Danit Gal is a consultant and researcher focusing on technology ethics, governance, safety, security, and strategy.
Since the 1980s, Israel has carefully walked the U.S.-China technology tensions tightrope, trying to balance its commercial and security interests with the two great powers. The growing dual-use nature of technology threatens to overthrow Israel’s careful efforts to expand trade with Beijing, while avoiding the sales of security technologies that would increase Chinese military capabilities and anger Washington. With mounting political pressure from its American allies and promising Chinese trade prospects, Israel is caught between its two largest and technology-hungry trade partners.
U.S.-Dominated Security Technology Trade
Security concerns, both domestic and from Washington, have shaped Israel’s sales to China from the beginning. Israel began selling military technology such as missiles, radars, and navigation systems to China in the 1980s, even before Beijing recognized Israel, and technology trade quietly intensified in the 1990s. At the same time, there were a string of allegations that Israel transferred sensitive military technology to China. Concerned about China’s potential use of advanced airborne early-warning (AEW) radar systems, the United States dissuaded Israel from lucrative arms deals in 2000 and 2005, souring Chinese-Israeli security trade relations. No further sales of military technology between China and Israel have been reported since.
Israel’s willingness to walk away from arms deals with the Chinese at the United States’ request is unsurprising given the countries’ strong military and political relationship. The United States and Israel, a recipient of over $3 billion in U.S. military aid, often co-develop weapons and coordinate their sales to ensure that sensitive technology doesn’t fall into enemy hands. Israeli officials have been especially vocal about the risks posed by military technology trade with China, noting that Chinese weapons sold to Tehran have in the past been transferred to Hamas and Hezbollah.
Furthermore, Israeli officials are concerned about the numerous Chinese cyberattacks on Israeli companies and government networks. Israel firms are an attractive espionage target as their cutting-edge technologies are used by many major powers. If Israeli systems are hacked, both Israel and its trade partners could be compromised. There are similar concerns about Chinese investment in Israel. American fears of espionage led to the Israeli government’s reassessment of China’s successful bid to operate the country's biggest port in Haifa, which regularly hosts visits from U.S. Navy ships for bilateral exercises and port calls.
Israel’s separation of its commercial and security technology trade with China, however, is no easy task. The case of Huawei is illustrative. While the Israeli government pushed back against the United States’ position on completely banning Huawei due to commercial interests, it also avoids using Huawei’s equipment in its critical infrastructure due to security concerns. This type of balance will become increasingly difficult.
Surging Chinese Commercial Technology Trade
Even though the sales of military technologies have stalled, commercial technology trade with China has grown at a dizzying pace, boosting Israel’s technology exports. As of 2018, the United States still significantly leads China in terms of high-tech capital investment, with the United States accounting for 35 percent and China for 3 percent of investments. In addition, U.S. companies have established 344 R&D centers in the country, Chinese companies only 9. Chinese capital investment and R&D centers may be underrepresented, however, because Chinese capital is often invested via Israeli funds. Israeli entrepreneurs may also under report, fearful that receiving Chinese investments could negatively affect business in the United States.
Whereas growing U.S.-China technology tensions cause significant Israeli political and security concern, they also provide new opportunities for economic growth. Israel’s flourishing semiconductor industry is illustrative. Intel has found a workaround to U.S.-China trade tariffs by increasing direct sales from its Israeli plant, thus boosting semiconductor trade between Israel and China by 80 percent in 2018. In parallel, China is increasing investments in Israeli semiconductor companies and driving up demand for locally-designed chips. China’s demand for alternative commercial technology trade partners in light of tightening American trade restrictions is an unexpected economic boon to Israel, but the importance of chips for technological advancement and military use means Israel’s position in this technology triangle is bound to attract Washington's attention.
Never Let a Good Crisis Go to Waste
The negative implications of growing U.S.-China technology tensions are reverberating around the world with disrupted supply chains and protectionist trade policies. If tensions escalate further, Israel could risk finding its American and Chinese trade partners less forgiving of its delicate balance. But every crisis is an opportunity. A technologically robust Israel can gain from being pinched in a technology triangle as long as it maintains well-thought-out controls on dual-use technologies. Enhanced coordination between Israel’s commercial and security technology sectors on dual-use technology transfers can help sustain this delicate balance. Even with these measures, a hard balancing act is bound to become harder as technology trade between the three countries increases and political and security tensions continue to escalate.