There is a lot of conjecture about who will profit from this coronavirus after the virus and the panic has abated. May I suggest that one winner is presently being overlooked.

Some suggest that the U.S. will win the economic war, and that China will lose in the wake of coronavirus. They see China’s behavior as scandalous, and that this coronavirus panic will draw away investments to cause the final abandonment of China as the world’s cheap manufacturing supply house.

The new coronavirus Covid-19 will end up being the final curtain on China’s nearly 30 year role as the world’s leading manufacturer.

“Using China as a hub... that model died this week, I think,” says Vladimir Signorelli, head of Bretton Woods Research, a macro investment research firm. -- FORBES

Some wonder if the USA and the West are too deeply intertwined with China for a clean break to occur, while others think China might prevail despite its behavior. The West has become too dependent on the Chinese for electronic, medical, and technical products.

Mainland China has reached this position by piggybacking on the technology of other nations to rise to become a great industrial power, but the key is that China is not that great an innovator on its own. It seeks investments to provide what it cannot provide itself.

If one looks at reviews on Amazon, Chinese products are not considered high quality. True, the same was said of Japanese products in the fifties and sixties, but Japan closed that gap. The Chinese have yet to close it. And much of what China makes that is good is often made by foreign companies who have set up in China.

Meanwhile, the Netherlands joined Spain, Turkey, Georgia and the Czech Republic in rejecting China-made medical gear, claiming the items were substandard and questioning their quality as the number of global coronavirus cases passes 826,000, according to Fox News. -- NY Post

May I suggest that Israel will be the one of those to prosper from this disaster after China’s behavior has caused a move away from its products.

Unlike the Chinese, the Israelis are well known for inventing their own technologies. They are world class innovators. Contrariwise, given the total control that their government exerts, China will never be a start-up nation, as Israel has become. Freedom is necessary for true innovation, and China will never allow it. China survives only by producing at lower costs, but it needs other countries to innovate.

Ironically, Israeli innovation has already attracted the eyes of Chinese investors, to make up what the Chinese lack. Over U.S. objections, Chinese firms have stepped up their involvement in Israel:

Israeli government officials estimate that in Israel alone, Chinese corporations have invested in or accessed projects worth nearly $15 billion. -- JPost (2019)

Yet, some in the Israeli government were worried.

The Shin Bet (Israel Security Agency), the National Security Council (NSC) and US administrations have time and again expressed their concerns regarding this growing trend. Yet government ministers are finding it difficult to reach a decision. -- JPost (2019)

Happily, the Israeli government has taken precautionary steps.

Israel Acts to Counter Chinese Corporate Influence -- Defense of Democracies

If Israel can avoid the mistakes that the West has made, and minimize Chinese influence, it may find itself in a position to become a first-rate supplier of some goods to the West that will replace China.

Given that Israel already produces a lot of high tech, and both Apple and Microsoft have invested heavily in Israel, there is absolutely no reason that Israel could not replace China as a major electronic supplier to the world.

Intel bought Habana Labs, an Israeli startup that develops chips for artificial intelligence applications, for about $2 billion, to bolster its efforts in the fast-growing market for AI silicon.

The purchase is the latest in a string of acquisitions aimed at making Intel’s offerings essential to some of the biggest buyers of silicon and fending off rising competitors. -- Industry Week

China has not grabbed control of the server chip market – of major import - and a good reason is Israel’s Annapurna Labs.

Amazon Cloud Services revealed a list of new products and services at the Re:Invent convention in Los Angeles on Tuesday, including products that were developed by Israeli company Annapurna Labs, which is owned by Amazon.

The most notable product was Graviton2, Annapurna’s new processor, which is designed for server farms and is an upgrade from Graviton, which was released a year ago. -- Haaretz

Israel already has a good chunk of the world’s pharmaceutical market, and yes, TEVA, the world’s largest manufacturer of generic drugs, has run into scandals -- but so have a lot of other pharmaceuticals.

Some have averred that Israel cannot compete with China because its reservoir of labor is too small. Israel proper has 8 million citizens to China’s 1.4 billion, a ratio of 1 to 175.  By that logic, Britain should never have conquered a quarter of the globe, yet it did.  And Taiwan and Singapore are major producers with small populations.

Industrial output is moving away from large-scale labor-intensive operations to massive Artificial Intelligence (AI) based production.

Israel is well known for its strength in deep-tech, and is also home to a vibrant AI ecosystem that has been growing rapidly over the past few years. Israel’s unique tech ecosystem includes companies and startups that utilize AI technologies in healthcare, cybersecurity, autonomous driving, and many other fields. – Forbes

And here Israel has also the edge. Intel has been the recipient of massive capital investment for a long time.

Intel's $11 Billion Israeli Expansion Plan Is Back on Track – Ctech (2019)

Investment is already starting to move out of China as labor costs rise. What Israel offers is profitability that comes from intelligence, not cheap labor. One’s profits will not decline as the standard of living increases, since the profits depend on an educated work force, not a starving one.

The problem is that China still comes in with the allure of large-scale investment, as well.  This has to be resisted. Otherwise, Israel will make the same mistakes the West has made. Israel should disconnect itself from China altogether and concentrate on penetrating Europe, India, and Latin America.

By distancing itself from China – though it might take an investment hit for a while – Israel has the potential to become the tech supplier to the world. Israel is unique in that it has the intellectual base and a lot part of the industrial plant already set up.

Some might say that Israel could not emulate Foxconn’s success in Taipei, due to its labor shortage. But there is no reason that Israel could not tap some pacified areas of Judea and Samaria for labor intensive operations. Trump’s plan offers a four-year deadline for the PA to accept terms.

[T]he deal provides for a four-year window for them to engage in renewed settlement talks. - New York Times

The PA will never accept, and then Israel will have a free hand to act. Between its own Israeli Arabs, and the unemployed that will result from an eviscerated PA, Israel may have all the labor it needs to run a Foxconn operation. Artificial intelligence will fill in any gaps.

The Israeli government should consider branding Israel as the replacement for China, with better quality and ethics. Take a hint from 7 up, the soda which once branded itself as the unCola. Perhaps Israel should brand itself as the unChina.

Graphic credit: Torange