White House Prepares Curbs on Russia’s Access to U.S. Technology
The Biden administration warned on Wednesday that it had prepared additional measures aimed at cutting off Russia from advanced technology critical to its economy and military in the event of further aggression by President Vladimir V. Putin toward Ukraine.
The United States on Tuesday announced sanctions on two Russian banks and curbs on Russia’s sovereign debt, effectively isolating the country from Western financing. President Biden also announced further sanctions on the Nord Stream 2 natural gas pipeline and its corporate officers.
Export controls could ratchet up the pressure on Russia by preventing the country from obtaining semiconductors and other advanced technology used to power Russia’s aerospace, military and tech industries.
“If he chooses to invade, what we’re telling him very directly is that we’re going to cut that off, we’re going to cut him off from Western technology that’s critical to advancing his military, cut him off from Western financial resources that will be critical to feeding his economy and also to enriching himself,” Wally Adeyemo, the deputy Treasury secretary, said on CNBC on Wednesday.
The Biden administration has not clarified what specific restrictions it would impose on the products Russia imports. But the actions and statements of administration officials suggest they could repurpose a novel measure that the Trump administration turned to to cripple the business of Huawei, a Chinese telecom company, in 2020, export control specialists said.
The tool, called the foreign direct product rule, allows U.S. officials to block more than just exports from the United States to Russia, which totaled just $4.9 billion in 2020. It also allows American officials to restrict exports to Russia from any country in the world if they use American technology, including software or machinery.
Companies can seek licenses to sidestep the restrictions but they are likely to be denied.
Daleep Singh, the deputy national security adviser, said on Friday that the administration was “converging on the final package” of sanctions and export controls, and suggested that those controls would target tech products.
“We produce the most sophisticated technological inputs across a range of foundational technologies — A.I., quantum, biotech, hypersonic flight, robotics,” Mr. Singh said. “As we and our partners move in lock step to deny these critical technology inputs to Russia’s economy, Putin’s desire to diversify outside of oil and gas — which is two-thirds of his export revenue, half of his budget revenues — that will be denied.”
“He’s spoken many times about a desire for an aerospace sector, a defense sector, an I.T. sector,” Mr. Singh said of Mr. Putin. “Without these critical technology inputs, there is no path to realizing those ambitions.”
Kevin Wolf, a partner in international trade at Akin Gump who worked in export controls under the Obama administration, said the White House could tailor its use of export controls to target certain strategic sectors, for example companies in the aerospace or maritime industry, while bypassing products used by the Russian populace, like washing machines.
“They’re making it clear they’re not trying to take action that harms ordinary Russians,” Mr. Wolf said.
Andy Shoyer, co-lead of global arbitration, trade and advocacy for Sidley Austin, said the restrictions appeared likely to focus on semiconductors and semiconductor equipment. The novel export controls that the United States wielded against Huawei have a powerful reach when it comes to semiconductors, since even chips made abroad are mostly manufactured and tested using machinery based on American designs, he said.
“It’s not just what’s physically exported from the U.S.,” Mr. Shoyer said. “It could encompass a substantial amount of production, because so much of the semiconductor industry relies on U.S. technology.”
The global semiconductor industry, which has been roiled by shortages and supply chain disruptions throughout the pandemic, could face more disruptions given Ukraine’s role in the semiconductor supply chain.
The Ukraine Crisis’s Effect on the Global Economy
A rising concern. A Russian attack on Ukraine could cause dizzying spikes in energy and food prices and spook investors. The economic damage from supply disruptions and economic sanctions would be severe in some countries and industries and unnoticed in others.
The cost of energy. Oil prices already are the highest since 2014, and they have risen as the conflict has escalated. Russia is the third-largest producer of oil, providing roughly one of every 10 barrels the global economy consumes.
Gas supplies. Europe gets nearly 40 percent of its natural gas from Russia, and it is likely to be walloped with higher heating bills. Natural gas reserves are running low, and European leaders have accused Russia’s president, Vladimir V. Putin, of reducing supplies to gain a political edge.
Food prices. Russia is the world’s largest supplier of wheat and, together with Ukraine, accounts for nearly a quarter of total global exports. In countries like Egypt and Turkey, that flow of grain makes up more than 70 percent of wheat imports.
Shortages of essential metals. The price of palladium, used in automotive exhaust systems and mobile phones, has been soaring amid fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. The price of nickel, another key Russian export, has also been rising.
Financial turmoil. Global banks are bracing for the effects of sanctions designed to restrict Russia’s access to foreign capital and limit its ability to process payments in dollars, euros and other currencies crucial for trade. Banks are also on alert for retaliatory cyberattacks by Russia.
Stacy Rasgon, a senior analyst at Bernstein Research, said Ukraine was an important location for the purification of neon, a gas used in the production of semiconductors. While neon costs were just a tiny fraction of what semiconductor companies pay, “potentially putting a significant fraction of purification capacity at risk sounds somewhat ominous for an industry already struggling with shortages,” he said.
A spokesman for the Semiconductor Industry Association said the group was still evaluating potential impacts related to Russia’s and Ukraine’s roles as materials suppliers. But he said Russia was not a significant direct consumer of semiconductors, accounting for less than 0.1 percent of global chip purchases, according to the World Semiconductor Trade Statistics organization.
The Biden administration has been consulting with foreign governments about potential technology restrictions, which would curtail the activities of companies around the world, according to people familiar with the discussions.
It has also been encouraging other governments to mount their own responses to Russian aggression, though many governments are more limited than the United States in the type of export restrictions that their domestic laws allow them to impose.
In a statement Tuesday, the Japanese foreign minister, Yoshimasa Hayashi, said Japan strongly condemned the infringement on Ukrainian territory, and that it would cooperation with the international community to “coordinate a tough response.”
In his interview on Wednesday, Mr. Adeyemo said the United States was coordinating closely with European allies on efforts to exert pressure on Russia’s economy. He added that the tools the Biden administration was preparing to deploy were more potent than those used after Russia’s annexation of Crimea in 2014.
Russia represents just 2 percent of global trade, and it has taken steps in recent years to fortify its balance sheet and currency reserves to diminish the impact of international sanctions. But it remains dependent on foreign technology in fields like artificial intelligence, quantum computing and aerospace.
“Obviously, export control actions would have a significant additional impact on the economy there,” Jen Psaki, the White House press secretary, said on Tuesday.