that link China across the Indian Ocean and Central Asia to Africa, Europe, the Americas and beyond. Through the initiative, Chinese officials are increasing their economic power, technological know-how, political influence, and intelligence and military capabilities. In Israel, Chinese firms have been (or are now) responsible for expanding Ashdod port and constructing major transportation systems – including the Tel Aviv light rail system and the Carmel tunnels. A Chinese company has an exclusive contract to operate a new container facility at Haifa port for twenty-five years, beginning in 2021. And, if a railway from Eilat to Ashdod wins Israeli government approval, a Chinese company is poised to build it.
Meanwhile, Chinese firms are also active in Israel as business investors. Their investments in Israeli hi-tech in 2017 totaled approximately $600m., an impressive increase from $232m. in 2013. China needs technology from abroad to fulfill its strategic ambitions; some it acquires legitimately. Some it steals. Its officials and business personnel have become notorious for misappropriating intellectual property through reverse engineering, undue pressure for technology transfer and outright theft. What is at stake is more than just private property rights. The technology at issue, even when not specifically military, can play an important national security role.
China uses high technology for surveillance, domestic political repression and national security abroad. If it acquires first-rate technology, China can apply and sell it around the world, making other countries vulnerable to disruptions, interference and surveillance by Chinese authorities. Selling surveillance technology to foreigners is a way for China to export its own brand of authoritarianism. China transfers security-related technology to military partners around the world, including Iran, an enemy of both Israel and the US. Chinese military and domestic security officials systematically exploit technology possessed by Chinese commercial firms, even those privately owned. In 2017, Xi himself announced creation of a Chinese government commission to promote “military-civilian fusion,” a policy to ensure that military authorities have access to all exploitable technologies acquired by Chinese companies.
Though Israel is a small country, it looms large in China’s foreign trade and investment vision because Israeli companies are so good in creating, applying and selling technology. Israelis have been eager to welcome Chinese as customers and investors, but there are downsides in doing so. First, there is the danger of theft of Israeli technology and the potential for Chinese firms to use it to compete against the Israeli originator. Second, China might transfer the technology or other information to Israel’s enemies in Iran or elsewhere. Third, is the moral (and public relations) risk that Israel will become implicated in the domestic oppression of people accused of opposing the CCP. And, finally, there is the possibility that China will exploit Israeli technology in ways that endanger US armed forces or other important US interests, putting the entire US-Israeli relationship at risk.
These are hazards to which American officials are increasingly attuned. To safeguard the relationship with the US, Israeli officials will have to become similarly sensitive. US officials have voiced unease about China’s economic activities in Israel. Press accounts have highlighted US disapproval of the role Chinese companies will be playing in operations at Haifa port and in construction of a large desalination plant in Nahal Sorek. US officials have also warned their Israeli counterparts against allowing transfers to China of Israeli manufacturing know-how, surveillance capabilities and other technology.
Israeli officials have taken these concerns seriously, but not as seriously as Americans worried about China would like. At Washington’s urging, the Israeli government recently created an interagency committee to review foreign investments. The US has had one since the 1970s, but Israel has not. Critics of China’s Haifa port contract have said that if an Israeli review committee had existed when the contract was first contemplated, it could have flagged the national security dangers. Israel now has such a committee, but its jurisdiction is limited and will not extend to all relevant high-technology investments. The limitation was crafted to avoid offending China, so, instead, it antagonized US officials.
Some old thinking needs to yield to new insight. For example, China is not liberalizing and not converging with the West but working vigorously in a hostile fashion to challenge vital US interests in the world. Commercial technologies are not irrelevant to national security concerns simply because they are neither military nor military-and-civilian “dual-use.” Metadata on large populations, even civilian populations, are a national security concern, as are surveillance technology and commercial communications software and hardware.
Israel and the US could protect their strategic relationship by working together on a common threat assessment regarding China. With ample enemies in their immediate vicinity, Israelis have not historically looked at China as a national security problem. But the world is changing. This does not mean that China should be categorized as an enemy. Nor does it mean that all commerce with China should cease, for Israel or for the United States. It does mean that both countries should see China clearly, in light of Xi’s ambitions, strategy and actions. And Israel, whatever the degree to which it views Chinese actors as a direct danger to its interests, should understand how US national security officials perceive China – and how Israeli-Chinese entanglements will affect strategic relations between Israel and the US.
It would be helpful if Israeli institutions – the foreign and defense ministries, for example, and the Prime Minister’s Office, the Knesset, industry groups, journalists, and academics – invited appropriate Americans (official and private) to provide briefings. Existing US-Israeli official forums – such as the Joint Political-Military Group, co-chaired by State Department and foreign ministry officials, and the Defense Policy Advisory Group, co-chaired by US and Israeli defense officials – could regularly address the subject. More broadly, they could share ideas on how best to regulate foreign trade and investment to protect critical infrastructure and industries and generally safeguard national security.
National security concerns about China are growing across the US political spectrum. In this era of extreme political polarization, such concerns are a rare example of broad left-to-right consensus. As Israel’s economic ties to China increase, they will draw more and more disapproving scrutiny from US officials no matter who wins the 2020 presidential race.
US President Donald Trump, like Republicans generally, is strongly pro-Israel on the grounds that Israel is a valuable and trustworthy US ally. Top Trump administration officials have nonetheless (or, perhaps, for that very reason) publicly voiced concern about Israel’s China ties. Democratic presidential contender Joe Biden has a long record of friendship for Israel, but has criticized many of Trump’s pro-Israel policies. In polls, Democrats generally show less support for Israel than do Republicans, and there is an organized, outspoken segment of the Democratic Party that is hostile and wants the US to distance itself from Israel. If Biden becomes president, officials with anti-Israel views can be expected to cite Israel’s China ties as grounds for discounting Israel’s reliability as a US partner.
In all events, supporters of the US-Israeli strategic alliance on both sides of the relationship have an interest in addressing the China issue. Israeli officials could do a better job of studying US official thinking about China, and US officials could do a better job of communicating that thinking.
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