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    The Russia-Ukraine War Changed This Finland Company Forever

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    Even with sheets of rain falling, the sprawling construction site was buzzing. Yellow and orange excavators slowly danced around a maze of muddy pits, swinging giant fistfuls of dirt as a chorus line of trucks traipsed across the landscape.This 50-acre plot in Oradea, Romania, close to the border with Hungary, beat out scores of other sites in Europe to become the home of Nokian Tyres’ new 650 million-euro, or $706 million, factory. Like an industrial-minded Goldilocks, the Finnish tire company had searched for the just-right combination of real estate, transport links, labor supply and pro-business environment.Yet the make-or-break feature that every host country had to have would not have even appeared on the radar a few years ago: membership in both the European Union and the North Atlantic Treaty Organization.Geopolitical risk “was the starting point,” said Jukka Moisio, the chief executive and president of Nokian. That was not the case before Russia invaded Ukraine on Feb. 24, 2022.Nokian Tyres’ altered business strategy highlights the transformed global economic playing field that governments and companies are confronting. As the war in Ukraine drags on and tensions rise between the United States and China, critical decisions about offices, supply chains, investments and sales are no longer primarily ruled by concerns about costs.As the world re-globalizes, assessments of political threats loom much larger than before.Oradea, Romania, became Nokian Tyres’ top choice for a new factory.Andreea Campeanu for The New York TimesThe new factory is going on a 50-acre site.Andreea Campeanu for The New York Times“This is a world that has fundamentally changed,” said Henry Farrell, a political scientist at Johns Hopkins. “We cannot just think in terms of innovation and efficiency. We have to think about security, too.”For Nokian Tyres, which first sold shares on the Helsinki stock exchange in 1995, the new reality struck like a hammer blow. Roughly 80 percent of Nokian’s passenger car tires were manufactured in Russia. And the country accounted for 20 percent of its sales.The perils of over-concentration hit home, Mr. Moisio said, “when your company loses billions.”Within six weeks of the war’s start, it became clear that the company had no choice but to exit Russia and ramp up production elsewhere. Rubber had been added to the European Union’s rapidly expanding package of sanctions. Public sentiment in Finland soured. The share price plunged. In January 2022, the share price was over €34; today it’s €8.25.“We were very exposed,” Mr. Moisio said, sipping coffee in a sunny conference room at the company’s low-key Helsinki office. The Russian operation had high returns, but it also had high risks, a fact that, over time, had faded from view.Diversifying may not be as efficient or cheap, he said, but “it’s far more secure.”With roughly 80 percent of its production located in Russia, “we were very exposed” when Russia attacked Ukraine, said Jukka Moisio, Nokian’s chief executive.Juho Kuva for The New York TimesC-suite executives are relearning that the market often fails to accurately measure risk. A January survey of 1,200 global chief executives by the consulting firm EY found that 97 percent had altered their strategic investment plans because of new geopolitical tensions. More than a third said they were relocating operations.China, which has become an increasingly fraught home for foreign businesses and investment, is among the places that firms are leaving. Roughly one in four companies planned to move operations out of the country, a survey conducted last year by the European Union Chamber of Commerce in China found.Businesses are suddenly finding themselves “stranded in the no-man’s land of warring empires,” Mr. Farrell and his co-author, Abraham Newman, argue in a new book.Mr. Moisio’s tenure at Nokian has coincided with the triple crown of crises. He started in May 2020, a few months after the Covid-19 pandemic essentially shut down global commerce. Like other companies, Nokian hunkered down, cutting production and capital spending. Its lack of outstanding debt helped it ride out the storm.And when the economy bounced back, Nokian scrambled to restart production and restock raw materials amid a huge breakdown of the supply chain and transportation. The war posed an existential threat to Nokian’s operations.Adding production lines to existing facilities is often the fastest and cheapest way to increase output. Still, Nokian decided not to expand its operation in Russia.Production there was already concentrated, Mr. Moisio said, but more important, the persistent supply chain bottlenecks underscored the added risks and costs of transporting materials over long distances.The Nokian Tyres main office in Nokia, Finland.Juho Kuva for The New York TimesNewly completed tires on the production line. Nokian is moving manufacturing closer to specific markets.Juho Kuva for The New York TimesGoing forward, instead of locating 80 percent of production in one spot, often far from the market, 80 percent of production would be local or regional.“It turned upside down,” Mr. Moisio said.Tires for the Nordic market would be produced in Finland. Tires for American customers would be manufactured in the United States. And in the future, Europe would be serviced by a European factory.Diversification had, to some extent, already been incorporated into the company’s strategic plan. It opened a plant in Dayton, Tenn., in 2019, in addition to the original factory that operated in Nokia, the Finnish town that gave the tire maker its name.At the end of 2021, the company opened new production lines at both of those plants.When it came time to build the next factory, executives figured it would be in Eastern Europe, close to its largest European markets in Germany, Austria, Switzerland and France, as well as Poland and the Czech Republic.That moment came much sooner than anyone expected.In June 2022, less than four months after the invasion of Ukraine, Nokian executives asked the board to approve an exit from Russia and the construction of a new plant.Negotiations to leave Russia commenced, as did a high-speed search for a new location. Aided by the consulting firm Deloitte, the site assessment process, which included dozens of candidates across Europe, was completed in four months, said Adrian Kaczmarczyk, senior vice president of supply operations. By comparison, in 2015 Deloitte took nine months to recommend a site in a single country, the United States.Nokian expedited its search for a site, selecting Oradea in just four months, said Adrian Kaczmarczyk, senior vice president of supply operations.Andreea Campeanu for The New York TimesMr. Kaczmarczyk and engineers examining designs for the project.Andreea Campeanu for The New York TimesThe aim was to start commercial production by early 2025.Serbia had a flourishing automotive sector, but was eliminated from the get-go because it was in neither the European Union nor NATO. Turkey was a member of NATO but not the European Union. And Hungary was labeled high risk because of its illiberal prime minister, Viktor Orban, and close relationship with Russia.At each successive round, a long list of other considerations kicked in. Where were the closest highway, harbor and rail lines? Was there a sufficient pool of qualified employees? Was land available? Could permitting and construction time be fast-tracked? How pro-business were the authorities?Nokian would have looked to reduce a new factory’s carbon footprint in any event, Mr. Moisio, the chief executive, said. But the decision to commit to a 100 percent emissions-free plant probably would not have happened in the absence of war. After all, cheap gas from Russia was what helped lure Nokian there in the first place. Now, the disappearance of that supply accelerated the company’s thinking about ending dependence on fossil fuels.“Disruption allowed us to think differently,” Mr. Moisio said.As the winnowing progressed, a complex matrix of small and large considerations came into play. Was there good health care and an international school where foreign managers could send their children? What was the likelihood of natural disasters?Countries and cities fell out for various reasons. Slovenia and the Czech Republic were considered low-to-medium-risk countries, but Mr. Kaczmarczyk said they couldn’t find appropriate plots of land.A machine operator monitoring equipment on the production line inside the factory in Nokia.Juho Kuva for The New York TimesTires being made on the production line.Juho Kuva for The New York TimesSlovakia fell into the same bucket and already had a large automotive industry. Bratislava, though, made clear it had no interest in attracting more heavy industry, only information technology, Mr. Kaczmarczyk said.At the end, six candidates made Deloitte’s final cut: two sites in Romania, two in Poland, and one each in Portugal and Spain.The messy mix of new and old considerations that businesses have to contemplate were evident in the list of finalists. Geopolitics, as the Nokian Tyres chief executive said, had been a starting point, but it was not necessarily the end point.Spain has virtually no geopolitical risk. And the site in El Rebollar had a large talent pool, but Deloitte ruled it out because of high wage costs and heavy labor regulations. Portugal, another country with no security risk, was rejected because of worries about the power supply and the speed of the permitting process.Poland, along with Hungary and Serbia, had been labeled high risk despite its staunch anti-Russia stance. It has an antidemocratic government and has repeatedly clashed with the European Commission over the primacy of European legislation and the independence of Poland’s courts.Yet low labor costs, the presence of other multinational employers and a quick permitting process outweighed the worries enough to elevate the sites in Gorzow and Konin to second and third place.Oradea, the top recommendation, ultimately offered a better balance among the company’s competing priorities. The cost of labor in Romania, like Poland, was among the lowest in Europe. And its risk rating, though labeled relatively high, was lower than Poland’s.The factory in Nokia. The low cost of labor in Romania attracted the company.Juho Kuva for The New York TimesStretching the lining for tires. The main raw materials for tires are natural rubber, synthetic rubber, soot and oil.Juho Kuva for The New York TimesThere were other pluses as well in Oradea. Construction could start immediately; utilities were already in place; a new solar power plant was in the works. The amount of development grants from the European Union for companies investing in Romania was larger than in Poland. And local officials were enthusiastic.Mihai Jurca, Oradea’s city manager, detailed the area’s appeal during a tour of the turreted confection of Art Nouveau buildings in the renovated city center.“It was a flourishing cultural and commercial city, a junction point between East and West,” in the early 20th century, under the Austro-Hungarian Empire, Mr. Jurca said.Today the city, an affluent economic hub of 220,000 with a university, has solicited businesses and European Union funds, while constructing industrial parks that house domestic and international companies like Plexus, a British electronics manufacturer, and Eberspaecher, a German automotive supplier.Nokian is not looking to replicate the kind of megafactory in Romania that it ran in Russia — or anywhere else, for that matter. The idea of concentrating production is “old-fashioned,” Mr. Moisio said.For him, the company emerged from crisis mode on March 16, the day $258 million from sale of its Russian operation landed in Nokian’s bank account. Although only a fraction of the total value, the amount helped finance the construction and closed out the company’s involvement with Russia.Now uncertainty is the norm, Mr. Moisio said, and business leaders need to constantly be asking: “What can we do? What’s our Plan B?”Oradea “was a flourishing cultural and commercial city, a junction point between East and West,” in the early 20th century, said Mihai Jurca, the city manager.Andreea Campeanu for The New York TimesOradea is an affluent hub of 220,000 people with a university, and has solicited businesses and European Union funds.Andreea Campeanu for The New York Times More

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    Yellen’s China Visit Aims to Ease Tensions Amid Deep Divisions

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    Mutual skepticism between the United States and China over a wide range of economic and security issues has festered in recent years.The last time a U.S. Treasury secretary visited China, Washington and Beijing were locked in a trade war, the Trump administration was preparing to label China a currency manipulator, and fraying relations between the two countries were roiling global markets.Four years later, as Treasury Secretary Janet L. Yellen prepares to arrive in Beijing, many of the economic policy concerns that have been festering between the United States and China remain — or have even intensified — despite the Biden administration’s less antagonistic tone.The tariffs that President Donald J. Trump imposed on Chinese goods are still in effect. President Biden has been working to restrict China’s access to critical technology such as semiconductors. And new restrictions curbing American investment in China are looming.Treasury Department officials have downplayed expectations for major breakthroughs on Ms. Yellen’s four-day trip, which begins when she arrives in Beijing on Thursday. They suggest instead that her meetings with senior Chinese officials are intended to improve communication between the world’s two largest economies. But tensions between United States and China remain high, and conversations between Ms. Yellen and her counterparts are likely to be difficult. She met in Washington with Xie Feng, China’s ambassador, on Monday, and the two officials had a “frank and productive discussion,” according to the Treasury.Here are some of the most contentious issues that have sown divisions between the United States and China.Technology and trade controlsChinese officials are still smarting at the Biden administration’s 2022 decision to place significant limitations on the kinds of advanced semiconductors and chip-making machinery that can be sent to China. Those limits have hampered China’s efforts to develop artificial intelligence and other kinds of advanced computing that are expected to help power each country’s economy and military going forward.The government of the Netherlands, which is home to semiconductor machinery maker ASML, on Friday announced new restrictions on machinery exports to China. On Monday, China placed restrictions on exports of germanium and gallium, two metals used to make chips.The Biden administration is mulling further controls on advanced chips and on American investment into cutting-edge Chinese technology.Semiconductors have always been one of the biggest and most valuable categories of U.S. exports to China, and while the Chinese government is investing heavily in its domestic capacity, it remains many years behind the United States.The Biden administration’s subsidy program to strengthen the U.S. semiconductor industry has also rankled Chinese officials, especially since it includes restrictions on investing in China. Companies that accept U.S. government money to build new chip facilities in the United States are forbidden to make new, high-tech investments in China. And while Chinese officials — and some American manufacturers — were hopeful that the Biden administration would lift tariffs on hundreds of billions of dollars of Chinese imports, that does not seem to be in the offing. While Ms. Yellen has questioned the efficacy of tariffs, other top officials within the administration see the levies as helpful for encouraging supply chains to move out of China.The administration is employing both carrots and sticks to carry out a policy of “de-risking” or “friend-shoring” — that is, enticing supply chains for crucial products like electric vehicle batteries, semiconductors and solar panels out of China.President Biden during a visit to a Taiwan Semiconductor Manufacturing Company plant under construction in Phoenix. The Biden administration’s efforts to assist the U.S. semiconductor industry has rankled Chinese officials.T.J. Kirkpatrick for The New York TimesDeteriorating business environmentsCompanies doing business in China are increasingly worried about attracting negative attention from the government. The most recent target was Micron Technology, a U.S. memory chip maker that failed a Chinese security review in May. The move could cut Micron off from selling to Chinese companies that operate key infrastructure, putting roughly an eighth of the company’s global revenue at risk. In recent months, consulting and advisory firms in China with foreign ties have faced a crackdown.American officials are growing more concerned with the Chinese government’s use of economic coercion against countries like Lithuania and Australia, and they are working with European officials and other governments to coordinate their responses.Businesses are also alarmed by China’s ever-tightening national security laws, which include a stringent counterespionage law that took effect on Saturday. Foreign businesses in China are reassessing their activities and the market information they gather because the law is vague about what is prohibited. “We think this is very ill advised, and we’ve made that point to several members of the government here,” said R. Nicholas Burns, the U.S. ambassador to China, in an interview in Beijing.In the United States, companies with ties to China, like the social media app TikTok, the shopping app Temu and the clothing retailer Shein, are facing increasing scrutiny over their labor practices, their use of American customer data and the ways they import products into the United States.CurrencyChina’s currency, the renminbi, has often been a source of concern for American officials, who have at times accused Beijing of artificially weakening its currency to make its products cheaper to sell abroad.The renminbi’s recent weakness may pose the most difficult issue for Ms. Yellen. The currency is down more than 7 percent against the dollar in the past 12 months and down nearly 13 percent against the euro. That decline makes China’s exports more competitive in the United States. China’s trade surplus in manufactured goods already represents a tenth of the entire economy’s output.The renminbi is not alone in falling against the dollar lately — the Japanese yen has tumbled for various reasons, including rising interest rates in the United States as the Federal Reserve tries to tamp down inflation.Chinese economists have blamed that factor for the renminbi’s weakness as well. Zhan Yubo, a senior economist at the Shanghai Academy of Social Sciences, said the decline in the renminbi was the direct result of the Fed’s recent increases in interest rates.At the same time, China has been cutting interest rates to help its flagging economy. The interest rate that banks charge one another for overnight loans — a benchmark that tends to influence all other interest rates — is now a little over 5 percent in New York and barely 1 percent in Shanghai. That reverses a longstanding pattern in which interest rates were usually higher in China.The Fed’s rate increases have made it more attractive for companies and households to send money out of China and invest it in the United States, in defiance of Beijing’s stringent limits on overseas money movements.China pledged as part of the Phase 1 trade agreement with the United States three years ago not to seek an advantage in trade by pushing down the value of its currency. But the Biden administration’s options may be limited if China lets its currency weaken anyway.Global debtChina has provided more than $500 billion to developing countries through its lending program, making it one of the world’s largest creditors. Many of those borrowers, including several African nations, have struggled economically since the pandemic and face the possibility of defaulting on their debt payments.The United States, along with other Western nations, has been pressing China to allow some of those countries to restructure their debt and reduce the amount that they owe. But for more than two years, China has insisted that other creditors and multilateral lenders absorb financial losses as part of any restructuring, bogging down the loan relief process and threatening to push millions of people in developing countries deeper into poverty.In June, international creditors including China agreed to a debt relief plan with Zambia that would provide a grace period on its interest payments and extend the dates when its loans are due. The arrangement did not require that the World Bank or International Monetary Fund write off any debts, offering global policymakers like Ms. Yellen hope for similar debt restructuring in poorer countries.Human rights and national security issuesTensions over national security and human rights have created an atmosphere of mutual distrust and spilled over into economic relations. The flight of a Chinese surveillance balloon across the United States this year deeply unsettled the American public, and members of Congress have been pressing the administration to reveal more of what it knows about the balloon. Mr. Biden’s recent labeling of China’s leader, Xi Jinping, as a “dictator” also rankled Chinese officials and state-run media.American officials continue to be concerned about China’s human rights violations, including the suppression of the democracy movement in Hong Kong and the detention of mainly Muslim ethnic minorities in the Xinjiang region of northwestern China. A senior Treasury Department official, speaking on the condition of anonymity before Ms. Yellen’s trip, said the United States had no intention of shying away from its views on human rights during the meetings in China.Chinese officials continue to protest the various sanctions that the United States has issued against Chinese companies, organizations and individuals for national security threats and human rights violations — including sanctions against Li Shangfu, China’s defense minister. The Chinese government has cited those sanctions as a reason for its rejection of high-level military dialogues. More

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    How the G7 Oil Price Cap Has Helped Choke Revenue to Russia

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    Group of 7 leaders are prepared to celebrate the results of a novel effort to stabilize global oil markets and punish Moscow.In early June, at the behest of the Biden administration, German leaders assembled top economic officials from the Group of 7 nations for a video conference with the goal of striking a major financial blow to Russia.The Americans had been trying, in a series of one-off conversations last year, to sound out their counterparts in Europe, Canada and Japan on an unusual and untested idea. Administration officials wanted to try to cap the price that Moscow could command for every barrel of oil it sold on the world market. Treasury Secretary Janet L. Yellen had floated the plan a few weeks earlier at a meeting of finance ministers in Bonn, Germany.The reception had been mixed, in part because other countries were not sure how serious the administration was about proceeding. But the call in early June left no doubt: American officials said they were committed to the oil price cap idea and urged everyone else to get on board. At the end of the month, the Group of 7 leaders signed on to the concept.As the Group of 7 prepares to meet again in this week in Hiroshima, Japan, official and market data suggest the untried idea has helped achieve its twin initial goals since the price cap took effect in December. The cap appears to be forcing Russia to sell its oil for less than other major producers, when crude prices are down significantly from their levels immediately after Russia’s invasion of Ukraine.Data from Russia and international agencies suggest Moscow’s revenues have dropped, forcing budget choices that administration officials say could be starting to hamper its war effort. Drivers in America and elsewhere are paying far less at the gasoline pump than some analysts feared.Russia’s oil revenues in March were down 43 percent from a year earlier, the International Energy Agency reported last month, even though its total export sales volume had grown. This week, the agency reported that Russian revenues had rebounded slightly but were still down 27 percent from a year ago. The government’s tax receipts from the oil and gas sectors were down by nearly two-thirds from a year ago.Russian officials have been forced to change how they tax oil production in an apparent bid to make up for some of the lost revenues. They also appear to be spending government money to try to start building their own network of ships, insurance companies and other essentials of the oil trade, an effort that European and American officials say is a clear sign of success.“The Russian price cap is working, and working extremely well,” Wally Adeyemo, the deputy Treasury secretary, said in an interview. “The money that they’re spending on building up this ecosystem to support their energy trade is money they can’t spend on building missiles or buying tanks. And what we’re going to continue to do is force Russia to have these types of hard choices.”Some analysts doubt the plan is working nearly as well as administration officials claim, at least when it comes to revenues. They say the most frequently cited data on the prices that Russia receives for its exported oil is unreliable. And they say other data, like customs reports from India, suggests Russian officials may be employing elaborate deception measures to evade the cap and sell crude at prices well above its limit.“I’m concerned the Biden administration’s desperation to claim victory with the price cap is preventing them from actually acknowledging what isn’t working and taking the steps that might actually help them win,” said Steve Cicala, an energy economist at Tufts University who has written about potential evasion under the cap.The price cap was invented as an escape hatch to the financial penalties that the United States, Europe and others announced on Russian oil exports in the immediate aftermath of the invasion. Those penalties included bans preventing wealthy democracies from buying Russian oil on the world market. But early in the war, they essentially backfired. They drove up the cost of all oil globally, regardless of where it was produced. The higher prices delivered record exports revenues to Moscow, while driving American gasoline prices above $5 a gallon and contributing to President Biden’s sagging approval rating.A new round of European sanctions was set to hit Russian oil hard in December. Economists on Wall Street and in the Biden administration warned those penalties could knock oil off the market, sending prices soaring again. So administration officials decided to try to leverage the West’s dominance of the oil shipping trade — including how it is transported and financed — and force a hard bargain on Russia.Oil tankers near the port city of Nakhodka, Russia. Many analysts were concerned that a price cap might prompt Russia to restrict how much oil it pumped and sold. But the country has mostly kept producing at about the same levels it did when the war began.Tatiana Meel/ReutersUnder the plan, Russia could keep selling oil, but if it wanted access to the West’s shipping infrastructure, it had to sell at a sharp discount. In December, European leaders agreed to set the cap at $60 a barrel. They followed with other caps for different types of petroleum products, like diesel.Many analysts were skeptical it could work. A cap that was too punitive had the potential to encourage Russia to severely restrict how much oil it pumps and sells. Such a move could drive crude prices skyward. Alternatively, a cap that was too permissive might have failed to affect Russian oil sales and revenues at all.Neither scenario has happened. Russia announced a modest production cut this spring but has mostly kept producing at about the same levels it did when the war began.Fatih Birol, the executive director of the International Energy Agency, has called the price cap an important “safety valve” and a crucial policy that has forced Russia to sell oil for far less than international benchmark prices. Russian oil now trades for $25 to $35 a barrel less than other oil on the global market, Treasury Department officials estimate.“Russia played the energy card, and it didn’t win,” Mr. Birol wrote in a February report. “Given that energy is the backbone of Russia’s economy, it’s not surprising that its difficulties in this area are leading to wider problems. Its budget deficit is skyrocketing as military spending and subsidies to its population largely exceed its export income.”Biden administration officials say that there is no evidence of widespread evasion by Russia, and that Mr. Cicala’s analysis of Indian customs reports does not account for the rising cost of transporting Russian oil to India, which is embedded in the customs data. A White House official told reporters traveling with Mr. Biden in Hiroshima on Thursday that the Group of 7 leaders would adopt new measures meant to counter price-cap evasion in their meeting this weekend.There is no dispute that the world has avoided what was privately the largest concern for Biden officials last summer: another round of skyrocketing oil prices.American drivers were paying about $3.54 a gallon on average for gasoline on Monday. That was down nearly $1 from a year ago, and it is nowhere near the $7 a gallon some administration officials feared if the cap had failed to prevent a second oil shock from the Russian invasion. Gas prices are a mild source of relief for Mr. Biden as high inflation continues to hamper his approval among voters.After rising sharply in the months surrounding the Russian invasion, global oil prices have fallen back to late-2021 levels. The plunge is partly driven by economic cooling around the world, and it has persisted even as large producers like Saudi Arabia have curtailed production.Falling global prices have contributed to Russia’s falling revenues, but they are not the whole story. Reported sales prices for exported Russian oil, known as Urals, have dropped by twice as much as the global price for Brent crude.The Group of 7 leaders meeting in Japan this week will probably not spend much time on the cap, instead turning to other collective efforts to constrict Russia’s economy and revenues. And the biggest winners from the cap decision will not be at the summit.“The direct beneficiaries are mostly emerging market and lower-income countries that import oil from Russia,” Treasury officials noted in a recent report.The officials were referring to a handful of countries outside the Group of 7 — particularly India and China — that have used the cap as leverage to pay a discount for Russian oil. Neither India nor China joined the formal cap effort, but it is their oil consumers who are seeing the lowest prices from it. More

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    Biden Team to Counter Tech Espionage Unveils Cases Involving China and Russia

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    A new division set up by the government to pursue sanctions evasion and technology espionage announced arrests of individuals with ties to foreign governments.The Biden administration announced arrests and criminal charges on Tuesday in five cases involving sanctions evasion and technology espionage efforts linked to Russia, China and Iran.Two Russian nationals were taken into custody last week under accusations of sending aircraft parts to Russia in violation of sanctions imposed after the invasion of Ukraine. In another case, a former Apple engineer is accused of stealing the company’s autonomous vehicle technology to provide it to a Chinese competitor.The announcements were the work of a recently established “technology strike force,” which aims to protect critical American technology or data from theft by hostile nations. The strike force was set up in February and brings together agents with the Commerce and Justice Departments, as well as the F.B.I. and local attorneys offices.Federal agents are working to trace the global movement of U.S. goods and data, as well as the funds used to pay for them. The effort seeks to crack down on the global networks that are channeling goods and technology through opaque jurisdictions and middlemen to try to circumvent sanctions and technology restrictions imposed by the United States.In another case unveiled Tuesday, a California-based engineer is accused of trying to steal source code for advanced machinery that can be used to make parts for military submarines and aircraft to sell it to several Chinese companies.Two other cases were announced, including charges against China-based agents who were accused of attempting to send materials used in weapons of mass destruction to Iran, according to U.S. officials, and charges involving the alleged provision of advanced technology to Russia that could be repurposed by the Russian military.Matthew G. Olsen, the assistant attorney general of the Justice Department’s national security division, told reporters that the cases showed the U.S. government’s ability “to accelerate investigations and surge our collective resources to defend against these threats.”“Foreign nation states are working hard to acquire our most sensitive technologies,” said Matthew Axelrod, the assistant secretary for export enforcement at the Commerce Department’s Bureau of Industry and Security. “We’re working even harder to stop them.”Oleg Patsulya and Vasilii Besedin, the two Russian nationals who were arrested last week under suspicion of trying to procure millions of dollars of prohibited parts for Russian airlines, were charged with conspiracy to violate the Export Control Reform Act and conspiracy to commit international money laundering. If convicted, they would face up to 20 years in prison for each charge.The Commerce Department issued a temporary denial order Tuesday against the men, which prohibits them from transactions involving any U.S. products for 180 days.The order also applies to a freight forwarder in the Maldives that the men had utilized to route shipments of prohibited products into Russia, as well as a Russian airline, Smartavia, that sought to purchase these products.On Thursday, federal officials seized luxury goods purchased with proceeds of their scheme, a U.S. official said. More

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    U.S.-Made Technology Is Flowing to Sanctioned Russian Airlines

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    Russian customs data shows that millions of dollars of aircraft parts made by Boeing, Airbus and others were sent to Russia last year despite sanctions.Last August, Oleg Patsulya, a Russian citizen living near Miami, emailed a Russian airline that had been cut off from Western technology and materials with a tempting offer.He could help circumvent the global sanctions imposed on Rossiya Airlines after Russia’s invasion of Ukraine by shuffling the aircraft parts and electronics that it so desperately needed through a network of companies based in Florida, Turkey and Russia.“In light of the sanctions imposed against the Russian Federation, we have been successfully solving challenges at hand,” Mr. Patsulya wrote, according to a criminal complaint filed Friday with the U.S. District Court in Arizona.Mr. Patsulya and his business partner were arrested Thursday on charges of violating U.S. export controls and international money laundering in a case that illustrates the global networks that are trying to help Russia bypass the most expansive technological controls in history.Since the Russian invasion of Ukraine, the United States has acted in partnership with nearly 40 other governments to impose sanctions on Russia, including limits on Moscow’s access to weapons, computer chips, aircraft parts and other products needed to fuel its economy and its war. The sanctions also applied to Russian airlines including Aeroflot, its subsidiary Rossiya and others.But despite these far-reaching sanctions, thousands of shipments of aircraft parts were successfully sent into Russia last year, according to a trove of Russian customs data obtained by The New York Times.The data, which was compiled and analyzed by Import Genius, a U.S.-based trade data aggregator, shows that tens of millions of dollars of aircraft parts were sent to Russian airlines explicitly sanctioned by the Biden administration, including to Rossiya Airlines, Aeroflot, Ural Airlines, S7 Airlines, Utair Aviation and Pobeda Airlines.Those shipments were made possible by illicit networks like Mr. Patsulya’s, which have sprung up to try to bypass the restrictions by shuffling goods through a series of straw buyers, often in the Middle East and Asia.For instance, dozens of shipments of copper wires, bolts, graphite and other parts marked as made in the United States by Boeing slipped into the warehouses of Aeroflot last year. They traversed obscure trading companies, free-trade zones and industrial parks in the United Arab Emirates and China, and then traveled into Russia, to help patch up Aeroflot’s dilapidated fleet.The data captures more than 5,000 individual shipments of aircraft parts into Russia over a period of eight months in 2022, from simple screws to a Honeywell-branded aircraft engine starter valued at $290,000.In all, it shows that $14.4 million of U.S.-made aircraft parts were sent into Russia during the eight months, including $8.9 million of parts that are described as being manufactured or trademarked by the U.S. plane maker Boeing and sold into Russia via third parties.Boeing said it had fully complied with U.S. sanctions and had suspended providing parts, maintenance and technical support for customers in Russia in early 2022. Experts in the aviation supply chain said the parts probably came from a variety of sources, such as existing overseas stocks from airlines and repair facilities or resellers who trade in scrapped parts.A Boeing plant in Renton, Wash. Millions of dollars of parts described as being manufactured or trademarked by the U.S. plane maker were sold into Russia via third parties.Grant Hindsley for The New York TimesMost of the products were routed through countries like the United Arab Emirates, Turkey, China and the Maldives, according to the data. But a handful of shipments — including to Rossiya — were sent directly from the United States or Europe.The shipments also increased over the course of last year as Russia recruited global businesses to help it bypass the sanctions. The trend suggests that “networks for evading sanctions took time to establish during the immediate post-export-control scramble but are now in a position to help Russian airlines source some key parts,” said William George, the director of research at Import Genius.The Russian nationals taken into custody on Thursday began setting up their scheme last May to send aircraft parts from the United States to Russia in violation of export regulations, according to the criminal complaint.The men are accused of fielding requests for parts, including expensive brake systems for a Boeing 737, from at least three Russian airlines, including two that had been strictly barred from purchasing U.S.-made products through a so-called temporary denial order issued by the Commerce Department. F.B.I. agents raided a condo owned by the men’s company in the Trump Towers in Sunny Isles Beach, Fla., on Thursday, The Miami Herald reported.Lawyers for the men did not immediately respond to a request for comment.Despite the level of sanctions evasion, airplane shipments into Russia remain significantly lower than before the war. U.S. officials say Russian airlines have been forced to cannibalize planes, breaking them down for spare parts to keep others in operation, as well as turning to Iran for maintenance and parts.Russia’s imports of aircraft and aircraft parts fell from $3.45 billion annually before the invasion to only about $286 million afterward, according to The Observatory of Economic Complexity, a data visualization platform that explores global trade dynamics.According to Silverado Policy Accelerator, a Washington nonprofit, China has been the leading overall exporter of parts for aircraft, spacecraft and drones to Russia since the invasion, accounting for about half of all shipments, followed by India. The number of single-aisle planes in use in Russia fell about 16 percent from the summer of 2021 to the summer of 2022, after the invasion, according to Cirium, an aviation data provider. The number of larger twin-aisle planes, often used on international routes, was down about 40 percent.Aviation experts say it will become more challenging for Russian airlines to continue flying planes without access to Western suppliers and help from Boeing and Airbus. The manufacturers regularly consult with airlines to assess any damage and strictly control access to technical documentation used by mechanics.But for now, Russian airlines have been kept alive with the help of international shipments and the use of hundreds of foreign jets that were stranded there after the war began.Tens of thousands of flights are expected to crisscross Russia this month, according to schedules published by Cirium. More than 21,000 flights — over half of them operated by Russian airlines — are expected to carry passengers to and from countries in Central Asia, as well as Turkey, the United Arab Emirates, Egypt, China and Thailand.Half a dozen export control lawyers and former government officials consulted by The New York Times said that many of the shipments in the Import Genius data likely violated sanctions, but that plane makers like Boeing or Airbus were not necessarily at fault. The aviation supply chain is complex and global, and the parts could have come from a variety of sources.“There is pretty clearly a violation,” said William Reinsch, a trade expert at the Center for Strategic and International Studies who oversaw export controls during the Clinton administration. “Less clear is the guilty party.”Aircraft parts originating in the European Union, including those marked as being manufactured or trademarked by Airbus, were also shipped into Russia last year, according to the data.Working on an Airbus A320 plane at a hangar in Haikou, China, in May. Airbus parts were also shipped into Russia last year.Zhang Liyun/Xinhua, via Getty ImagesJustin Dubon, a spokesman for Airbus, said that the company keeps track of genuine parts and documentation provided to its customers and conducts due diligence on all parties requesting spare parts. Restrictions in the United States and Europe mean that “there is no legal way that genuine aircraft parts, documentation and services can get to Russian carriers,” he said.U.S. restrictions technically allow companies to apply for a special license to continue sending products to Russian carriers for “safety of flight” reasons, but both Boeing and Airbus said that they had neither sought nor received such a license. In addition, Airbus said that E.U. laws prevent it from shipping such goods to Russia, regardless of U.S. licensing.Current and former U.S. officials say that some shipments into Russia are to be expected. Kevin Wolf, a partner at the law firm Akin Gump who oversaw export controls during the Obama administration, said the restrictions “can never block everything,” but that the rules were still significantly degrading Russia’s capabilities.He added that the scope of the new rules still exceed current methods of tracking and enforcement in other allied countries. Until the invasion of Ukraine, trade in aircraft parts was mostly unrestricted by the United States and other countries, except to Iran, Cuba, North Korea and Syria.“It’s improving,” Mr. Wolf said, “but it’s still way, way behind.”Compared with other countries that mostly limit their scrutiny to goods crossing their own borders, the United States is unparalleled in its attempt to police commerce around the world.In the past three years, the United States has imposed new technology restrictions for Russia, China and Iran that apply extraterritorially: Products made in the United States, or in foreign countries with the help of American components or technology, are subject to U.S. rules even when changing hands on the other side of the world.Both the United States and the European Union have been ramping up penalties for companies that violate sanctions, and dispatching officials to countries like Kazakhstan to try to persuade them to clamp down on shipments to Russia through their territory. The U.S. government has nine export control officers stationed in Istanbul, Beijing and other locations to trace shipments of sensitive products, and it is setting up three more offices.But providing parts can be a lucrative business. James Disalvatore, an associate director at Kharon, a data and analytics firm that has been monitoring Russia’s efforts to bypass sanctions, said the value of some aircraft parts imported by Russian airlines since the invasion had risen fourfold or more.“I don’t think there’s any secret what’s going on,” said Gary Stanley, a trade compliance expert who advises businesses in aerospace and other industries. “How long have we had Cuban sanctions? How long have we had North Korean sanctions? How long have we had Iranian sanctions? It never seems to put these folks out of business.” More

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    Russia Is Importing Western Weapons Technology, Bypassing Sanctions

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    Western technology goods are winding up in Russian missiles, raising questions about the efficacy of sanctions.Late last month, American and European Union officials traded information on millions of dollars’ worth of banned technology that was slipping through the cracks of their defenses and into Russian territory.Senior tax and trade officials noted a surge in chips and other electronic components being sold to Russia through Armenia, Kazakhstan and other countries, according to slides from the March 24 meeting obtained by The New York Times. And they shared information on the flow of eight particularly sensitive categories of chips and other electronic devices that they have deemed as critical to the development of weapons, including Russian cruise missiles that have struck Ukraine.As Ukraine tries to repel Russia from its territory, the United States and its allies have been fighting a parallel battle to keep the chips needed for weapons systems, drones and tanks out of Russian hands.But denying Russia access to chips has been a challenge, and the United States and Europe have not made a clear victory. While Russia’s ability to manufacture weaponry has been diminished because of Western sanctions adopted more than a year ago, the country is still gaining circuitous access to many electronic components.The result is devastating: As the United States and the European Union rally to furnish Ukrainians with weapons to keep fighting against Russia, their own technology is being used by Russia to fight back.American officials argue that the sweeping sanctions they have imposed in partnership with 38 other governments have severely damaged Russia’s military capacity, and raised the cost to Russia to procure the parts it needs.“My view is that we’ve been very effective in impeding Russia’s ability to sustain and reconstitute a military force,” said Alan Estevez, who oversees U.S. export controls at the Bureau of Industry and Security at the Commerce Department, in an interview in March.“We recognize that this is hard, hard work,” Mr. Estevez added. “They’re adapting. We’re adapting to their adaptations.”There is no doubt that the trade restrictions are making it significantly harder for Russia to obtain technology that can be used on the battlefield, much of which is designed by firms in the United States and allied countries.Direct sales of chips to Russia from the United States and its allies have plummeted to zero. U.S. officials say Russia has already blown through much of its supply of its most accurate weapons and has been forced to substitute lower-quality or counterfeit parts that make its weaponry less accurate.But trade data shows that other countries have stepped in to provide Russia with some of what it needs. After dropping off sharply immediately after the Ukrainian invasion, Russia’s chip imports crept back up, particularly from China. Imports between October and January were 50 percent or more of median prewar levels each month, according to tracking by Silverado Policy Accelerator, a think tank.Sarah V. Stewart, Silverado’s chief executive, said the export controls imposed on Russia had disrupted pre-existing supply chains, calling that “a really positive thing.” But she said Russia was “still continuing to get quite a substantial amount” of chips.“It’s really a supply chain network that is very, very large and very complex and not necessarily transparent,” Ms. Stewart said. “Chips are truly ubiquitous.”A Ukrainian serviceman holding an electronic unit of an unmanned aerial vehicle used by Russia against Ukraine, during a media briefing of the Security and Defense Forces of Ukraine in Kyiv last week.STR/NurPhoto, via Getty ImagesAs Russia has tried to get around restrictions, U.S. officials have steadily ratcheted up their rules, including adding sanctions on dozens of companies and organizations in Russia, Iran, China, Canada and elsewhere. The United States has also expanded its trade restrictions to include toasters, hair dryers and microwaves, all of which contain chips, and set up a “disruptive technology strike force” to investigate and prosecute illicit actors trying to acquire sensitive technology.But the illicit trade in chips is proving hard to police given the ubiquity of semiconductors. Companies shipped 1.15 trillion chips to customers globally in 2021, adding to a huge worldwide stockpile. China, which is not part of the sanctions regime, is pumping out increasingly sophisticated chips.The Semiconductor Industry Association, which represents major chip companies, said that it was engaging with the U.S. government and other parties to combat the illicit trade in semiconductors, but that controlling their flow was extremely difficult.“We have rigorous protocols to remove bad actors from our supply chains, but with about one trillion chips sold globally each year, it’s not as simple as flipping a switch,” the association said in a statement.So far, the Russian military appears to have been relying on a large stockpile of electronics and weaponry it accumulated before the invasion. But that supply may be drying up, making it more urgent for Russia to obtain new shipments.A report issued Tuesday by Conflict Armament Research, an independent group that examines Russian weaponry recovered from the battlefield, revealed the first known example of Russia’s making weapons with chips manufactured after the invasion began.Three identical chips, made by a U.S. company in an offshore factory, were found in Lancet drones recovered from several sites in Ukraine this past February and March, according to Damien Spleeters, who led the investigation for C.A.R.Mr. Spleeters said his group was not revealing the chip’s manufacturer while it worked with the company to trace how the product ended up in Russia.These chips were not necessarily an example of an export control violation, Mr. Spleeters said, since the United States did not issue restrictions on this specific type of chip until September. The chips were manufactured in August and may have been shipped out soon thereafter, he said.But he saw their presence as evidence that Russia’s big prewar stockpile of electronics was finally running out. “Now we are going to start seeing whether controls and sanctions will be effective,” Mr. Spleeters said.The parent company of the firm that designed the drone, the Kalashnikov Group, a major Russian weapons manufacturer, has publicly challenged the West’s technology restrictions.“It is impossible to isolate Russia from the entire global electronic component base,” Alan Lushnikov, the group’s president, said in a Russian-language interview last year, according to a translation in a report from the Center for Strategic and International Studies, a think tank. “It’s a fantasy to think otherwise.”That quote included “some bluster,” Gregory Allen, one of the report’s authors, said at an event in December. But he added: “Russia is going to try and do whatever it takes to get around these export controls. Because for them, the stakes are incredibly, incredibly high.”As the documents from the March meeting show, U.S. and European officials have become increasingly concerned that Russia is obtaining American and European goods by rerouting them through Armenia, Kazakhstan and other Central Asian countries.One document marked with the seal of the U.S. Bureau of Industry and Security said that in 2022, Armenia imported 515 percent more chips and processors from the United States and 212 percent more from the European Union than in 2021. Armenia then exported 97 percent of those same products to Russia, the document said.In another document, the Bureau of Industry and Security identified eight categories of chips and components deemed critical to Russian weapons development, including one called a field programmable gate array, which had been found in one model of Russian cruise missile, the KH-101.The intelligence sharing between the United States and Europe is part of a nascent but intensifying effort to minimize the leakage of such items to Russia. While the United States has deeper experience with enforcing sanctions, the European Union lacks centralized intelligence, customs and law enforcement abilities.The United States and the European Union have both recently dispatched officials to countries that were shipping more to Russia, to try to cut down that trade. Mr. Estevez said a recent visit to Turkey had persuaded that government to halt transshipments to Russia through their free trade zone, as well the servicing of Russian and Belarusian airplanes in Turkish airports.Biden administration officials say shipments to Russia and Belarus of the electronic equipment they have targeted fell 41 percent between 2021 and 2022, as the United States and its allies expanded their restrictions globally.Matthew S. Axelrod, the assistant secretary for export enforcement at the Bureau of Industry and Security, said the picture was one of a “broad decrease.”“But still there are certain areas of the world that are being used to get these items to Russia,” he said. “That’s a problem that we are laser-focused on.”John Ismay More

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    China’s Economic Support for Russia Could Elicit More Sanctions

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    U.S. officials pledged to crack down on shipments to Russia that can be used for both civilian and military purposes, but that has proved hard to police.WASHINGTON — President Biden and his top officials vowed this week to introduce additional sanctions aimed at impeding Russia’s war efforts against Ukraine. But the administration’s focus is increasingly shifting to the role that China has played in supplying Russia with goods that have both civilian and military uses.As one of the world’s biggest manufacturers of products like electronics, drones and vehicle parts, China has proved to be a particularly crucial economic partner for Russia.Beijing has remained officially unaligned in the war. Yet China, along with countries like Turkey and some former Soviet republics, has stepped in to supply Russia with large volumes of products that either civilians or armed forces could use, including raw materials, smartphones, vehicles and computer chips, trade data shows.Administration officials are now expressing concern that China could further aid Russia’s incursion by providing Moscow with lethal weapons. While there is no clear evidence that China has given weapons and ammunition to Russia, Secretary of State Antony J. Blinken warned in recent days that China may be preparing to do so.President Biden, speaking in Kyiv on Monday, said the United States and its partners would announce new measures targeting sanctions evasion this week. He did not specify whether those actions would be directed at Moscow or its trading partners.“Together we have made sure that Russia is paying the price for its abuses,” he said the next day in Warsaw.And in a speech on Tuesday at the Council on Foreign Relations, Wally Adeyemo, the deputy Treasury secretary, said the United States would be working “to identify and shut down the specific channels through which Russia attempts to equip and fund its military.”“Our counterevasion efforts will deny Russia access to the dual-use goods being used for the war and cut off these repurposed manufacturing facilities from the inputs needed to fill Russia’s production gaps,” he said.The comments came on the same day that Wang Yi, China’s top diplomat, visited Moscow.The actions that the United States has taken against Russia in partnership with more than 30 countries constitute the broadest set of sanctions and export controls ever imposed against a major economy. But this regime still has its limits.One year into the war, the Russian economy is stagnant, but not crippled. The country has lost direct access to coveted Western consumer brands and imports of the most advanced technology, like semiconductors. But individuals and companies around the world have stepped in to provide Russia with black market versions of these same products, or cheaper alternatives made in China or other countries.Russia is unable to produce precision missiles today because the country no longer has access to leading-edge semiconductors, a U.S. official said.Maxim Shipenkov/EPA, via ShutterstockIn particular, the United States and its allies appear to have had limited success in stopping the trade of so-called dual-use technologies that can be used in both military equipment and consumer goods.The United States included many types of dual-use goods in the export controls it issued against Russia last February, because the goods can be repurposed for military uses. Aircraft parts that civilian airlines can use, for example, may be repurposed by the Russian Air Force, while semiconductors in washing machines and electronics might be used for tanks or other weaponry.The Chinese Spy Balloon ShowdownThe discovery of a Chinese surveillance balloon floating over the United States has added to the rising tensions between the two superpowers.Tensions Rise: In the aftermath of the U.S. downing of a Chinese spy balloon on Feb. 4 and three unidentified flying objects a week later, the nations have traded accusations over their spying programs.U.S.-China Meeting: Secretary of State Antony Blinken held a confrontational meeting with his Chinese counterpart on Feb. 18 in Munich, resuming diplomatic contact between Washington and Beijing.A ‘Military-Civil Fusion’: The international fracas over China’s spy balloon program has thrown a light on Beijing’s efforts to recruit commercial businesses to help strengthen the Chinese military.Unidentified Objects: As more objects were shot down after the balloon incident, experts warned that there was an “endless” array of potential targets crowding America’s skies. Here’s a look at some of them.Top U.S. officials warned their Chinese counterparts against supporting Russia’s war effort after the invasion of Ukraine last year, saying there would be firm consequences. While China has been careful not to cross that line, it has provided support for Russia in other ways, including through active trade in certain goods..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.The United States has cracked down on some of the companies and organizations providing goods and services to Russia. In January, it imposed sanctions on a Chinese company that had provided satellite imagery to the Wagner mercenary group, which has played a large role in the battle for eastern Ukraine. In December, it added two Chinese research institutes to a list of entities that supply the Russian military, which will restrict their access to U.S. technology.But tracking by research firms shows that trade in goods that the Russian military effort can use has flourished. According to the Observatory of Economic Complexity, an online data platform, shipments from China to Russia of aluminum oxide, a metal that can be used in armored vehicles, personal protective equipment and ballistic shields, soared by more than 25 times from 2021 to 2022.Shipments of minerals and chemicals used in the production of missile casings, bullets, explosives and propellants have also increased, according to the Observatory of Economic Complexity. And China shipped $23 million worth of drones and $33 million worth of certain aircraft and spacecraft parts to Russia last year, up from zero the prior year, according to the group’s data.Data from Silverado Policy Accelerator, a Washington nonprofit, shows that Russian imports of integrated circuits, or chips, which are crucial in rebuilding tanks, aircraft, communications devices and weaponry, plummeted immediately after the invasion but crept up over the past year.In December, Russia’s imports of chips had recovered to more than two-thirds of their value last February, just before the war began, according to Silverado. China and Hong Kong, in particular, together accounted for nearly 90 percent of global chip exports to Russia by value from March to December.Shipments from China to Russia of smart cards, light-emitting diodes, polysilicon, semiconductor manufacturing equipment and other goods have also risen, the firm said.Secretary of State Antony J. Blinken said he had shared concerns with Wang Yi, China’s top diplomat, that Beijing was considering providing weapons and ammunition to aid Russia’s campaign in Ukraine.Pool photo by Stefani ReynoldsRelations between the United States and China have soured in recent weeks after the flight of a Chinese surveillance balloon across the United States early this month. But divisions over Russia are further straining geopolitical ties. A meeting between Mr. Blinken and Mr. Wang, his Chinese counterpart, on the sidelines of the Munich Security Conference on Saturday night was particularly tense.U.S. officials have been sharing information on China’s activities with allies and partners in their meetings in Munich, a person familiar with the matter said.On “Face the Nation” on Sunday, Mr. Blinken said he had shared concerns with Mr. Wang that China was considering providing weapons and ammunition to aid Russia’s campaign in Ukraine, and that such an action would have “serious consequences” for the U.S.-Chinese relationship.“To date, we have seen Chinese companies — and, of course, in China, there’s really no distinction between private companies and the state — we have seen them provide nonlethal support to Russia for use in Ukraine,” Mr. Blinken said.“The concern that we have now is, based on information we have, that they’re considering providing lethal support,” he added. “And we’ve made very clear to them that that would cause a serious problem for us and in our relationship.”U.S. officials have emphasized that China by itself is limited in its ability to supply Russia with all the goods it needs. China does not produce the most advanced types of semiconductors, for example, and restrictions imposed by the United States in October will prevent Beijing from buying some of the most advanced types of chips, and the equipment used to make them, from other parts of the world.Russia is unable to produce precision missiles today because the country no longer has access to leading-edge semiconductors made by the United States, Taiwan, South Korea and other allied sources, a senior administration official said on Monday.“While we are concerned about Russia’s deepening ties with them, Beijing cannot give the Kremlin what it does not have, because China does not produce the advanced semiconductors Russia needs,” Mr. Adeyemo said during his remarks. “And nearly 40 percent of the less advanced microchips Russia is receiving from China are defective.”But Ivan Kanapathy, a former China director for the National Security Council, said that most of what Russia needed for its weapons were less advanced chips, which are manufactured in plenty in China.“The U.S. government is very well aware that our export control system is designed in a way that really relies on a cooperative host government, which we don’t have in this case,” Mr. Kanapathy said.He added that it was “quite easy” for parties to circumvent export control through the use of front companies, or by altering the names and addresses of entities. “China is quite adept at that.” More

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    Russia Sidesteps Western Punishments, With Help From Friends

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    A surge in trade by Russia’s neighbors and allies hints at one reason its economy remains so resilient after sweeping sanctions.WASHINGTON — A strange thing happened with smartphones in Armenia last summer.Shipments from other parts of the world into the tiny former Soviet republic began to balloon to more than 10 times the value of phone imports in previous months. At the same time, Armenia recorded an explosion in its exports of smartphones to a beleaguered ally: Russia.The trend, which was repeated for washing machines, computer chips and other products in a handful of other Asian countries last year, provides evidence of some of the new lifelines that are keeping the Russian economy afloat. Recent data show surges in trade for some of Russia’s neighbors and allies, suggesting that countries like Turkey, China, Belarus, Kazakhstan and Kyrgyzstan are stepping in to provide Russia with many of the products that Western countries have tried to cut off as punishment for Moscow’s invasion of Ukraine.Those sanctions — which include restrictions on Russia’s largest banks along with limits on the sale of technology that its military could use — are blocking access to a variety of products. Reports regularly filter out of Russia about consumers frustrated by high-priced or shoddy goods, ranging from milk and household appliances to computer software and medication, said Maria Snegovaya, a senior fellow for Russia and Eurasia at the Center for Strategic and International Studies, in an event at the think tank this month.Even so, Russian trade appears to have largely bounced back to where it was before the invasion of Ukraine last February. Analysts estimate that Russia’s imports may have already recovered to prewar levels, or will soon do so, depending on their models.In part, that could be because many nations have found Russia hard to quit. Recent research showed that fewer than 9 percent of companies based in the European Union and Group of 7 nations had divested one of their Russian subsidiaries. And maritime tracking firms have seen a surge in activity by shipping fleets that may be helping Russia to export its energy, apparently bypassing Western restrictions on those sales.While Western countries have not banned the shipment of consumer products like cellphones and washing machines to Russia, other sweeping penalties were expected to clamp down on its economy. They include a cap on the price that Russia can charge for its oil as well as restricted access to semiconductors and other critical technology.Companies like H&M halted operations in Russia after the invasion of Ukraine, but the economy has proved resilient.Maxim Shipenkov/EPA, via ShutterstockSome companies, including H&M, IBM, Volkswagen and Maersk, halted operations in Russia after the invasion, citing moral and logistical reasons. But the Russian economy has proved surprisingly resilient, raising questions about the efficacy of the West’s sanctions. Countries have had difficulty reducing their reliance on Russia for energy and other basic commodities, and the Russian central bank has managed to prop up the value of the ruble and keep financial markets stable.On Monday, the International Monetary Fund said it now expected the Russian economy to grow 0.3 percent this year, a sharp improvement from its previous estimate of a 2.3 percent contraction.The I.M.F. also said it expected Russian crude oil export volume to stay relatively strong under the current price cap, and Russian trade to continue being redirected to countries that had not imposed sanctions.Most container ships have stopped ferrying goods like phones, washing machines and car parts into the port of St. Petersburg. Instead, such products are being carried on trucks or trains from Belarus, China and Kazakhstan. Fesco, the Russian transport operator, has added new ships and new ports of call to a route with Turkey that transports Russian industrial goods and foreign appliances and electronics between Novorossiysk and Istanbul.Sergey Aleksashenko, former deputy minister of finance of the Russian Federation, said at an event this month that 2023 would be “a difficult year” for the Russian economy, but that there would be “no catastrophe, no collapse.”Some parts of the Russian economy are struggling, he said, pointing to car factories that shut down after being unable to secure parts from Germany, France, Japan and South Korea. But military expenditures and higher energy prices helped prop it up last year.“We may not say that Russian economy is in tatters, that it is destroyed, that Putin lacks funds to continue his war,” Mr. Aleksashenko said, referring to President Vladimir V. Putin. “No, it’s not true.”Russia stopped publishing trade data after its invasion of Ukraine. But analysts and economists can still draw conclusions about its trade patterns by adding up the commerce that other countries report with Russia.The International Monetary Fund said it expected Russian crude oil exports to stay relatively strong despite a Western price cap. Andrey Rudakov/BloombergMatthew Klein, an economics writer and a co-author of “Trade Wars Are Class Wars,” is one of the people drawing conclusions about this Russia-size hole in the global economy. According to his calculations, the value of global exports to Russia in November was just 15 percent below a monthly preinvasion average.Global exports to Russia most likely fully recovered in December, though many countries have not yet issued their trade data for the month, he said.“Most of that recovery has been driven overall by China and Turkey particularly,” Mr. Klein said.It’s unclear how much of this trade violates sanctions imposed by the United States and Europe, but the patterns are “suspicious,” he said. “It would be consistent with the idea that there are ways of trying to get around some of the sanctions.”Silverado Policy Accelerator, a Washington nonprofit, recently issued a similar analysis, estimating that the value of Russian imports from the rest of the world had exceeded prewar levels by September.One of the case studies in that report was the jump in Armenian smartphone sales. Andrew S. David, the senior director of research and analysis at Silverado, said the trends reflected how supply chains had shifted to continue providing Russia with goods.Samsung and Apple, previously major suppliers of Russian cellphones, pulled out of the Russian market after the invasion. Exports of popular Chinese phone brands, like Xiaomi, Realme and Honor, also initially dipped as companies struggled to understand and cope with new restrictions on sending technology or making international payments to Russia.But after an “adjustment period,” Chinese brands started to take off in Russia, Mr. David said. Overall Chinese exports to Russia reached a record high in December, helping to offset a steep drop in trade with Europe. Apple and Samsung phones also appeared to begin to find their way back to Russia, rerouted through friendly neighboring countries.“Armenia is certainly not the only one,” Mr. David said. “There’s a lot coming through central western Asia, Turkey and the former Soviet republics.”Shipments to Russia of other products, like passenger vehicles, have also rebounded. And China has increased exports of semiconductors to Russia, though Russia’s total chip imports remain below prewar levels.President Vladimir V. Putin at a military training facility in Russia. Military expenditures and higher energy prices helped prop up the Russian economy last year.Pool photo by Mikhail KlimentyevOne major open question is how effectively the Western price cap will hold down Russia’s oil revenue this year.The cap allows Russia to sell its oil globally using Western maritime insurance and financing as long as the price does not exceed $60 per barrel. That limit, which is essentially an exception to Group of 7 sanctions, is designed to keep oil flowing on global markets while limiting the Russian government’s revenue from it.Some analysts have suggested that Russia is finding ways around the effort by using ships that do not rely on Western insurance or financing.Ami Daniel, the chief executive of Windward, a maritime data company, said he had seen hundreds of instances in which people from countries like the United Arab Emirates, India, China, Pakistan, Indonesia and Malaysia bought vessels to try to set up what appeared to be a non-Western trading framework for Russia.“Basically, Russia has been gearing up toward being able to trade outside of the rule of law,” he said.Mr. Daniel said his firm had also seen a sharp uptick in shipping practices that appeared to be Russian efforts to contravene Western sanctions. They include transfers of Russian oil between ships far out at sea, in international waters that are not under the jurisdiction of any country’s navy, and attempts by ships to mask their activities by turning off satellite trackers that log their location or transmitting fake coordinates.Much of this activity had been taking place in the mid-Atlantic Ocean. But after media coverage of suspicious practices in this region, the hub moved south, off the coast of West Africa, Mr. Daniel said.“They’re exploding,” he said of deceptive shipping practices. “It’s happening at an industrial scale.”So far, the oil price cap appears to be accomplishing its goal of reducing the price that Russia can charge while keeping global supplies flowing. But it remains to be seen whether this shadow fleet of ships is big enough to allow Russia to buy and sell oil outside the cap, said Ben Cahill, a senior fellow at the Center for Strategic and International Studies, during a January panel discussion.“If that fleet is big enough for Russia to really operate outside the reach” of the Group of 7 countries, the cap probably “won’t have the kind of leverage that policymakers wanted,” Mr. Cahill said. “I think we should know within a couple of months.”Alan Rappeport More