Breaking China: A rupture looms between Israel and the United States

Breaking China: A rupture looms between Israel and the United States

For years, Israel has been working to dramatically expand trade with China. Now, that push is running up against strong opposition from the White House.

Israel’s announcement last week that an Israeli consortium would build Sorek 2, the world’s largest desalination plant, surprised many who had been watching the deal: The contract had been expected to go to a Hong Kong-based company.

But that was before the Trump administration ramped up pressure on Israel to diminish its ties to China.

For years, Israel has been working to dramatically expand trade with China, one of the world’s largest markets. That push is suddenly running up against strong opposition from the White House, as the Trump administration pivots from the decades-old policy of increasing US engagement with China to treating the country as an increasingly bitter rival.

The Sorek 2 deal was widely seen as a bow to pressure from the Trump administration, which is pushing Israel and other key allies to curtail trade with China. But observers of this deepening dynamic say it may not be enough to head off a US-Israel crisis over China.

A Chinese company, SIPG, is building a major port in Haifa and will control it for 25 years. The Trump administration, according to multiple insiders, wants Israel to roll back at least part of that deal. The Israelis consider it a done deal, even if they may have regrets over it.

“It’s a bit of a shock to the system,” Jonathan Schanzer, the vice president of a think tank, the Foundation for Defense of Democracies, that has close ties with the Trump administration and with the government of Israeli Prime Minister Benjamin Netanyahu, said of the looming crisis. “We had been hearing from the administration officials and even some Israeli diplomats about some of the complications arising from the intensification of the great power competition between the U.S. and China.”

In mid-May, the Trump administration unveiled a 16-page revised approach for relating to China amid American fury with the Chinese for obfuscating the origins of the coronavirus and failing to contain the pandemic. The US has not publicly spelled out potential consequences for countries that do not go along with its anti-China push.

But those with ties to both the Israeli and US government said there is a real risk of diminished security cooperation if Israel does not accede to American pressure to stringently review any commercial deals with China and nix those that might impinge on Israeli and US security interests.

Doug Feith, a top Pentagon official under President George W. Bush who helped resolve the last US-Israel crisis over China — over Israel’s weapons sales to China in the mid-2000s — said the Trump administration was poised to act unless Israel took steps to alleviate US concerns.

Feith pointed to Secretary of State Mike Pompeo’s brief trip to Israel in mid-May — only his second visit abroad since the coronavirus pandemic shut down the United States — to make sure Jerusalem got the message. During his one-day visit, Pompeo openly accused China of “obfuscating” and “hiding” information related to the pandemic. (China’s ambassador to Israel responded by calling the accusations “absurd,” saying China “has never covered up the outbreak.” He died of an apparent heart attack in his apartment in Israel less than a week later.)

Pompeo had warned Israel earlier in the month “that further Israeli economic linkage with China will hurt relations with the US,” Feith, a senior fellow at the Hudson Institute, wrote in a May 15 Wall Street Journal op-ed.
In an interview with the Jewish Telegraphic Agency, Feith said he learned of Pompeo’s warning from Israeli and American officials. (Requests for comment from the State Department and from Israel’s embassy here were not returned.)

Israel is not alone, Feith said, noting similar recent warnings issued by Trump administration officials to Britain and Australia.

“What the government is saying is that it applies to Israel in the same way that it would apply to other countries, including very close friends,” he said.

Those warnings could rupture the close relationship between President Donald Trump and Netanyahu, who have been joined at the hip on policy and politics, ranging from Israel’s claims to territories won in the 1967 Six-Day War, to heightening confrontation with Iran, to disdain for the Democratic Party’s left wing.

“This administration likely feels particularly empowered to have tachlis discussions with Israel about limitations since it [rightly] views itself as having provided Netanyahu and the last government with wall-to-wall support,” said Scott Lasensky, a visiting professor at the University of Maryland and an adviser on Israel policy to the Obama administration.

A resolution to the crisis could sink in Haifa’s port

The biggest deal Israel has signed with a Chinese company was in December: The Shanghai International Port Group, or SIPG, is to build and operate a port in Haifa for 25 years. The agreement followed years of negotiations.

The Trump administration wants controls in place to limit Chinese malfeasance, if not a complete abrogation of the deal. Breaking the contract is unlikely, as Israel does not want to risk alienating its trade relationship with China. Those ties, according to an analysis last year by the Rand Corp., a think tank that advises the Pentagon, was worth $8 billion in Chinese exports to Israel and $3 billion in Israeli exports to China in 2016.
Netanyahu has made his cultivation of ties with China a feather in his cap, and China has already warned Israel against acquiescing to “US bullying.”

SIPG’s control of the port allows the Chinese intelligence-gathering proximity to Israeli naval bases, and to information that flows from the port, as well as the ability to frustrate access in an emergency.
“Ports are high-tech,” Gary Roughead, a retired U.S. Navy admiral who last year co-authored with Feith a Hudson Institute report on US-Israel cooperation in the eastern Mediterranean, said in an interview. Port operators “have control systems and the data that goes with it.”

Roughead said that could give China eyes into Israeli-US communications and, more broadly, into Israel’s military, which would raise concerns for its allies.

“It would be important to know, do [Israel’s] security services have access to the port to monitor for the capabilities that are focused on your naval base, is that allowed, or does Shanghai say, ‘No, you can’t sweep the port, or peer into the types of activity or intercept the communications,’” he said.

Other concerns Roughead noted: US military vessels that stop in Haifa for servicing and whether China would be able to intervene in U.S. assistance to Israel during a military crisis.

Feith said that Israeli officials have endeavored to reassure Americans that they have checks in place at the port, but the Americans remain wary.

Shaul Chorev, a retired rear admiral in the Israeli Navy and a co-author with Feith and Roughead of the Hudson Institute report, said the port deal was a mistake on national security grounds, but Israel was not about to substantially retreat.

“If Israel goes to China and says let’s roll back, we will lose face, we will lose our economic relations,” said Chorev, who directs the Haifa Research Center for Maritime Policy and Strategy.

The crisis has come on suddenly

Until around 2018, few in Israel or the United States saw this crisis coming. Dealing with China, with its deep pockets and resources, had been a no-brainer across the planet for years. Its Belt and Road initiative, bringing infrastructure on the cheap to developing countries, is transforming Africa.

But then some critics began to claim that Chinese information technology companies were allowing China’s government to spy on countries that use their cellular technology. And Beijing also began facing claims that it was using Belt and Road to squeeze diplomatic concessions from participating countries. In 2018, Trump administration officials began to aggressively warn allies against deals with China. Lawmakers from both parties have issued similar warnings.

Those concerns were simply not on anyone’s radar in 2015, said Daniel Shapiro, then the US ambassador to Israel. Yisrael Katz, then Israel’s transportation minister, approached Shapiro seeking US contractors to redo Haifa’s port. That never eventuated, in part because the project was seen as too small by US contractors, so Israel turned to the Shanghai International Port Group.
“They went ahead with their process, they signed a deal with the firm,” Shapiro said. “No one in the US government — not in the Navy, not in the Defense Department — called me and said ‘Hey, we have a problem.’”

A renewed process to vet Israel’s international deals

Last year, Israel launched a foreign investment review board at the behest of John Bolton, then Trump’s national security adviser and one of Israel’s closest-ever friends in US government. The goal of the board is to ensure that agreements are vetted with national security concerns in mind — and avoid a situation like the Haifa port deal, where negotiations took place for several years, yet parts of Israel’s security establishment were caught off-guard by the agreement.

The review board is seen as feckless and ineffectual, in part because it was formed under Israel’s interim government and lacked a mandate. Now that Netanyahu has set up a government, the Americans expect him to strengthen the mechanism.

“The first thing that Israel should do for its own sake, even if America and China were not on this collision path, is to have a real foreign investment screening mechanism,” said Shira Efron, a visiting fellow at Israel’s Institute for National Security Studies who co-authored the 2019 Rand report.

Efron said the mechanism should be legislated — the committee last year was a Cabinet decision — which would give it the power to compel compliance. Its scope should be extended to the technological sector, she said, and it should be an independent entity.

The Israeli government should make clear that strengthening the mechanism is in Israel’s interest and not at the behest of the United States, Efron added.
“If it’s in response to US pressure, it’s insulting to China,” she said.

It’s not about 5G

Trump administration officials have formally warned Britain and Australia that allowing Huawei, the Chinese communications giant, to help establish 5G communications networks in their countries would adversely affect intelligence sharing. The US, Britain, Canada, Australia and New Zealand are part of the Five Eyes intelligence-sharing network.

Democrats and Republicans alike see Chinese communications companies as arms of China’s intelligence network.

There were concerns last year that Israel was considering similar contracts, but Israel has put them to rest, said a March report by Israel’s Institute for National Security Studies.

“In view of the absence of Chinese technology from previous generations of communications infrastructure in Israel, and despite the lack of clear official announcements by the Israeli government on the matter, the likelihood of its 5G infrastructure being built with Chinese technology is low to nonexistent,” the report said.

But there’s a lot more to talk about

China has been building infrastructure in Israel since at least 2007, when the China Civil Engineering Construction Corp. brought in 300 workers to build the tunnel system linking the southern entrance to Haifa with the suburbs to the city’s north. That success has led to a thirst for Chinese construction, and there was talk of China building new rail links in Israel. China’s Bright Food Group owns a controlling stake in Tnuva, Israel’s preeminent dairy.

Decoupling from China won’t be easy. And China appears prepared to place its own pressure on Israel.

After Pompeo’s visit last month, the Chinese embassy’s spokesman declared that his country trusted that its “Jewish friends are not only able to defeat the coronavirus but also the ‘political virus,’ and choose the course of action that best serves their interests.”

Still, Israel’s willingness last week to cut China out of the Sorek 2 desalination deal shows it is ready to roll back engagement on some fronts.

The Foundation for the Defense of Democracies released a paper last month outlining how to avert a deeper crisis. Its recommendation: “The United States should work with Israel and other allies to facilitate alternatives to help Israel pivot away from China.

“Other Indo-Pacific countries, such as Japan, Canada, India, Australia, South Korea, and Taiwan, already invest in Israel and may be eager to increase their engagement to replace Chinese investment,” the paper said.

There are other spheres in which Israel will be under US pressure to apply greater scrutiny, including Chinese investment in Israel’s high-tech sector, said Vance Serchuk, a senior fellow at the Center for a New American Security and once a foreign policy adviser to former US Sen. Joe Lieberman of Connecticut.

“In many cases on the surface, the companies that are working in these areas are not primarily focused on military applications, but the capabilities themselves have the potential to be leveraged for strategic impact,” Serchuk said. “Both Israelis and Americans agree that Israeli capabilities should never be leveraged or weaponized against the United States, but figuring out exactly what that means is very tricky.”

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