Caught in Trump’s trade crossfire, Israel chases deal with China

One of Donald Trump’s top allies and his chief economic adversary are drifting closer, at least when it comes to trade.

In what could be a test of how much leeway the U.S. president gives to close partners, Israel hopes to conclude a free-trade agreement with China as early as next year, according to a senior Israeli official, who requested anonymity because the discussions aren’t public.

Talks have been underway since 2016, but the latest round coincides with heightened scrutiny around cooperation between Israel and China, as the U.S. pressures Israel to be cautious with the role of China in its economy. For Israel and other close American allies in the Middle East, it’s a balancing act they’ve had to perfect in the face of a more assertive China as the U.S. reconfigures its military posture in the region.

While Israeli and Chinese officials met about a month ago for the seventh round of talks, the official cautioned it’s still unclear if Israel will be able to clinch the deal next year because of the ongoing political deadlock that’s preventing formation of a new government in Jerusalem.

Since taking office, Trump has ratcheted up tariffs on Chinese products in a signature bid to renegotiate a new trade agreement. At the same time, China has emerged as the largest foreign investor in the Middle East, ensuring that countries like the United Arab Emirates take no sides in the trade confrontation.

While the U.S. still dwarfs China in terms of overall trade volumes with Israel, its exports to America have declined every year since 2015. Over the same period, Israeli sales to China grew by almost two-thirds, according to data compiled by Bloomberg.

“We need to avoid drawing a false line between trade with China, and betrayal of the U.S. alliance,” said Assaf Orion, a brigadier general in the reserves and director of the Israel-China program at Tel Aviv University’s Institute for National Security Studies.

A spokeswoman for Israel’s Foreign Trade Administration declined to comment on the recent talks or timeline. China’s embassy in Israel said it didn’t know the details but cited the Ministry of Commerce as noting the progress made during the latest round of the negotiations, which focused on issues ranging from customs procedures to sanitary measures and the environment.

Economic ties between Israel and China date to 1979, before China had formally recognized the Jewish state. Diplomatic relations were formalized in 1992.

Total trade between the two countries totaled $15.6 billion last year, according to Israel’s Export Institute, with electrical equipment and machinery dominating transactions. On infrastructure, China has also staked out a major role in Israel as an investor and builder.

For the U.S., the key points of contention have centered on whether Israel is giving enough scrutiny to China’s investment and limiting its influence on advanced 5G wireless infrastructure. It’s also expressed concern over the presence of a state-controlled Chinese operator at a commercial sea port near where the U.S. Navy’s Sixth Fleet sometimes docks.

American officials have taken issue with the relationship, including Secretary of State Mike Pompeo, who threatened to limit intelligence sharing with Israel unless the country falls in line.

China has looked to the Middle East as a springboard to European and African markets, making it a key part of its massive infrastructure project known as the Belt and Road Initiative. But it’s been careful not to antagonize the U.S. by encroaching on its defense footprint in the region. And despite U.S. warnings, companies in the U.A.E., among other countries, are set to roll out 5G services provided by Huawei Technologies Co.

A recent report by the European Council on Foreign Relations concluded that “China still has a limited appetite for challenging the U.S.-led security architecture in the Middle East or playing a significant role in regional politics.”

In an interview, the head of Israel’s Foreign Trade Administration Ohad Cohen said that talks with China were at “half-time” and focused on expanding market access for both sides — though he declined to discuss specific sectors.

The fact that Israel – after U.S. pressure – has just rolled out a panel to vet foreign investment for national security risks, but is moving ahead with trade talks, show how it’s trying to address security concerns while enhancing commercial ties.

Cohen said he doesn’t “feel any challenges” because of the discussions between the U.S. and China. “We are the mouse and there are elephants fighting right now,” he said. Ivan Levingston, Bloomberg