To recast the final lines of Casablanca: “Xi, I think this is the end of a beautiful friendship.” That is more or less what Israel is going to have to say to Beijing in the face of American pressure to downgrade our ties with China.
Reining in the Israel-China friendship was high on the to-do list of U.S. National Security Adviser John Bolton during his visit to Israel this week, and that says a lot considering all the Middle East chaos he has to contend with. But it’s been obvious for quite some time that the Trump administration wasn’t going to wage a trade and technology war with China while allowing a key ally like Israel to do business as usual.
Bolton’s immediate concerns are about China’s role in building and operating Haifa's new port and the risk that it will be used to spy on visiting U.S. Navy ships. He’s also worried about the potential for Chinese eavesdropping on callers using telecommunications equipment imported from Chinese makers Huawei and ZTE.
The beautiful friendship between China and Startup Nation is also at risk. Bolton reportedly didn’t speak about that, but the transfer of Israeli innovation to China, which is at the core of the bilateral relationship, is anathema to Trump’s Washington. Israeli technology will undoubtedly be deployed by China’s military and by Chinese companies in their race with America to become the world’s No. 1 technology power.
Washington is presenting a "us or them" choice -- although perhaps it may not be quite as painful as it seems.
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China has been the biggest prize in Netanyahu’s strategy of diversifying Israel’s political and economic dependency on the U.S. and Western Europe. Beijing is not only a rising world power, but one that doesn’t bother its friends about human rights violations. Already the world’s second-biggest economy, its growth seems unstoppable.
But how could little Israel ever hope to win China’s attention? There’s no AIPAC in Beijing or masses of Evangelical Christian Zionists. There are no sentimental attachments arising from the Bible, Holocaust guilt or shared democratic values. We don’t have natural resources to export in critical amounts, or many giant infrastructure projects to tempt Chinese builders.
But China is hungry for technology as a catalyst for moving its industry up the value chain and solving its serious environmental challenges. Israel is a heavyweight in the tech world and has been happy to do business with Chinese companies. Israeli-Chinese business is less traditional trade ties: Israel accounts for just 0.4% of China’s total imports. But China has been investing in Israeli start-ups, and has been entering into technology marketing, distribution and licensing deals, and the like.
Whether that is going to be hurt by the new anti-China attitude in Washington is difficult to say. But it would be wrong to assume that when the U.S. and China end their clash over trade, trade things will return to status-quo ante Donald.
Behind the presidential tweets is a real change in America’s attitude toward China: It’s no longer seen as a country that would inevitably evolve into a democratic, liberal state as its economy grows and matures and become an honorable member of the U.S.-led international order.
It’s doubtful Beijing’s leaders ever saw things that way and under Xi Jinping they have been more open about it. Even if Trump doesn’t win a second term (or doesn’t survive his first), the U.S. and China are destined to be rivals.
That leaves Israel in a difficult spot: We are a technology and military power all out of proportion to our size and attract more than the usual amount of attention from Washington. But we don’t have the standing to run an independent foreign policy.
The stark choice Israel faces between the U.S. and China is, of course, a no-brainer. But it isn’t as likely to be so terrible.
Everyone assumes that after 40 years of breakneck Chinese growth, it will just keep going on and on. But as investment advisers like to say, “Past performance is no guarantee of future results.”
China’s leaders and entrepreneurs deserve a lot of credit for the China Miracle, but at least as much goes to the mass movement of China’s rural population to the cities, which created a massive, low-cost workforce. The economy was so underdeveloped that it was relatively easy to grow it just from throwing labor, capital and infrastructure development at it.
When China joined the World Trade Organization in 2001, export markets were opened to it - even when it didn’t play by the rules and allow the same access to imports.
For the last decade, however, those internal drivers have disappeared and growth has been buttressed by an unsustainable growth in debt. China’s labor force is massive, but since 2010 it’s been in decline and will shrink rapidly in the decades ahead. China will inevitably face new and tougher rules from an increasingly suspicious West, so that export markets won’t be such easy pickings.
This doesn’t mean the China will go into reverse, but the odds are good that it will go into neutral, much like Japan has done since the 1980s. China will be a major economic power, but not the rising super-power it has been. Bibi’s choice may not prove so difficult after all.