U.S. THREATENS USE OF NOVEL EXPORT CONTROL ON RUSSIA
Strategic industries would be targeted if it invades Ukraine
The Biden administration is threatening to use a novel export control to damage strategic Russian industries, from artificial intelligence and quantum computing to civilian aerospace, if Moscow invades Ukraine, administration officials say.
The administration may also decide to apply the control more broadly in a way that would potentially deprive Russian citizens of some smartphones, tablets and video game consoles, said the officials.
Such moves would expand the reach of U.S. sanctions beyond financial targets to the deployment of a weapon used only once before — to nearly cripple the Chinese tech giant Huawei.
The weapon, known as the foreign direct product rule, contributed to Huawei suffering its first-ever annual revenue drop, a collapse of nearly 30 percent last year.
The attraction of using the foreign direct product rule derives from the fact that virtually anything electronic these days includes semiconductors, the tiny components on which all modern technology depends, from smartphones to jets to quantum computers — and that there is hardly a semiconductor on the planet that is not made with U.S. tools or designed with U.S. software. And the administration could try to force companies in other countries to stop exporting these types of goods to Russia through this rule.
“This is a slow strangulation by the U.S. government,” Dan Wang, a Shanghai-based technology analyst with research firm Gavekal Dragonomics, said of Huawei. The rule cut the firm’s supply of needed microchips, which were made outside the United States but with U.S.
software or tools.
Now officials in Washington say they are working with European and Asian allies to craft a version of the rule that would aim to stop flows of crucial components to industries for which Russian President Vladimir Putin has high ambitions, such as civil aviation, maritime and high technology.
“The power of these export controls is we can degrade and atrophy the capacity of these sectors to become a key source of growth for the Russian economy,” said a senior Biden administration official, who, like others in this report, spoke on the condition of anonymity to discuss internal deliberations.
The effort could face head winds from American and European business interests that fear using export controls could lead to Russian retaliation in other spheres — and cause foreign companies to seek to design U.S. technology out of their products. That’s because the extension of the rule beyond a single company like Huawei to an entire country or entire sectors of a country is unprecedented.
“It’s like a magic power —
you can only use it so many times before it starts to degrade,” said Robert Atkinson, president of the Information Technology and Innovation Foundation. “Other countries will say, ‘Oh, man, the U.S. has total control over us. We’d better find alternatives.’ ”
Russia is vulnerable because it doesn’t produce consumer electronics or chips in large quantities, analysts say. In particular, it doesn’t make the highestend semiconductors needed for advanced computing, an area dominated by Taiwan, South Korea, the United States, Europe and Japan.
Cutting off the country’s chip imports “would invariably hit the Russian leadership’s high-tech ambitions, whether in artificial intelligence or quantum computing,” said Will Hunt, an analyst with Georgetown University’s Center for Security and Emerging Technology.
The administration has not yet decided whether to restrict the export control to strategic sectors or extend it to everyday devices, officials said. Either way, said Paul Triolo, chief of technology policy at the Eurasia Group, “this would be weaponizing
the U.S. semiconductor supply chain against an entire country.”
The pairing of financial sanctions with export controls would inflict pain immediately and over time. The impact of financial sanctions, which could apply to Russia’s largest banks as well as to civilian aerospace, maritime or emerging tech firms, would probably be felt first, experts say. Banking sanctions probably would drive up Russian inflation and trigger a devaluation of the ruble, they say. Export controls, on the other hand, build over time as the cumulative effect of companies shutting off sales to Russia begins to hurt industrial production.
“If the objective is to impose severe and overwhelming costs on Russia’s economy, the combination of sanctions on major Russian banks and the export control would go a long way towards that, absolutely,” said Kevin Wolf, a former senior Commerce Department official who once headed the agency that implements export controls.