HOW CHINA COULD HELP RUSSIA CIRCUMVENT NEW SANCTIONS: No one yet knows how far Beijing is prepared to go in support of its burgeoning allies in Moscow. But industry experts say there's a real risk Russia could replace some of the advanced technologies the Biden administration promises to choke off through new high-tech export controls imposed against the country on Thursday. — Commerce talks tough on advanced chips: A senior official at the Commerce Department who briefed reporters Thursday on the condition of anonymity said China "can't compensate Russia for everything that we're restricting … especially as it relates to production of semiconductors." The official noted China produces very few high-end microchips — particularly when compared with U.S. allies like Taiwan, South Korea and Japan — and is itself reliant on advanced chips produced or designed elsewhere. — But China has more to offer: Paul Triolo, the technology policy lead at consulting firm Albright Stonebridge Group, agreed that China can't backfill most of Russia's advanced chip needs. But, he said, Chinese firms are well-positioned to provide cloud services and enterprise software to replace the U.S. or Europe-based options now in use. Triolo said Chinese companies could still provide less-advanced chips to Russia, along with "finished items" — think personal computers or smartphones — that will also be cut off by U.S. sanctions. He said approving those transactions would be a "tough decision" for Chinese officials, since they would likely draw sanctions from Washington. "If Chinese companies start to just ignore the provisions [and] keep shipping, then they are likely candidates for additional sanctions," said Kevin Wolf, a former export control official at Commerce who's now a partner at law firm Akin Gump. — Nightmare scenario: The U.S. tech industry is highly dependent on global supply chains that flow through China. Two separate chip executives told MT over the past week that they are concerned the high-tech sanctions targeting Russia could eventually be applied to the Chinese companies with which they do business, upending those connections and causing chaos across the global tech industry. (The executives spoke anonymously to discuss sanctions that had not yet been enacted.) "We are in unprecedented territory here," said Triolo, adding that it's not clear "how the overall system of integrated global supply chains will react to all of these new pressures." — Warning to China? The Commerce official said Thursday that the U.S. would "impose controls on any countries that facilitate Russia's aggression." A CLOSER LOOK AT NEW TECH SANCTIONS TARGETING RUSSIA: The technology sanctions announced by the Biden administration in response to Russia's invasion of Ukraine are a massive expansion of the U.S. government's powers to control high-tech exports, including those coming from other countries. Here's a few key points: — A supercharged Foreign Direct Product Rule: As expected , the Commerce Department reacted to the invasion by issuing controls Thursday on a limited set of high-tech exports to all of Russia. It's a major expansion of the FDPR, which has never been applied to an entire country before. The rule — which allows Washington to impose export controls on products made outside of the U.S., so long as they contain some U.S.-based components or technologies or were created in part through the use of U.S. software or other tools — had previously been deployed most aggressively against Chinese telecom firm Huawei. — Tightening the screws on Putin's military: A separate, much tougher application of the FDPR zeroes in on "military end users" residing in Russia. The measure will restrict a bevy of high-tech components — ranging from chips to telecommunications equipment to sensors — produced in the U.S. or abroad from flowing to entities tied to the Russian armed forces. The Commerce official told reporters Thursday that over the coming months, the new technology sanctions mean Russia's military "will be significantly degraded in its ability to continue to operate." — Putting on a brave face: Several people representing the chip industry, who requested anonymity in order to discuss export controls that had not yet been enacted, told MT in the past week they worry applying the FDPR to entire countries will wreak havoc on the high-tech supply chain. But on Thursday, some industry lobbyists publicly suggested the sanctions won't be so bad. "The U.S. semiconductor industry is fully committed to complying with the new export control rules," John Neuffer, the CEO of the Semiconductor Industry Association, said in a statement. Neuffer added that Russia accounts for less than a tenth of a percent of global chip purchases, and that its high-tech market only totalled around $25 billion in 2019.
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