Chip sanctions target Russia’s military and the hopes of its tech industry

The United States has for years used the power of the dollar to cut off adversaries from global finance. Now it is using the prevalence of American technology to cut off Russia from global chip supplies.

The far-reaching export controls announced by Washington are aimed at isolating Russia from the global tech economy and hampering its military capabilities, while allowing the country’s ordinary citizens to continue buying cellphones, dishwashers and laptops.

The move is part of a wave of U.S. and Western sanctions in retaliation for Russia’s invasion of Ukraine, which have also targeted financial institutions, high-profile corporations and the wealthy oligarchs who surround the administration. President Vladimir Putin.

Technology-related export controls are “new and complex” in structure, said Kevin Wolf, a former senior Commerce Department official, designed to impact government and industry groups rather than businesses. ordinary consumers.

“What the administration has done here is set up a structure to cut Russia off the chips and said it’s a policy and a mission,” Wolf said. “And it’s not going away. There is massive allied cooperation on this.

This decision cuts the supply of the main American groups such as Intel and Nvidia.

Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker, which controls more than half of the global market for built-to-order chips, has also pledged to fully comply with new export controls.

The United States has honed its ability to cut companies from semiconductors by using its export control powers over Chinese telecommunications company Huawei under the Trump administration.

After initially restricting the sale of US technology to Huawei by putting it on its trade blacklist, Washington has ratcheted up the pressure by enforcing the so-called foreign direct product rule. This has allowed the United States to go beyond borders and control products made outside the country if they are designed or manufactured using American technology.

“Huawei was a trial,” said Christopher Timura, business attorney at Gibson Dunn in Washington. “The United States did not see a dramatic impact on Huawei until it crafted the Entity List Rule on Foreign Direct Products.”

Using that same power against Russia generally for certain items, and more strictly against a specific list of 49 military entities, means the country is now being denied access to high-end semiconductors and other imports. of technologies essential to its military advancement.

“Russia is very well prepared, but over time this will seriously degrade its military capabilities,” said Julia Friedlander, a former US Treasury official.

The blockade will also affect Russian technology more broadly, said Jim Lewis of the Center for Strategic and International Studies. “This puts an end to Russia’s technological ambitions. Russia was already falling behind in emerging technologies, and that only pushes them further back.

Putin tried to wean Russia off its dependence on foreign technology after Western governments imposed sanctions on the country following its 2014 invasion of Crimea, but the measures only had little success.

Yandex, Russia’s leading US-listed tech giant, has one of the world’s leading supercomputers that powers its automated online translation services and relies on hardware made by US-based Advanced Micro Devices and Nvidia. United.

Dmitry Peskov, Putin’s spokesman, said in January that “dishwashers and other household items are not the most sacred things in our society, however important they are for home comforts.”

Russia pledged to respond to sanctions “based on its own interests” and warned that its countermeasures could be “asymmetrical”.

Despite these far-reaching US restrictions, analysts have predicted that some Chinese companies, especially those that have themselves been targets of US sanctions, could help Russia circumvent export controls.

“Now that it is almost certain that Huawei’s competitors like Ericsson will withdraw from Russia and cooperation in the manufacture of 5G equipment, this will create space for Huawei,” said Artyom Lukin, associate professor at the Federal University of the Far East in Vladivostok.

“Huawei could monopolize the Russian telecommunications equipment market: following Western sanctions, China could take 100% control of our country’s technological supplies,” Lukin added.

U.S. restrictions on tech exports to Russia could also prompt Chinese semiconductor companies to jump the gap. SMIC, China’s largest chipmaker, is itself under US sanctions. The company was placed on the Entity List after the US government determined that some of the chips it manufactured ended up with users defined as military-related.

SMIC has since lost access to the equipment it needs to build production lines at the most advanced level of process technology. He was, however, able to continue to buy machinery to increase his capacity using slightly older technology.

A senior Biden administration official has dismissed the idea that China would help Russia circumvent US sanctions.

“China alone cannot meet all of Russia’s critical military needs,” the official said. “And that certainly can’t compensate Russia for anything that we’re essentially restricting through these rules, especially when it comes to semiconductor production. China accounts for only 16% of global capacity.

Martin Chorzempa of the Washington-based Peterson Institute think tank said: “Even China, with its thriving tech ecosystem and huge government subsidies, has failed to produce advanced chips. It is unimaginable that Russia would be able to do this.

Additional reporting by Max Seddon in Moscow