Aligning U.S.-Israeli Cooperation on Technology Issues and China

Executive Summary

The United States and Israel have a long history of working together as close allies. Theirs is a relationship based on common values and security interests. In recent years, the alliance’s highlights have included close cooperation on counterterrorism and intelligence, as well as deepening economic ties, technological cooperation, and mutual knowledge transfer. The United States continues to provide Israel with significant security assistance based on a memorandum of understanding signed by both countries in 2016, which commits the United States to provide Israel with at least $3.8 billion per year in aid. The relationship is further strengthened by deep personal connections at the government and business levels as well as through collaboration between the two countries’ technology sectors.

In recent years, however, the United States and Israel have differed regarding their threat perceptions and approaches to China. Whereas Israel sees China primarily as an economic partner and is increasing its ties with the country, the consensus view in Washington increasingly sees China as a global strategic rival—militarily, economically, and technologically—even while the Joe Biden administration preserves space for cooperation with Beijing in areas of common interest. In recent years, U.S. and Israeli officials have had public and private disagreements over several Chinese investments in Israeli infrastructure and technology. Although Chinese investments in Israel have declined since their peak in 2018, and even though these disagreements have yet to be aired publicly by the Biden administration and the Naftali Bennett–Yair Lapid government, this issue is likely to remain high on the agenda.

The most critical challenges in the bilateral relationship are technology protection and collaborative innovation. Chinese investment in Israeli technology companies, including those that develop dual-use technologies, remains largely unregulated. Although Israel does not export defense technology to China and has placed stringent regulation on the export of dual-use technologies, the line between civilian and dual use is increasingly blurred, and Israel has yet to fully adapt to this reality. Washington, for its part, has not been entirely clear about how it expects American companies and allies to limit their roles. The United States has been slow to offer alternatives to allies such as Israel for forgoing cooperation with China and has yet to develop a collaborative technological innovation framework that builds on the cumulative strengths of the United States and its allies, benefits all, and helps to tip the balance in the technological competition with Beijing.

To address the multidimensional challenge presented by China, the United States must enhance collaboration with its allies, including Israel, its closest partner in the Middle East. Fortunately, when the United States and Israel have had differing perspectives in the past, they have successfully engaged in deep bilateral consultations to work through these differences. These efforts have not always resulted in complete alignment, but they have significantly reduced disagreements and allowed for greater cooperation.

This paper represents the most comprehensive public analysis to date of the challenges facing U.S.-Israeli cooperation on issues related to technology and China. It proposes an approach for the United States and Israel to align their policies and bridge differences by focusing on three central areas.

Whereas Israel sees China primarily as an economic partner and is increasing its ties with the country, the consensus view in Washington increasingly sees China as a global strategic rival— militarily, economically, and technologically—even while the Joe Biden administration preserves space for cooperation with Beijing in areas of common interest.

First, the United States and Israel should establish a high-level working group to coordinate U.S. and Israeli policy on technology and China. This group should include a consultative structure led by the White House and the U.S. State Department with the Israeli Prime Minister’s Office and Ministry of Foreign Affairs to address differences in how they see China. It should also include deeper systemic engagement between the U.S. and Israeli private sectors, academia, legislatures, and intelligence and law enforcement bodies.

Second, the United States and Israel should align their regulatory regimes, especially regulations regarding investment screening from China, to ensure their high-tech industries are defended from potential exploitation. This process should include regular dialogue between U.S. officials at the Treasury Department, which serves as the chair of the Committee on Foreign Investment in the United States (CFIUS); Israeli treasury officials; and experts from a newly established committee responsible for investment screening in Israel. This dialogue—shaped at the political level for implementation by career government staff—should focus heavily on the steps Israel should take to improve investment screening, including: anchoring the committee responsible for investment screening in legislation, building out a complementary intelligence capability, and ensuring that technology companies and investments are covered under this committee. There are also areas where the U.S. government could do a better job of communicating its perspective to Israel, explaining both how the United States defines critical technologies and the types of regulatory steps Israel would have to take for its companies to be granted certain exemptions from U.S. investment-screening requirements, which are available under U.S. law for companies from compliant jurisdictions.

Finally, the United States and Israel should deepen economic and technology cooperation as a counter-weight to and substitute for Chinese investments. This process should begin with a regular high-level U.S.-Israel dialogue that brings together the key agencies responsible for innovation in both the U.S. and Israeli governments. The United States should also encourage greater U.S. private-sector investment in the Israeli technology sector as a substitute for Chinese investment and should encourage other democratic partners to do the same. The United States and Israel should leverage and increase investment in a number of existing mechanisms for U.S.-Israel technology cooperation, including the BIRD Foundation (Israel-U.S. Binational Research and Development Foundation), which provides matchmaking services between Israeli and American companies in R&D; the BARD Fund (Binational Agriculture and Research and Development Fund), which focuses on U.S.-Israel cooperation in agricultural research; and the U.S.-Israel Binational Science Foundation (BSF), which promotes scientific relations between the U.S. and Israel by supporting collaborative research projects.

This paper is only a first step toward addressing these challenges; more analysis from governments, think tanks, and the private sector is necessary. However, it is apparent that simultaneously aligning strategy, regulation, and economic cooperation is the most effective way for the United States and Israel to deepen their cooperation on this complicated problem set.

Dr. Jonathan Schanzer is senior vice president for research at the Foundation for Defense of Democracies (FDD) where he oversees the work of the organization’s experts and scholars. Dr. Shira Efron is director of research at Israeli Policy Forum, a senior research fellow at the Institute for National Security Studies, and an adjunct fellow with the RAND Corporation. Martijn Rasser is a Senior Fellow and Director of the Technology and National Security Program at the Center for a New American Security (CNAS). Alice Hickson is the Joseph S. Nye, Jr. Intern for the Middle East Security Program at the Center for a New American Security (CNAS). Follow Jon on Twitter @JSchanzer. FDD is a nonpartisan research institute focusing on national security and foreign policy.