Israel-China trade under US preassure?

On Monday, sources in the Israeli government leaked the news that Israel had informed the US State Department that, from now on, all major business deals between Israel and China would be cleared with Washington first, Middle East Eye writes. According to Haaretz, this was an Israeli initiative rather than succumbing to a direct US demand.

The announcement comes after the Israeli government has been pushing the boundaries of US goodwill towards the country in recent months. In September, Israeli Foreign Minister Yair Lapid urged the US Congress to hold a separate vote in order to pass funding for the Israeli Iron Dome system. In October, Israel blatantly ignored strong opposition from the US to the rapid expansion of illegal settlements. Meanwhile, in recent months, Israeli Prime Minister Naftali Bennett has repeatedly pressured US President Joe Biden to take a hardline approach over nuclear talks with Iran.

Israel’s trade with China is second only to its trade with the US.  As of 2020, Israel imported $7.7bn worth of goods from China and exported $4.2bn, compared with $8bn of imports from the US and exports of $13.1bn. This indicates that Israel is running a trade deficit with China and a surplus with the US. However, it is doubtful whether the Israeli government fully realises the cost of appeasing Washington on the matter of trade with China.

Part of Israel's increasing trade with China and other non-western countries can be traced back to the effects of the boycott, divestment and sanctions (BDS) movement. In 2013, Bennett, at the time Israel's economy minister, warned that the growing BDS campaign against Israel was threatening the country’s foreign trade. As he believed the support for BDS to be a western phenomenon, in the same year Bennet travelled to India and China to search out new markets unhindered by the movement.

Omar Barghouti, co-founder of the BDS movement for Palestinian rights, told Middle East Eye: “Israel has pre-emptively and desperately attempted to strategically pivot towards China, India and other non-western states to compensate for its eventual loss of its enablers, funders and sponsors in the West, and with them its political and diplomatic shield from UN sanctions. "This attempt has little chance of success given that in these countries, unlike in the US and Europe, Israel totally lacks strategic leverage - whether through the burden of a fraught history, or the use of effective lobby groups.”

Amid growing US suspicion of increasing Chinese power, Washington has over recent years used its influence over Israel to stymie prospective Israeli arms deals with Beijing.  In 2000, the US stopped a deal in which Israel was about to sell its Phalcon spy plane to China, while in 2005 it also prevented the sale of Israeli Harpy drones to Beijing. Last year, Israel's secret service busted an arms-export ring that had allegedly planned to sell suicide drones to China. These aborted export attempts showed that Israeli arms exports, the best-known trademark of Israeli industry, were closely controlled by the US and that China was off-limits for Israeli arms dealers. However, amid a crisis in its decaying infrastructure, imports from China were far more critical to Israel than lost export deals.

The most famous case concerns the privatisation of the Haifa seaport. In 2014, five European corporations withdrew their bids for the contract over fears of a boycott for operating in Israel. The following year, Israel granted a tender to the Chinese state-owned Shanghai International Port Group (SIPG) to operate the commercial shipping facility for 25 years, causing friction with the US, which argued that Beijing's presence in Haifa, a port in which US warships frequently dock and resupply, could be used for espionage. While the terminal opened in September last year, the infrastructure at Haifa port is far from complete. Meanwhile, in December, Israel's Ministry of Finance disqualified the United Arab Emirates -based company DP World from bidding to take over the port, increasing the dependency on Chinese companies even further.

US pressure

In September 2020, Hong Kong's Hutchison sold its shares in the Israeli telecommunication company Partner, after its control licence was rejected over security concerns and US pressure. Partner had been in crisis since 2016 after its partner, the French company Orange, announced that it would be ending all business deals with Israel - one of the largest acts of divestment since the BDS movement’s launch in 2005.

Meanwhile, Tel-Aviv's light rail system has had some of its lines (the green and purple ones) delayed, as Israel continues to prevaricate on announcing the successful bidder for the tender. Chinese companies were part of almost all of the groups that made bids for the construction, some of which have been banned by Washington over ties to China's defence industry. Earlier this week, the Jerusalem Post reported that the US is concerned that a Chinese company could lay an optical cable in the tunnels dug for the light rail and use it for espionage. On Monday, the Israeli communication company Gilat boasted of a contract worth “hundreds of millions of dollars” with an undisclosed “cellular giant in Asia with growth potential”. Israeli companies regularly advertise their contracts in order to attract investors, but usually only arms companies hide the name of the country to which they sell. As Gilat’s products are classified as civilian and do not require a Ministry of Defence export permit. 

On Wednesday, Noam Gruber, the former head of research at the Israeli National Economic Council, protested in a piece for the Marker, an Israeli business newspaper, against Israel's promise to the US to restrict trade with China.

Gruber warned that without Chinese companies, the number of foreign companies that are willing to take on infrastructure projects in Israel is small, leading to a loss of time and resources. When approached by MEE for comment on Israel's decision to consult with the US, Israel's Chamber of Commerce refused to comment.

“Israel’s value to China, the world's about-to-become largest economic power, is rather small," said Barghouti. Ultimately, Israel's promise to the US over China indicates a short-term perspective, aiming to gain some points with the Biden administration at the expense of Israel’s long-term economic interests.