How Israel and its hi-tech industry are winning the US-China trade war

The ongoing trade war between the US and China is hurting the world’s two largest economies.

By ILAN ZWEIG
May 13, 2019 21:58
3 minute read.
How Israel and its hi-tech industry are winning the US-China trade war

Women learn how to work in Israel’s hi-tech sector as part of a Start-Up Nation Central program at WeWork’s new offices in Jerusalem on January 10. (photo credit: MARC ISRAEL SELLEM)

 
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When two are fighting, the third wins.

The ongoing trade war between the US and China is hurting the world’s two largest economies.

As their dispute regarding import taxes and tariffs takes a toll on most trade-dependent countries, Israel emerges as one of the few winners. Seemingly undisturbed by the saber-rattling of US President Donald Trump and Chinese President Xi Jinping, Israel reached an unprecedented level of $110 billion of exports last year and is expected to further increase its trade balance in 2019.

In recent years, Israel significantly expanded its economic ties with Asia, the largest emerging market for the Jewish state.

Last year, Israel’s exports to China alone increased by 52%. A significant portion consisted of hi-tech and cyber-solutions, which Israeli companies sold to Chinese customers and investors.

The soaring trade between Israel and China is further encouraged by US-Chinese relations. As Trump continues his “America first” policy, Silicon Valley becomes less accessible to companies in China. Israel’s rapidly growing hi-tech industry is an attractive replacement, and its technology companies are taking advantage of the opportunities the Chinese markets offer.

Chinese investment in Israel’s hi-tech industry is mimicked in the Israeli start-up sector. Foreign direct investments from China rose significantly, from 8% to 12% during the last year alone. This boost is the outcome of Chinese investors allocating their resources outside the US.

Above all, Jack Ma, the founder of e-commerce group Alibaba, invested millions of dollars in Israeli computer-vision company Visualead, in various Israeli start-ups and in Jerusalem Venture Partners’ fund.

During his visit last October, Ma expressed interest in a joint research center between Israeli and Chinese academic institutions, topping off the current economic upward spiral between Israel and China.

Despite the tremendous economic growth in the Asian market, Israel must not allow itself to be carried away by the associated euphoria. The warming bilateral ties between Israel and China are understandably concerning to the US government.

Last month, just after Trump officially recognized Israeli sovereignty over the Golan Heights, the US president kindly warned Netanyahu to refrain from expanding the relationship between Jerusalem and Beijing.

Israel pledged not to sell weapons or dual-use civilian and military technologies to China, but it could not alleviate all US concerns regarding information security and espionage.


The acquired managing rights for a Haifa Port wharf by Shanghai International Port Group, which is expected to be fully functional by 2021, is a thorn in the side of responsible US officials.

Chinese involvement in Haifa Port, a national security asset to Israel and a frequently used dock for US warships, potentially harms information security and facilitates espionage by the Chinese government on parts of the US Navy.

The Haifa Port deal is an example of how Israel should not conduct business in the face of the worsening relationship between the US and China. Accepting Chinese investments at the expense of US interests will bring more harm than good to Israel in the long run.

Its balancing act between the two global superpowers can therefore only be successful if Israel takes advantage of the new market without negatively impacting its cooperation with America.

Such a course of action requires both the Israeli government and private companies to responsibly interact with Chinese investors.

Private sector companies must not accept foreign investments which impede their control over their own businesses and lead to a deviation from their long-term strategy. Additionally, the government needs to impose regulations that avert investments from non-US allies on critical Israeli infrastructure and technology.

Israel cannot steer Trump’s decisions in the trade war with China. Also, Jerusalem cannot avoid the negative effects of the trade war on the world economy.

But if Israel chooses to take the middle-road between the US and China, to respect and value the interests of its strongest ally while improving its economic ties with the largest emerging market, the Israeli economy and its hi-tech sector is designed to succeed.

Israel will consequently win in the US-China trade war – and must not fear either outcome.

The writer is originally from Switzerland. He now resides in Israel while he obtains his master’s degree in government from IDC Herzliya.

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