How Will the Ongoing Israel-US Trade War Affect Israel’s Economy?
China and the United States represent significant opportunities for trade or cooperation for Israel, but in the environment of an ongoing trade war between Israel’s Western ally and its trading partner in the East, Israel has had to maintain a precarious balancing act.
With the change of the U.S. administration, any hopes that the U.S. would soften its hawkish stance against China were put aside amid Treasury Secretary Janet Yellin’s robust remarks condemning Beijing’s “abusive, unfair and illegal” practices. This means that Israel, a country that depends on trade with both nations, will have to strive not to take sides and yet maintain a relationship with both parties, which is no easy feat.
The United States’ Complaint Against China
The United States has had an ongoing conflict with the world’s second-largest economy over its one-sided trading practice. China has been accused by more than one American Administration of dumping cheap products into the United States while putting up trade barriers against items from the US. In addition, the U.S. objects to China’s giving away of subsidies to corporations that support its own trade and undermine that of its partners. Finally, U.S. officials have accused China of stealing its intellectual property.
President Donald Trump imposed huge tariffs on Chinese goods which he relaxed in 2020 in a deal with Beijing that would lower some tariffs. In turn, China agreed to purchase $200 billion of U.S products in the following two years. However, in the year since that agreement, China has been quite slow to fulfill its end of the deal, which never addressed China’s stealing of US intellectual property, an accusation China denies.
Under the Biden Administration, particularly Treasury Secretary Janet Yellen, there seems little willingness to reverse the punitive stance towards China. However, there have been discussions about a pivot towards building a coalition of democratic countries to negotiate a truce with China rather than going it alone. However, this coalition will take some time to build, and for the time being, the U.S. hard line against China is still in place.
How the U.S. China Trade War Affects Israel
As the U.S.’s closest ally in the Middle East and a trading partner with China, Israel is caught in the middle of this trade war. The U.S has put pressure on Israel to abandon certain trade agreements with China. One example was a deal to allow China to run a desalination plant. In 2020, the then U.S. Secretary of State Mike Pompeo visited Israel in the midst of the pandemic to put a halt to this deal, which would have been lucrative for Israel.
The U.S. has also been highly critical of Israel allowing China to have control over a major port in Haifa where the U.S.’s sixth navy fleet docks, and China’s role in Israel’s 5G technology is troubling to the U.S. Economist Tyler Cowen said the US-China trade war is a negative for Israel, but suggested the country should try not to take sides and wait it out. However, it is hard to know how long it is going to drag on.
How Can Israel Navigate These Tensions
It may seem like a tight rope walk, but the best course of action for Israel is to maintain its positive relationship with China as its economy and markets grow. There is hope for a truce at some point, given some improvements in China’s intellectual property regulations and agreement to purchase more US goods, even though China seems slow in acting on its resolutions.
If President Biden does convene a coalition of allies to negotiate trade agreements with China, that will be the best result for Israel, because it means the U.S. will cease pressuring Israel to abandon lucrative deals with China. The U.S. economy is being hurt significantly by the trade war with a loss of $316 billion. It is clear that this trade war is unsustainable for both parties and if there are successful negotiations to end it, there will be a significant boost for the economies of China, the U.S., and Israel.
Investing in Israel
Although the trade war between the U.S. and China creates challenges worldwide, it is clear that both parties consider Israel a valuable country to invest in. The Israeli economy is likely to see an uptick in trading with both countries in the long-term. Wise individual investors also see the start-nation as a viable investment.
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