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The High Cost of Threats: Sino-Israeli Relations


Say “economic sanctions” and three countries come to mind: Russia, Iran, and North Korea. Sanctions are usually reserved for historically hostile regimes, not long-time allies. Yet Obama administration and other Western European nations are threatening to impose sanctions on Israel, with the assumption that Israel is so dependent on Western markets that it will have little choice but to comply. Ultimately, those who have the most to lose from this coercive economic pressure are the ones applying it.

Underlying these threats is the confidence that Israel will continue to rely on Western markets, as currently U.S. and Western European markets make up almost one third of Israeli exports. Israel’s current dependence on Western markets leads some policymakers in the U.S. and the EU to feel that they could use even just the threat of economic sanctions and boycotts as leverage for their interests, similar to the way they handle Iran and North Korea. While currently there are grassroots boycotts of Israeli businesses and products, the assumption is that with explicit governmental support, boycotts and other sanctions would be extremely effective against Israel. White House officials like Philip Gordon have threatened a “tsunami” of boycotts if Israel, an ally, continues settlement building in disputed territory. Several EU countries have officially warned their citizens against doing business with Israel and have even gone so far as to begin drawing up a list of sanctions they might implement. However, Western governments may soon find such actions ineffective as Israel turns to Asian countries– countries are more interested in business than political intervention.

Since the 1990s, Israel has been steadily strengthening economic ties with several Asian nations, most notably with its third largest trading partner: China. Israeli-Chinese trade has grown over 200 times since 1992 and currently 5.1% of Israeli exports go to China. This is relatively small when considering 23% of Israeli exports go to the U.S.; however, trade and investment between Israel and China have been accelerating. It is possible that Chinese exports could eventually supplant trade between Israel and the U.S., especially as the U.S. and other Western nations continue to pressure Israel economically.

Israel, also known as “The Startup Nation,” is the world’s leading innovator in digital technology and expertise, while China provides one of the biggest potential markets for Israeli technology. Israeli producers will only look more to Chinese markets as the Western economic and political environment becomes increasingly hostile. While the West seems to take every opportunity to apply pressure over the Palestinian issue, Israeli officials have noted that the Chinese never mention the issue. The more welcoming political climate in China will only give Israel further incentive to strengthen their trade ties.

Increasing Sino-American tensions also provide incentive for the Chinese to look increasingly at Israeli technology and expertise. Due to recent hacking scandals, the Chinese government has banned the use of U.S. software and programming, and it is likely that other Chinese companies will soon follow suit. Israeli research, development, and production of technology is rivaled only by the U.S., and thus Israel is China’s most viable alternative to U.S. tech companies.

The growing mutual attraction between Israel and China is represented by unprecedented private Chinese investment in Israeli tech-startups since at least 2013. Recently, Chinese tech conglomerates Baidu and Ali Baba have sent executives on several trips to Israel for new
investment opportunities. In 2014 alone, Chinese companies and firms invested nearly $1 billion dollars into Israeli companies. Of this money, $300 million went into tech-startups, along with research and development, and that number is projected to increase dramatically. In fact, some analysts have claimed that China will overtake the U.S. as Israel’s biggest research and development investor in just a few years.

Peres Xi Jinping
Former Israeli President Shimon Peres meets with Chinese Presient Xi Jinping. Photo credit: Amos Ben Gershom/GPO/Flash 90, Times of Israel, April 2014

The Chinese government also has a huge demand for Israeli tech-industry expertise. In October 2013, Chinese billionaire Li Ka-Shing donated $130 million to Israel’s Technion Institute of Technology to establish a branch in China. What is especially significant is that the Technion Guangdong Institute of Technology was the first foreign established academic institution allowed in China. In May 2014, Tel Aviv University and Tsinghua University entered into a partnership to invest $300 million dollars for a technology research center. These academic partnerships will allow the Chinese to have significant access to Israeli innovation.

But Israeli expertise in cybersecurity is perhaps what is most attractive to the Chinese. Israel has been ranked number one globally in terms of cybersecurity, while China has received some of the lowest scores for a world superpower. However, Israel is restricted by the U.S. from selling military equipment to China, especially technology that can be used militarily, which includes cybersecurity software and expertise. Despite the huge potential market for cybersecurity in China, Israel listens and complies to this and other U.S. demands simply because right now it must. Israel is militarily, politically, and economically dependent on the U.S., but this leveraging power relies heavily on Israel’s continued economic dependence.

Ironically, this leverage is what the West has to lose by threatening Israel with sanctions and boycotts. Western pressure will give the Israelis added incentive to shift their attention to massive Asian markets such as China’s. This gradual shift East will not only offset Western pressure, but will also lead to greater Israeli economic independence from the West. If this pressure continues, the U.S. and the EU will find that they have lost influence and cooperation with arguably their strongest ally in the most volatile region in the world. Meanwhile, Israel will have moved on to more profitable and welcoming Eastern partners. Israel will have made up its losses, while the West will only have accrued losses. Although it is highly unlikely Israel will ever completely sever its relations with the West, a more economically independent Israel means less leverage for the U.S. and other Western nations to pursue their respective and shared interests in the region. Ironically, Western interests that would be most severely jeopardized are those concerning Palestinians that have prompted the threats of sanctions in the first place. If the West would like to see its waning influence preserved in the Middle East, it must begin playing nice with Israel, because in the end it is the West, not Israel, that has the most to lose.