United States or China: Who Wins the Battle for Israeli Technology?

After the United States, China is Israel’s most important trading partner. According to the Israel Export Institute, Israel exported a staggering $ 2.6 billion chips to China in 2018, accounting for 56% of Israel’s exports to the country.

China has invested heavily in Israel’s booming technology sector in recent years, much to the dismay of the United States. Israel is thus increasingly caught between its old ally and the ambitious lender from the east. ‘Suddenly everyone realizes that there is a blurred line between technology and politics.’

IIsrael regularly makes headlines with the protracted conflict with Palestine. Less well known is that the country is also an important center for the production of computer chips.

The remarkable story began almost fifty years ago with the American company Intel. “In the late 1960s, a guy named Dov Frohman was one of Intel’s first employees,” he recalls Shahar Kvatinskyprofessor at Technion, Israel’s most important technical university.

Frohman received his bachelor’s degree from Technion and then went to Berkeley to get his doctorate. Then he did a lot of pioneering work for Intel. At one point, he decided to return to Israel. Because he was so important to Intel, the company opened a branch there in 1974. ‘

Today, as many as 14,000 people are employed by Intel in Israel. Still, it’s not the only chip company moving in the country. The American chip designer Qualcomm is also strongly represented, just as NVIDIA is known for its graphics cards for the gaming industry and AI chips.

What’s more, there’s even a rumor that an Israeli team from Apple has designed the M1 processors for the new Apple Macbook Pro. So chances are you already used a device with a chip in it, which is designed in Israel.

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Nonetheless boomer Israeli chip industry to get a geopolitical tail. The United States and its allies, including Taiwan and South Korea, continue to lead in chip design and manufacturing. But at the same time, China’s technological power is growing. Result: Israel is in a severe division.

“Since China’s progress, Israel has expanded its relations with the country,” he said Dale Aluf, Director of Research and Strategy at SIGNAL, an Israeli think tank operating in China. “Before the trade war broke out between China and the United States, Israel looked at these relations from an economic rather than a geopolitical perspective.”

‘Behind the scenes, there has been an extensive technological and economic exchange between China and Israel in recent years.’

It shows how closely politics and economics are connected, says Aluf. “Advanced technologies are a source of national power. The United States sees China’s technological power as a threat to its interests. That is why they imposed sanctions on Chinese companies.”

The best known example of this is without a doubt the Chinese technology giant Huawei and its 5G technology. Americans are concerned about data and who controls it.

“Very often, opinion makers say it’s about espionage,” Aluf explains. “There’s some truth in that, but in the end it’s about Chinese control over critical technological infrastructure.”

Aluf makes a comparison with the nineteenth century, when the British controlled telegraph networks. ‘That way, they could communicate quickly and intercept or block communication from others.’

Geopolitical tensions

The two countries have grown closer in recent decades, says Aluf. The Chinese leader Xi Jinping believed that if China wanted to be a superpower, then it should also be a leader in advanced technology. China realized it could find that technology in Israel. “

“Israel wanted to be more than a regional military power.”

At the same time, Israel also saw something in a collaboration. “Israeli companies wanted Chinese capital. The interests that suddenly came together made the economic relations between the two countries flourish. ‘

After the United States, China is Israel’s most important trading partner. According to the Israel Export Institute, Israel exported a staggering $ 2.6 billion chips to China in 2018, accounting for 56% of Israel’s exports to the country.

And that’s not all. China also wants R&D expertise (research and development, ed.)† For example, Huawei opened an R&D center in Israel in 2016 through local acquisitions. Chinese investment in the Israeli technology sector, not only in chips, also rose sharply.

Belt and road

For the outside world, cooperation between the two countries remains primarily economic. In UN resolutions, Israel mostly agrees with the United States. China, on the other hand, usually votes against Israeli initiatives. But behind the scenes, there has been a thorough technological and economic exchange in recent years.

“Israel wanted to be more than a regional military power,” he says Zsolt Csepregic, Israel expert from the think tank Antall József Knowledge Center. “Former Prime Minister Benjamin Netanyahu’s government wanted to boost foreign investment, especially in infrastructure development.”

“Basically, the United States gave money from Bahrain and the United Arab Emirates to Israel.”

China with its Belt and Road Initiative (The Chinese are planning to increase their role in the global economy, ed.) seemed a good partner for it.

“If you want to work your way up in the world, you need billions of dollars,” explains Csepregi. “With the exception of China, no one wanted to give them those dollars.”

China provided capital, but in return it wanted technology. “Netanyahu gave the country permission to acquire Israeli companies.”

In 2019, when Netanyahu’s reign ended, the United States could not hold it any longer. “Israel introduced a security screening for foreign investment to exclude China from future initiatives.”

Under the new Bennett-Lapid administration, relations with China did not deteriorate, but they are on hold† The Israelis are still sticking to the contracts that have already been signed, but major acquisitions are not yet on the agenda, Csepregi believes.

In addition, Israel was able to exploit a new source of investment. With the so-called Abraham agreements, former President Trump succeeded in normalizing relations between Bahrain, the United Arab Emirates and Israel by 2020.

“Basically, the United States gave money from Bahrain and the United Arab Emirates to Israel,” Csepregi said. Suddenly, Israel had an alternative to China. Without that capital, contacts would remain closer with China. The Americans blocked technological cooperation and also rewarded Israel if they restricted these connections. ‘

survivability

In the long run, it’s all about Israel’s survival. The country wants to become an irreplaceable link in the global economy and for neighboring countries such as Greece, Turkey, India, China or the EU.

Its technological strength can also help. Because Israel’s industry must also be strong enough to support the military.

‘Suddenly everyone realizes that there is a blurred line between technology and politics.’

As for its own security, Israel has two goals, says Csepregi. ‘The country wants to be self-sufficient. But it also wants to build a network of friendly, or at least non-hostile, states. ‘

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“The two goals are conflicting, and Israel has to find a balance. The country can not be completely self-sufficient, but it can not rely entirely on other countries either.”

Israel is increasingly trapped between the United States, its longtime ally, and China, its new economic partner. Finding a balance in this is also a challenge for many other small countries, says Dale Aluf from Signal.

‘Many countries are in the same situation. They do not want to have to choose between the United States or China. But the trade war has awakened them. Suddenly, everyone realizes that there is a blurred line between technology and politics. ‘

This article was produced with the support of the Pascal Decroos Fund for Special Journalism.

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