It's Time for a “Common Market” in Defense Trade

A series of defense-trade treaties among the world’s leading democracies would help defend all of them, and us, against China.

British and Irish soldiers and military vehicles on October 10, 2018 in Rotterdam. Dean Mouhtaropoulos/Getty Images.

British and Irish soldiers and military vehicles on October 10, 2018 in Rotterdam. Dean Mouhtaropoulos/Getty Images.

Last Word
Dec. 31 2019
About the author
Arthur Herman is a senior fellow at the Hudson Institute and the Pulitzer Prize Finalist author of ten books, including Freedom’s Forge: How American Business Produced Victory in World War II and The Viking Heart: How Scandinavians Conquered the World (2021).

I’m very gratified that my essay on the desirability of a Defense Trade Cooperation Treaty (DTCT) for promoting U.S.-Israel strategic cooperation in the context of Israel’s growing ties with China has prompted such thoughtful and far-reaching responses from such distinguished authors as Eran Lerman, Assaf Orion, John Hannah and Annie Fixler, and Vance Serchuk. Even Lerman, before voicing his criticisms of this essay as he did of my earlier one on the topic of Israel-China-U.S. relations, is able to stipulate that it is “a major contribution,” “sobering, thought-provoking, and profound.”

As for my other respondents, I find basic agreement between them and me on two key points.

The first is that where dealing with China is concerned, the U.S.-Israel relationship needs to be reoriented toward a new set of outcomes. Those outcomes must be ones that will not strain the U.S.-Israel strategic partnership either by Israel’s drawing too close to China or (just as importantly) by America’s being too insistent that Israel adopt a stance toward the PRC contrary to Israel’s own national interests—interests that include trade with the world’s second-largest economy (and possibly, by 2030, the world’s largest).

Indeed, Israel has taken important steps toward limiting and loosening the ties to China that have most worried U.S. policymakers. The question now (though Lerman may disagree) is not whether any next steps are required but what those next steps should be.

Following from this is our second point of agreement (though, again, Lerman may demur): namely, that U.S.-Israel cooperation in the area of defense technology, especially when it comes to such advanced systems as cyber, robotics, artificial intelligence, and eventually quantum, needs to be propelled, as John Hannah and Annie Fixler put it, to “new heights” through a defense-trade arrangement that will benefit both countries.


The issue at hand is thus whether a formal Defense Trade Cooperation Treaty is the key for accomplishing this goal. To my mind, the answer is obviously yes. Such a treaty would, in the first place, boost both countries’ military-industrial cooperation by largely exempting it from the usual export-control process that governs and limits U.S. defense trade with other countries. In the second place, the prospect of such a treaty would incentivize Israel to avoid doing business with China in precisely those areas mainly governed by a DTCT: commercially-based technologies that also have application for military use.

For example, under a DTCT a Tel Aviv-based start-up could sign a contract with an American company like Lockheed Martin to work on advanced sensor technology without undergoing the normal review process for export licenses required by the State Department, the Treasury Department, or the Commerce Department. Why? Because neither Lockheed Martin nor the U.S. government need worry that the Israeli start-up might be working on similar technology with a company based in China—or, for that matter, Russia.

Similarly, a DTCT would enable a company like Israel Shipyards to contract directly with Huntington Ingalls, America’s largest military shipbuilder, to build and retrofit naval vessels without the restrictions imposed by normal U.S. export-control rules on the technologies that a foreign company like Israel Shipyards would have access to.

In the end, a DTCT both rests and builds upon a bond of assurance between two allies that, above all, neither signatory will share jointly developed systems or applications with countries that the other signatory sees as antagonistic or hostile.

In their co-written response, John Hannah and Annie Fixler assert that my “logic is exactly right” here. By contrast, both Eran Lerman and Vance Serchuk worry that such a treaty might formally and unduly lock Israel into America’s anti-China camp. Later on I’ll return to what I see as an underlying issue here, but so far as a treaty is concerned, the answer is that it would do no such thing. The two existing DTCT’s the U.S. already has with Australia and the United Kingdom make no explicit mention of China at all, or indeed of any other power. In order to win U.S. support for such a treaty, Israel would simply have to agree from the start that any technology transfers by it to other countries would not undermine the purpose of the agreement—that purpose being the enhancement of the national security of both Israel and the U.S.

In essence, moreover, a U.S.-Israel DTCT would merely extend to company-to-company transactions the same process of export control that both countries have already worked out, a process that now incorporates the rules imposed by Israel’s own Defense Export Control Agency (DECA) as well as those of the U.S. State Department, which has final say on all defense exports to other countries.

This is a crucial point. A DTCT does nothing to affect the arrangements already in place between Washington and Jerusalem in the area of military assistance and sales. It is instead a stimulus to further interaction between American and Israeli companies, especially (but not exclusively) in the sector of high-tech or advanced systems. This is where important innovations come quickest and with the greatest impact—precisely the area where, as Serchuk emphasizes, the U.S. needs to raise its own game and learn to do more with less, i.e., without huge investment and oversight by the federal government.

If anything, then, a DTCT, and the negotiations leading to its signing, would actually give Israel greater latitude and leverage than it has today, achieved through mutual agreement on which sorts of technology transfers or information sharing constitute a threat to national security and which do not. Precisely because the “rules of the road” would be worked out beforehand, the chance of unpleasant surprises would be correlatively reduced.

Another aspect of a DTCT is particularly valuable in high-tech areas like AI and, particularly, quantum technologies. In these areas, U.S. rules governing which sensitive technologies can be exported or imported under the International Traffic in Arms Regulations (ITAR) and the Commerce Department’s similar processes are still very fluid or even non-existent. The danger is that bureaucrats will choose to close the export window on technologies that are still emerging or poorly understood. A DTCT gets out ahead of the bureaucracy by assuring American and Israeli companies working in these areas that they can undertake joint projects without worrying that the export-license process will come back to bite them.


But here is where we must widen the lens and adopt a larger perspective on the issues we’ve been discussing.

In his response to my essay, Assaf Orion rightly insists that the U.S.-Israel-China arrangement be seen now in the broader context of a geopolitical shift from the Middle East to Asia as the central priority of U.S. foreign and defense policy in this new era of great-power competition. Just as he urges his own country of Israel to take the measure of this shift, and of its place within the new context, I would urge a similar enlargement of our understanding of the place of the DTCT.

As desirable as it is to increase and make more systematic U.S.-Israel cooperation in the realm of defense industry and technology, the ultimate aim should be to spawn a series of bilateral DTCT’s with other U.S. allies including Japan, South Korea, and ultimately India. Where the UK and Australia are concerned, their current DTCT’s (both of which date to 2007) are in need of updating and improvement: a matter that could be addressed by the DTCT advisory committee I have proposed.

Nor would the United States be the only beneficiary of such an extended series of treaties. For Israel, its DTCT with the United States would open the door to similar export-control exemptions between it and other signatories—with no need for the U.S. to play umpire. In effect, a “common market” in defense trade would be created among the world’s leading democracies, allowing joint developments between, say, an Israeli and a British or South Korean company involving a technology that both share with the U.S.—without running afoul of U.S. export or ITAR rules.

On this point, Vance Serchuk and I share a similar perspective. His concern seems to be that a DTCT might encourage the same old U.S. pattern of thinking about how to achieve competitive advantage over a potential adversary like China. As he notes, in past conflicts dating back to World War II, “the U.S. has generally prevailed by having better stuff than its opponents, and vastly more of it.” But this same mindset, he observes, also got America into trouble when it tried to apply it in a place like Vietnam—or, one could reasonably argue, in Iraq and Afghanistan. Instead, he urges the United States to learn from Israel how to “devise ways to stretch resources” in ways that better match ends to means.

It’s a point I emphasized in my original piece, and also in a 2012 essay on what the U.S. can learn from Israel’s defense industry. In returning to it now in the context of a DTCT, I would stress that among the vital resources the U.S. needs today are its allies, especially its allies on the high-tech frontier. During World War II, the cold war, and even as late as the war on terror, the key technologies needed by the U.S. in order to prevail were grown at home and produced at home. This is no longer the case.

Today we live in an age of global supply chains, from electronic components to AI and quantum. The worry is that too many links in this chain belong to China. A DTCT “common market” could create a robust alternative supply chain, sharing resources and focusing energies on those technologies that defend all of us, not just the U.S. or even just Israel.

In this sense, the DTCT concept basically reconfigures the scenario that seems most troubling to Eran Lerman, namely, that Israel will have to dance to the tune devised by U.S. policymakers. To the contrary, I contend, it would expand Israel’s defense trade and technology opportunities in ways that are difficult to forecast.

Thus, in speeding up the obligatory review process by the Committee on Foreign Investment in the United States (CFIUS)—a process that Congress has incidentally made more stringent for any foreign company with Chinese investors, especially in the high-tech sector—a formal DTCT could open a path to direct Israeli investment in U.S. defense companies or even to the creation of U.S. subsidiaries of Israel’s leading defense firms.

Admittedly, this could trouble the sleep of U.S. defense contractors, especially the biggest ones. The prospect, for instance, of Rafael Defense Systems pulling together a consortium of American and Israeli companies to build hypersonic weapons systems it can sell directly to the Pentagon, or of Israel Shipyards opening a facility in Norfolk, VA and hiring American workers to assemble Israeli-designed patrol vessels for the U.S. Navy or Coast Guard, isn’t likely to endear itself to executives at Raytheon or Northrop Grumman. But it would benefit the United States, and Israel, in the long term.


And here, finally, I return to Eran Lerman’s most penetrating critique and deepest anxiety: namely, that in the effort to accommodate U.S. concerns over China, Israel may be on the verge of hemming in its own options regarding how to balance its relations with both China and the U.S. In his view, a DTCT will add one more layer of U.S. pressure to an already aggressive campaign to force Israel to choose between being an exclusive friend of the U.S. and continuing to do business with a country that offers significant commercial opportunities and that intends Israel no harm—or, as Lerman puts it much more circumspectly, that is a “not-actively-hostile major power.”

I have argued in my essay and again here that, where a DTCT is concerned, this fear is unfounded. But, as I hinted earlier, a deeper apprehension does seem to underlie the belief by some in Israel that, in order to protect its own national interest, Israel must not allow itself to be pressed into choosing between China and the U.S., and siding with one over the other. These Israelis may well have been strengthened in their belief by vocal American critics of the Jewish state who, impelled by one motive or another, have insisted on forcing the issue by demanding that Israel make its choice.

In his response, Assaf Orion, addressing this matter as a deeply informed Israeli expert, has a simple, convincing, forthright reply to American critics who demand that “Israel has to choose.” Israel, he writes, “long ago made that choice, and without a blink”—a statement he proceeds to back up with ample facts and data. For my part, and from the American side, I can only urge those Israelis who would instead have their country stand in the middle of this latest conflict between freedom and tyranny to think again.

That we are in an era of great-power competition between the U.S. and China is all too plain. To pretend otherwise is to pretend that China’s current political and ideological system is not directly antithetical to that of every democracy, not just the United States. It is to deny a reality that all of us tried to ignore for too long—and by “all of us,” as both I and my respondents have repeatedly emphasized, I include those of us in the United States as well as in Israel.

In the end, we will all have to choose whether or not to remain part of the democratic West, and how. For Israel, I believe that a DTCT with the United States is a door to the brighter future—not the only door, but an important one nonetheless.

More about: China, Israel & Zionism, Israel-China relations, Politics & Current Affairs, Trade