US, CHINA MEET ON UKRAINE TODAY: With Russia's invasion of Ukraine nearing its third week, the Biden administration today takes aim at one of Moscow's last economic lifelines: China. National Security Adviser Jake Sullivan is in Rome today for meetings with senior Chinese diplomat Yang Jiechi and the new land war in Europe will be top of the agenda. The talks will include "ongoing efforts to manage the competition between our two countries and … the impact of Russia's war against Ukraine on regional and global security," said National Security Council spokesperson Emily Horne in a written statement. With or against us: Beijing has insisted it is staying neutral in the face of Russia's attack, but Washington will make clear that they see no middle ground on the issue. The meeting will come as China "has aligned itself with Russia to advance their own vision of the world order," a source familiar with the meeting told reporters on Sunday. Though U.S. officials aren't aiming for any "specific outcomes," as the source put it, Russia's invasion raises a number of trade and economic issues between the world's two largest economies. The U.S. will want Beijing to cooperate with Western efforts to hobble Russia's economy with financial and energy sanctions — or at least not actively help Moscow avoid them. Rhetoric vs reality: Already, there are some indications that Chinese banks are pulling back on Russian oil and gas purchases and otherwise limiting their exposure to the economy, and Beijing's state-backed infrastructure bank has said it would pause work with Russia and Belarus. But that's been balanced by rhetoric from Chinese officials decrying U.S. sanctions and insisting the nations will continue to trade as normal. Decision points: In the coming weeks, Beijing will need to decide how far it will go to assist Russia and its ruling class. It could help Moscow by freeing hundreds of billions of dollars worth of Chinese bonds Russia owns, by making short term loans, or by answering Russian pleas for military aid and support. The U.S., meanwhile, must decide how much to pull China into its Russia tech and trade sanctions. Last month, the administration said it would ban all global trade of certain American technology components to Russian firms using the Foreign Direct Product Rule, the same one used to hobble Huawei. If enforced strictly, that would mean applying sanctions to any Chinese companies that try to sell AI, surveillance and military technologies to Moscow. "We're reaching out across the globe and saying that we control a certain element of this product, and if you sell it to the Russians, we're going to punish you," said Derek Scissors, a fellow at AEI and member of the U.S.-China Economic and Security Review Commission. "If it's going to be meaningful, it has to apply to the Chinese, who could be major suppliers to the Russians, or indirect suppliers to the Russians … So we may be hitting or threatening the Chinese with serious sanctions." Sullivan previewed that aspect of the talks on Sunday, saying his team is "communicating directly, privately to Beijing, that there will absolutely be consequences" for any efforts to help Russia evade sanctions or provide military support. The Ukraine crisis has already paused other China policies at the White House, like a plan to limit American banks from investing in Chinese tech firms and startups. Such a move has been discussed since at least last summer, but a source with knowledge of the administration talks said last week that they'd been put on hold as Sullivan and other officials focused on Russia. Back to the '90s: Already, there are signs that the West's sanctions are having serious consequences in Russia, bringing its economy back to "1990 or 1991," prominent Russian economist Sergey Guriev said in an interview with the Brussels-based think tank Bruegel last Thursday. "[The] Russian economy is really going back in time: foreign companies exit en masse," Guriev said. "This is something that the Russian government probably didn't appreciate, and as we speak, the main action today in Russian policymaking is how to take over assets of foreign investors." THE FRACTURING OF THE WTO COULD BREED NEW OPPORTUNITIES: Russia's invasion of Ukraine threatens to further fracture the World Trade Organization and could persuade the United States and its allies to forge a new institution aimed at promoting free market democracies, a pair of former senior trade officials say in an op-ed in The National Interest. "Over the longer term, we now have a powerful incentive for the United States and other democracies to overcome their long-standing disagreements, as occurred recently in the U.S.-EU aircraft dispute, and put collective pressure on economies like China to play ball," former WTO Deputy Director Rufus Yerxa and former acting deputy USTR Wendy Cutler write. "Indeed, the current crisis may lead the United States and like-minded members to chart a new trade future outside of the WTO framework," they write, "not necessarily abandoning the WTO entirely, but creating a new multilateral structure with deeper commitments among countries dedicated to free-market democracy. This may be the only leverage available to change the status quo." In a separate interview, Yerxa acknowledged their suggestion sounds similar to the big mega-regional trade deals pursued by the Obama administration – the Transatlantic Trade and Investment Partnership with the EU and the Trans-Pacific Partnership agreement with 11 countries in the Asia-Pacific region. The first one failed and the second went into force without the United States, after former President Donald Trump withdrew. A NATO for trade?: The Biden administration has plans to negotiate an Indo-Pacific Economic Framework, but has made clear it won't be as comprehensive as the TPP. Still, the current situation could prompt new thinking in Washington and other capitals, particularly if China — a gigantic beneficiary of the current WTO system – is the main enabler of Russian aggression against another WTO member, Yerxa said. "Just because there's a UN Security Council, and UN peacekeeping forces and all the rest, that doesn't prevent organizations like NATO, which in many ways are more impactful than the UN in a lot of these issues of global peace and security," Yerxa said. "If you think about that as an analogy, there may be much more serious discussions now about an architecture among the democratic states that enables them to work together [on trade]. And how much like the WTO that new institution could be is an open question." PANIC BUYING IS BACK: But this time it's not people, it's countries. And they aren't hoarding toilet paper. They are holding back food exports out of fear that Russia's invasion of Ukraine will cut off their own imports, reports the Agriculture team's Meredith Lee. Some countries have scrambled to find new sources of commodities like grain, which are normally imported from Ukraine. But the countries that could provide new supply are holding back fearing that they will be hit with food insecurity. From the G7 ag ministers: After the wheat market reached an all-time high earlier this week, U.S. Agriculture Secretary Tom Vilsack and agricultural ministers from six other major economies warned on Friday that countries refusing to export food products would only drive further price spikes, saying it "could threaten food security and nutrition at a global scale, especially among the most vulnerable." Read more on the issue in today's Weekly Agriculture.
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