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    Europe Rushes to Build Defenses But With Little Consensus on How

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    At Saab’s sprawling combat production center in Karlskoga, Sweden, the 84-millimeter shells that can take out a battle tank in a single stroke are carefully assembled by hand. One worker stacked tagliatelle-shaped strips of explosive propellant in a tray. Another attached the translucent sheafs around the rotating fins of a guiding system.Outside the squat building, one of hundreds in the guarded industrial park, construction is underway on another factory. Capacity at this plant — a few minutes’ drive from the home of Alfred Nobel, the inventor of dynamite and founder of the peace prize — is scheduled to more than double in the next two years.The enlargement is part of a titanic expansion in military spending that every country in Europe has undertaken since Russia invaded Ukraine 18 months ago. Yet the mad dash by more than 30 allied countries to stockpile arms after years of minimal spending has raised concerns that the massive buildup will be disjointed, resulting in waste, supply shortages, unnecessary delays and duplication.“Europeans have not addressed the deeply fragmented and disorganized manner in which they generate their forces,” a recent report from the Center for Strategic and International Studies said. “Investing more in an uncoordinated manner will only marginally improve a dysfunctional status quo.”The North Atlantic Treaty Organization, which sets overall defense strategy, and the European Union have pushed for greater cooperation and integration, creating several new initiatives, including one to coordinate weapons procurement.Manufacturing shells at a Saab facility in Karlskoga, Sweden.Loulou d’Aki for The New York TimesAnother step in the production at the Karlskoga facility.Loulou d’Aki for The New York TimesCleaning the main charges on the production line.Loulou d’Aki for The New York TimesStill, a growing chorus of weapons manufacturers, political figures and military experts warn the efforts fall far short of what is needed. “There needs to be some clarity since we’re not the United States of Europe,” Micael Johansson, the president and chief executive of Saab, explained from the company’s headquarters in Stockholm. “Every country decides themselves what type of capabilities they need.”Each country has its own strategic culture, procurement practices, specifications, approval processes, training and priorities.Alliance members may sometimes use the same aircraft but with different encryption systems and varying instruments. As Ukrainian soldiers have discovered, 155-millimeter shells produced by one manufacturer do not necessarily fit into a howitzer made by another. Ammunition and parts are not always interchangeable, complicating maintenance and causing more frequent breakdowns.The European Union does not “have a defense planning process,” said Mr. Johansson. This summer, he was appointed vice chairman of the board at the Aerospace and Defense Industries Association of Europe, a trade association representing 3,000 companies. “NATO has to rethink how do we create resilience in the whole system,” including supply chains that produce the munitions soldiers use on the battlefield.Saab’s president and chief executive, Micael Johansson, at the company’s headquarters in Stockholm.Loulou d’Aki for The New York TimesCrucial raw materials like titanium and lithium, as well as sophisticated electronics and semiconductors, are in great demand.And there is a shortage of explosives, particularly powder, which manufacturers across the entire weapons industry depend on. But there has been little detailed discussion about which systems should get priority or how the supply of powder as a whole could be increased.“I suggested it,” Mr. Johansson said, “but it hasn’t happened yet.”The discussions are taking place at a time when the resilience of far-flung supply chains of all kinds are being re-examined. Memories are still fresh of interruptions in the flow of natural gas and grain resulting from the war in Ukraine, not to mention the severe backlogs in the production and delivery of goods and materials caused by the Covid pandemic.The big trend now, said Michael Hoglund, head of business area ground combat at Saab, is to bring supply chains closer to home and to create reliable backups. “We’re no longer buying the cheapest,” he said. “We’re paying a fee to feel safer.”Workers on the production line.Loulou d’Aki for The New York TimesAssembling a weapon.Loulou d’Aki for The New York TimesCoordinating supplies is just one element. Getting a jumble of varying weapons systems, practices and technologies to smoothly perform in concert has always been a challenge. NATO has set standards so that the different systems are compatible — what is known as interoperability.The practice, though, can be less than harmonious.The European Defense Agency’s annual review last year found that only 18 percent of defense investments are done together, half of the targeted amount. “The degree of cooperation among our armies is very low,” Josep Borrell, the European Union’s top diplomat, said at the time.Sweden is on the cusp of joining NATO, but it has partnered with the military alliance before, and Saab, which produces a range of weapons systems including the Gripen fighter jet, sells to scores of countries around the world.Managers there have seen some of the challenges to coordination up close in large and small ways.A Gripen aircraft at the Saab test center in Linkoping.Loulou d’Aki for The New York TimesJakob Hogberg, a Gripen test pilot, discussing the aircraft.Loulou d’Aki for The New York Times“The whole system in each army is built up in a special way,” said Gorgen Johansson, who oversees the Karlskoga operation. (He is not related to the chief executive.) Behind him sat an empty green tube used to launch Saab’s shoulder-fired NLAW anti-tank missile. It was signed by Ukraine’s former minister of defense and returned to its maker as a token of appreciation.Some customers, he said, want two launchers packed in a single box, another wants four, or six, because they have bought vehicles and equipment that can hold different numbers of launchers.Mr. Johansson said that until very recently, it was impossible to get the players to even talk about standardizing where labels were positioned or what color they should be.Bigger problems remain. After the Cold War ended, there was an enormous consolidation of defense companies as military spending shrank. Still, like varying brands of cereal, there is a wide range of each major weapons system. Europe has 27 different types of howitzers, 20 types of fighter jets and 26 types of destroyers and frigates, according to an analysis by McKinsey & Company.In building a unified fighting force, Europe must balance competition, which can result in improvements and innovation, with the need to eliminate waste and streamline operations, by ordering or even designing weapons in concert.Underlying the once-in-a-generation military expansion is that the continent is still primarily dependent on the United States for its safety. President Trump’s complaints in 2018 of insufficient spending in Europe and veiled threats to withdraw from NATO profoundly shook the region.A staff member collecting equipment from a tank used as a target at a test center.Loulou d’Aki for The New York TimesHolding up shrapnel that hit the target after a firing exercise.Loulou d’Aki for The New York TimesBut the view that Europe has to take more financial responsibility for its own defense is now widespread, urgently ratcheting up the pressure to better unify Europe’s defenses.Coordination, though, faces several built-in hurdles. As the center’s report concluded, integrating European defense “will be a slow laborious process and a generational effort.”Governments are already funneling millions or billions of dollars to defense and, naturally, every one wants to support its own industries and workers.And whatever Europe’s overall defense needs may be, each nation’s first priority is protecting their borders. There is limited trust even among alliance members.“We think we are friends,” said Gorgen Johansson in Karlskoga. But he noted that during the pandemic when there was a shortage of ventilators, Germany, which had a surplus, stopped supplying them to Sweden, Italy and other countries in need.“The talks have started,” Mr. Johansson said of efforts to improve coordination. “Do I think it will go quickly? No.”Working on a plane at Saab’s fighter production facility in Linköping.Loulou d’Aki for The New York TimesWorkers assembling an aircraft in Linköping.Loulou d’Aki for The New York Times More

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    Huawei Phone Is Latest Shot Fired in the U.S.-China Tech War

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    The release of a homegrown Chinese smartphone during a visit by the Biden official in charge of regulating such technology shows the U.S.-China tech conflict is alive and well.In the midst of the U.S. commerce secretary’s good will tour to China last week, Huawei, the telecom giant that faces stiff U.S. trade restrictions, unveiled a smartphone that illustrated just how hard it has been for the United States to clamp down on China’s tech prowess.The new phone is powered by a chip that appears to be the most advanced version of China’s homegrown technology to date — a kind of achievement that the United States has been trying to prevent China from reaching.The timing of its release may not have been a coincidence. The Commerce Department has been leading U.S. efforts to curb Beijing’s ability to gain access to advanced chips, and the commerce secretary, Gina M. Raimondo, spent much of her trip defending the U.S. crackdown to Chinese officials, who pressed her to water down some of the rules.Ms. Raimondo’s powerful role — as well as China’s antipathy toward the U.S. curbs — was reflected online, where more than a dozen vendors cropped up on Chinese e-commerce sites to sell phone cases for the new model with Ms. Raimondo’s face imprinted on the back. Doctored images showed Ms. Raimondo holding the new phone, next to phrases like “I am Raimondo, this time I endorse Huawei” and “Huawei mobile phone ambassador Raimondo.”Chinese media have referred to the phone as a sign of the country’s technological independence, but U.S. analysts said the achievement still most likely hinged on the use of American technology and machinery, which would have been in violation of U.S. trade restrictions.Beginning in the Trump administration and continuing under President Biden, the United States has steadily ramped up its restrictions on selling advanced chips and the machinery needed to make them to China, and to Huawei in particular, in an attempt to shut down China’s mastery of technologies that could aid its military.For the past several years, those restrictions have curtailed Huawei’s ability to produce 5G phones. But Huawei appears to have found a way around those restrictions to make an advanced phone, at least in limited quantities. Though detailed information about the phone is limited, Huawei’s jade-green Mate 60 Pro appears to have many of the same basic capabilities as other smartphones on the market.An examination of the phone by TechInsights, a Canadian firm that analyzes the semiconductor industry, concluded that the advanced chip inside was manufactured by Semiconductor Manufacturing International Corporation of China and was operating beyond the technology limits that the United States has been trying to enforce. Douglas Fuller, an associate professor at Copenhagen Business School, said SMIC appeared to have used equipment stockpiled before restrictions went into effect, equipment licensed to it for the purpose of producing chips for companies other than Huawei, and spare parts acquired through third-party vendors to cobble together its production.“The official line in China of a heroic breaking of the technology blockade of the American imperialists is incorrect,” Mr. Fuller said. “Instead, the U.S. has allowed SMIC continued significant access to American technology.”Huawei and SMIC did not respond to a request for comment. The Commerce Department also did not respond to a request for comment.Chinese social media commentators and news sites celebrated the smartphone’s release as evidence that U.S. restrictions could not hold China back from developing its own technology.“Regardless of Huawei’s intentions, the launch of the Mate 60 Pro has been imbued by many Chinese netizens with a deeper meaning of ‘rising up under US pressure,’” the state-run Global Times said in an editorial.The phone was released during a week when both American and Chinese officials had issued numerous statements about renewed cooperation and communication. Chinese officials had asked for the United States to roll back its restrictions on chip exports. But Ms. Raimondo — whose email, along with other U.S. officials, was targeted this year by Chinese hackers — told reporters that she had taken a hard line on the technology controls in her meetings, saying the United States was not willing to remove restrictions or compromise on issues of national security.During the trip, Ms. Raimondo and her advisers set up a dialogue to share information about how the United States was enforcing its technology controls. She said the step would lead to better Chinese compliance but was not an invitation to the Chinese to try to water down export controls.Ms. Raimondo also met directly with the Chinese premier, Li Qiang, during her visit. The week before, Mr. Li had visited Huawei during a visit to southern China, according to the official Xinhua News Agency, and met with the company founder Ren Zhengfei.Phone cases in China displaying doctored photos of the U.S. commerce secretary, Gina Raimondo.MengyanThe release of the Huawei phone raises questions about whether Ms. Raimondo’s department will continue trying to build good will with Chinese officials — or potentially take a more aggressive stance toward cracking down on China’s access to American technology.The Biden administration is preparing to issue a final version of the technology restrictions it first put out last October, and the revised rules could come within weeks.Huawei’s development of the phone does not necessarily demonstrate a huge leap forward for Chinese technological prowess — or the total failure of U.S. export controls, analysts said.Because Chinese firms no longer have access to the most cutting-edge machines for making semiconductors, they have developed novel workarounds that use older machinery to create more powerful chips. But these methods are both relatively time-consuming for manufacturers, and produce a higher proportion of faulty chips, limiting the scale of production.“This does not mean China can manufacture advanced semiconductors at scale,” said Paul Triolo, an associate partner for China and technology policy at Albright Stonebridge Group, a consultancy. “But it shows what incentives U.S. controls have created for Chinese firms to collaborate and attempt new ways to innovate with their existing capabilities.”“It is the first major salvo in what will be a decade or more struggle for China’s semiconductor industry to essentially reinvent parts of the global semiconductor supply chain without U.S. technology included,” he added.Nazak Nikakhtar, a partner at Wiley Rein and a former Commerce Department official, said Huawei’s progress was “a result of longstanding U.S. policy” — specifically U.S. licenses that allow companies to continue selling advanced technologies to firms that the Commerce Department placed on a so-called entity list, like Huawei and SMIC.From Jan. 3 to March 31, 2022, the Commerce Department approved licenses for the sale of $23 billion of tech products to companies on the entity list, according to information released in February by the House Foreign Affairs Committee.“Where gaps exist in licensing policies, exports will get funneled through the gaps,” Ms. Nikakhtar said. “The U.S. government needs to close the gaps if its intention is to limit exports of critical technologies to China.”In a statement on Wednesday, Representative Mike Gallagher, a Wisconsin Republican who heads a congressional committee on China, called for ending all U.S. technology exports to both Huawei and SMIC. U.S. chip makers such as Qualcomm and Intel have received exporting licenses.Claire Fu More

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    Factories May Be Leaving China, but Trade Ties Are Stronger Than They Seem

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    The United States is trying to lessen its dependence on Chinese goods, but research is showing how tough it is to truly alter global supply chains.The United States has spent the past five years pushing to reduce its reliance on China for computer chips, solar panels and various consumer imports amid growing concern over Beijing’s security threats, human rights record and dominance of critical industries.But even as policymakers and corporate executives look for ways to cut ties with China, a growing body of evidence suggests that the world’s largest economies remain deeply intertwined as Chinese products make their way to America through other countries. New and forthcoming economic papers call into question whether the United States has actually lessened its reliance on China — and what a recent reshuffling of trade relationships means for the global economy and American consumers.Changes to global manufacturing and supply chains are still unfolding, as both punishing tariffs imposed by the administration of former President Donald J. Trump and tougher restrictions on the sale of technology to China imposed by the Biden administration play out.The key architect of the latest restrictions — Gina Raimondo, the commerce secretary — is meeting with top Chinese officials in Beijing and Shanghai this week, a visit that underscores the challenge facing the United States as it seeks to reduce how much it depends on China when the countries’ economies share so many ties.These reworked trade rules, along with other economic changes, have caused China’s share of imports into the United States to fall as the share of imports from other low-cost countries like Vietnam and Mexico have climbed. The Biden administration has also pumped up incentives for producing semiconductors, electric cars and solar panels domestically, and manufacturing construction in the United States has been rising quickly.Commerce Secretary Gina Raimondo met with Chinese officials in Beijing on Monday.Pool photo by Andy Wong, Getty ImagesBut new research discussed at the Federal Reserve Bank of Kansas City’s annual conference at Jackson Hole in Wyoming on Saturday found that while global trade patterns have reshuffled, American supply chains have remained very reliant on Chinese production — just not as directly.In their paper, the economists Laura Alfaro at Harvard Business School and Davin Chor at the Tuck School of Business at Dartmouth wrote that China’s share of U.S. imports fell to about 17 percent in 2022 after peaking at about 22 percent in 2017, as the country accounted for a smaller share of America’s imports in categories like machinery, footwear and telephone sets. As that happened, places like Vietnam gained ground — supplying the United States with more apparel and textiles — while neighbors like Mexico began sending more car parts, glass, iron and steel.American Imports Shift Away From ChinaChange in the share of U.S. imports coming from each area between 2017 and 2022

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    Percentage points
    Source: Analysis of Comtrade data by Laura Alfaro and Davin ChorBy The New York TimesThat would seem to be a sign that the United States is lessening its reliance on China. But there’s a hitch: Both Mexico and Vietnam have themselves been importing more products from China, and Chinese direct investment into those countries has surged, indicating that Chinese firms are setting up more factories there.The trends suggest that firms may simply be moving the last steps in their lengthy supply chains out of China, and that some companies are using countries like Vietnam or Mexico as staging areas to send goods that are still partly or largely made in China into the United States.While proponents of decoupling argue that any move away from China may be a good thing, the reshuffling appears to have other consequences. The paper finds that shifting supply chains are also associated with higher prices for goods.A drop of five percentage points in the share of imports coming from China may have pushed prices on Vietnamese imports up 9.8 percent and Mexican imports up 3.2 percent, based on the authors’ calculations. While more research is needed, the effect could be slightly contributing to consumer inflation, they say.“That is our first caution — this is likely to have cost effects — and the second caution is that it is unlikely to diminish dependence” on China, Ms. Alfaro said in an interview.The research echoes findings from a forthcoming paper by Caroline Freund of the University of California, San Diego, and economists at the World Bank and International Monetary Fund, which examined how trade in specific imports from China had changed since Mr. Trump began imposing tariffs on them.That paper found that tariffs had a substantial impact on trade, reducing U.S. imports of the goods that were subject to the levies, even as the absolute value of U.S. trade with China continued to rise.The countries that were able to capture the market share lost by China were those that already specialized in making the products that were subject to tariffs, like electronics or chemicals, as well as countries that were deeply integrated into China’s supply chains and had a lot of trade back and forth with China, Ms. Freund said. They included Vietnam, Mexico and Taiwan.“They’re also increasing imports from China, precisely in those products that they’re exporting to the U.S.,” she said.Higher import tariffs have not deterred the influx of cars from China.Agence France-Presse — Getty ImagesPresident Biden added tougher restrictions to electric car manufacturers in China.Agence France-Presse — Getty ImagesWhat this all means for efforts to bring manufacturing back to the United States is unclear. The researchers come to different conclusions about how much that trend is occurring.Still, both sets of researchers — as well as other economists at Jackson Hole, the Fed’s most closely watched annual conference — pushed back on the idea that these supply-chain shifts meant that global trade overall was retrenching, or that the world was becoming less interconnected.The pandemic, Russia’s invasion of Ukraine, and tensions between the United States and China have prompted some analysts to speculate that the world may turning away from globalization, but economists say that trend is not really borne out in the data.“We don’t see de-globalization at a macro level,” Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said during a panel at the Jackson Hole symposium. But she pointed to what she characterized as a worrying change in expectations.“Rhetoric on de-globalization is taking hold, and that feeds into the political tensions and then into the policymaking,” she said. “My fear is that rhetoric might turn into reality and we might see this shift in investment patterns.”Others at Jackson Hole warned of other consequences, such as product shortages.A move toward production domestically or in only closely allied countries could “imply new supply constraints, especially if trade fragmentation accelerates before the domestic supply base has been rebuilt,” Christine Lagarde, the head of the European Central Bank, said in a speech on Friday.Global supply chains tend to change slowly, because it takes time for companies to plan, invest in and construct new factories. Economists are continuing to track current changes to global sourcing.Given growing geopolitical tensions with China as well as more recent troubles in the country’s economy, further shifts in global supply chains may be unavoidable.One question for economists now, Ms. Alfaro said, is whether the economic benefits from moving factories back to the United States or other friendly countries — like innovation in the U.S. manufacturing sector — will ultimately outweigh the costs of the strategy, for example, the higher prices paid by consumers.And separately, Ms. Freund said she believed the costs of reshoring had been “really under considered” by the government and others.The typical narrative was that “we’re going to bring it all back and we’re going to have all these jobs and it’s all going to be hunky-dory, but, in fact, it’s going to be extremely costly to do that,” she said. “Part of the reason we had such low inflation in the past was because we were bringing in lower-cost goods and improving productivity through globalization.” More

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    U.S. and China Agree to Broaden Talks in Bid to Ease Tensions

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    During a visit to Beijing, Gina Raimondo, the commerce secretary, said the two sides would meet to discuss export restrictions and intellectual property, among other issues.The United States and China agreed on Monday to hold regular conversations about commercial issues and restrictions on access to advanced technology, the latest step this summer toward reducing tensions between the world’s two largest economies.The announcement came during a visit to Beijing by Gina Raimondo, the U.S. commerce secretary, who is meeting with senior Chinese officials in Beijing and Shanghai this week.The agreement to hold regular discussions is the latest move toward rebuilding frayed links between the two countries, a process that had already begun during three trips in the past 10 weeks by senior American officials: Secretary of State Antony J. Blinken, Treasury Secretary Janet L. Yellen and John Kerry, the president’s climate envoy.“I think it’s a very good sign that we agreed to concrete dialogue, and I would say, more than just kind of nebulous commitments to continue to talk, this is an official channel,” Ms. Raimondo said in an interview after four hours of negotiations with China’s commerce minister, Wang Wentao.Ms. Raimondo said on Monday night in Beijing that she’d had an “open” and “pragmatic” discussion with Mr. Wang and had raised the American business community’s concerns about China’s recent actions against Intel and Micron Technology, two semiconductor companies in the United States. The Chinese government has scuttled a large acquisition planned by Intel and has blocked some sales in China by Micron this year.She said two separate dialogues would be established. One would be a working group that included business representatives and would focus on commercial issues. The other would be a governmental information exchange on export control issues.Bilateral talks about trade, technology and other economic issues were once the norm between the United States and China, but those discussions have atrophied in recent years. China halted eight bilateral discussion groups a year ago in retaliation for a visit to Taiwan by Representative Nancy Pelosi, the California Democrat who was House speaker at the time.The flight of a Chinese spy balloon that traveled across the United States last winter and was then shot down over the Atlantic Ocean only deepened divisions between China and the United States, and resulted in Mr. Blinken’s initially canceling a trip to Beijing.But relations have begun to thaw as both nations, whose economies are tied to each other, have opened the door to resuming diplomatic ties.In a readout after the meeting, the Chinese ministry of commerce said Mr. Wang had expressed serious concerns about U.S. tariffs on Chinese imports, as well as the Biden administration’s efforts to bolster the U.S. semiconductor industry by providing government subsidies. Mr. Wang criticized those new subsidy programs, which are designed to lure manufacturing to the United States, as “discriminatory,” and he expressed concerns about U.S. sanctions on Chinese companies.China is willing to work with the United States to create a sound policy environment for business cooperation between the countries, he told the U.S. side, according to the readout.Even before Ms. Raimondo traveled to China, Republican lawmakers criticized her for planning a “working group” of U.S. and Chinese officials to discuss American export controls. Four senior Republicans contended in a letter last week that it was “deeply inappropriate for our foremost adversary to have any influence over controls on sensitive U.S. national security technologies that the American people charged her to protect.”Ms. Raimondo announced the new dialogue not as a working group but as an “information exchange.” She said that it had been set up to share more information about U.S. export restrictions on advanced technology, but that the group’s creation did not mean the United States would be compromising on issues of national security. The first meeting of the export control group was scheduled to take place in Beijing on Tuesday.Ms. Raimondo also said she and the Chinese commerce minister had agreed to meet with each other at least annually.He Weiwen, a former Chinese commerce ministry official who is now a trade specialist at the Center for China and Globalization, a Beijing research group, said the bilateral agreement to have more discussions showed a mutual commitment to pragmatism.“It means that both sides share the approach to solve practical issues,” he said.But in a sign of how politically fraught relations with China remain, plans for a formal dialogue structure between the two countries drew criticism from some China hawks in the United States.Matt Turpin, visiting fellow at the Hoover Institution and former China director of the National Security Council, described the move as a “real head scratcher.” He pointed to China’s unwillingness to take action to stop the flow of fentanyl into the United States, its alliance with Russia and its hacking of Ms. Raimondo’s email account before the trip as reasons China did not deserve such outreach.“It seems that Raimondo gave a significant concession to Beijing and got nothing in return,” Mr. Turpin said.A senior Commerce Department official said the Chinese had raised concerns during the meetings Monday about a trend toward declining trade and investment between the two countries, as well as issues around government subsidies.U.S. officials conveyed the concerns of American businesses and investors, including unfair requirements faced by foreign businesses and a declining transparency in China’s economic statistics. China suspended the release of youth unemployment data this month after the figure reached a record high this summer.Ms. Raimondo said that she had spoken to nearly 150 business leaders in preparation for her trip and that they had given her a common message: We need more channels of communication.“A growing Chinese economy that plays by the rules is in all of our interests,” she said.As the Chinese economy has faltered this summer, Chinese officials have begun softening their stance on some issues. In the latest measure, the foreign ministry announced on Monday that starting on Wednesday, travelers to China would no longer need to test themselves first for Covid.Michael Hart, the president of the American Chamber of Commerce in China, said there had been a change in direction from Chinese officials this summer, with an increased willingness to hold discussions.“It used to be at every meeting I went to, the first five minutes were ‘Everything is America’s fault,’” Mr. Hart said. “It’s definitely toned down now. Government officials understand the importance of U.S.-China trade.” More

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    Russian Attack Threatens Even Alternative Routes for Ukrainian Grain

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    The attack on a grain hangar on the Danube River, an alternative export route that has become an economic lifeline, complicates Ukraine’s efforts to export its grain.For shipping companies looking for a way to bring Ukrainian grain to global markets, the options keep dwindling, escalating a trade crisis that is expected to add pressure on global food prices.Russia last week pulled out of an agreement that had allowed for the safe passage of vessels through the Black Sea. On Monday it threatened an alternative route for grain, attacking a grain hangar at a Ukrainian port on the Danube River that has served as a key artery for transporting goods while the Black Sea remains blockaded. “It’s opening a new front in the targeting of Ukrainian grain exports,” said Alexis Ellender, an analyst at Kpler, a commodities analytics firm, adding that the route had been considered safe because of its proximity to Romania, a NATO member.“This will potentially close off that route,” he said. It could also raise rates for shipping insurance and further cripple Ukraine’s ability to export grain.Hours after the predawn attack on the hangar at the Ukrainian port of Reni, dozens of vessels that had been bound to collect grain from Ukraine were clustered at the mouth of the Danube. More

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    Wheat Prices Remain High as Concern Grows About Black Sea Instability

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    As Black Sea-bound vessels clustered in the waters near Istanbul, wheat prices remained elevated on Thursday, up 13 percent since Monday, when Russia pulled out of a wartime agreement that had been considered critical to stabilizing global food prices.The termination of the deal, which had permitted Ukraine to safely export its grain through the Black Sea, could have significant long-term consequences for grain supplies, said Alexis Ellender, a global analyst at Kpler, a commodities analytics firm. Despite robust grain harvests from exporters including Brazil and Australia, prices could become volatile.“By not having Ukraine there as a supplier, we’re increasing the vulnerability of the global grain market to these shocks,” Mr. Ellender said. “In the short term, supplies are good, but longer term, if we get any more supply shocks, we’re more vulnerable in terms of the global market.”Another drought in Brazil, like in 2021, or a disruption to Australia’s barley and wheat crop caused by El Niño, could cause prices to soar, he said.Russian threats to attack commercial vessels heading to Ukrainian ports have stalled traffic in the area. Marine tracking data shows that ships that had been en route to the Black Sea are sitting in ports in Istanbul as they wait to see if an agreement could be hammered out.“They’re still deciding what they’re going to do,” he said. Some vessels could look to pick up shipments of grain from other parts of Europe.At the moment, a quick resolution looks unlikely. Russia bombarded the port city of Odesa with missiles and drones on Tuesday and Wednesday, after an apparent Ukrainian drone strike on a Russian bridge linking the occupied Crimean Peninsula to mainland Russia.The suspension of the deal between Russia and Ukraine also has implications for maritime insurers and shipowners, who will no longer have insurance coverage to travel to Ukrainian ports, said James Whitlam, a product director at Concirrus, a marine data and analytics platform. While the deal between Russia and Ukraine was in effect, ships were able to secure insurance coverage under a temporary agreement.“Insurance markets are now scrambling around trying to understand what exposure they have,” Mr. Whitlam said.Despite recent increases, grain prices are still lower than they were on the eve of Russia’s invasion of Ukraine in February 2022, partly because the end of the deal was expected, Mr. Ellender said. In addition, Ukrainian grain exports have recently been at reduced levels because of limited labor, with workers fighting the war, and limited fuel supplies and lost territory to Russia.Ukraine has also increased exports by truck, train and river barge.Ukraine is still likely to be able to export most of its wheat, corn, barley and sunflower seeds via alternative routes, said Rabobank, a Dutch bank, on Thursday. But this will put additional pressure on ports on the Danube River, which flows from the Black Forest in Germany to the Black Sea, and the cost of transport will become more expensive, and rail infrastructure will be at a higher risk of Russian attack, the note said.“The higher transport cost means that Ukrainian farmers may, quite possibly, reduce planted area in the future,” the note said.Ukraine is one of the leading exporters of grain and the leading global exporter of sunflower oil, and the deal had allowed Ukraine to restart the export of millions of tons of grain that dropped after the invasion.Ukraine has exported 32.9 million metric tons of grain and other agricultural products to 45 countries since the initiative began, according to United Nations data. Under the agreement, ships had been permitted to pass by Russian naval vessels that had blockaded Ukraine’s ports in the aftermath of Russia’s full-scale invasion.Soaring prices are expected to hit the poorest people in the world the hardest. Ukraine last year had supplied more than half of the World Food Program’s wheat grain sent to people in Afghanistan, Ethiopia, Kenya, Somalia, Sudan, and Yemen, according to the U.N. More

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    U.S. and China, by the Numbers

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    From movie theaters to military spending, here’s how one of the world’s most important economic relationships stacks up.China and the United States are locked in an increasingly intense rivalry when it comes to national security and economic competition, with American leaders frequently identifying China as their greatest long-term challenger.Yet the world’s two largest economies, which together represent 40 percent of the global output, remain integral partners in many ways. They sell and buy important products from each other, finance each other’s businesses, provide a home to millions of each other’s people, and create apps and movies for audiences in both countries.As Treasury Secretary Janet L. Yellen meets with top Chinese officials in Beijing this week, her challenge will be to navigate this multifaceted relationship, which ranges from conflict to cooperation. Here are some figures that illustrate the links between the two nations.Economic and military powerThe U.S. economy continues to outstrip China’s by dollar value: In 2022, Chinese gross domestic product was $18 trillion, compared with $25.5 trillion for the United States.But China’s population is more than four times America’s. And the economic picture looks different when adjusted for local prices: Based on purchasing power parity, China’s share of world G.D.P. is 18.9 percent, according to the International Monetary Fund, surpassing the United States at 15.4 percent.China has provided more than a trillion dollars for global infrastructure through its Belt and Road Initiative, which analysts see as an effort to project power around the world.The rapid growth and modernization of China’s military have sparked concerns in the United States. China has more naval vessels than the United States and more military personnel, with 2.5 million in 2019.But American armed forces are far better equipped, and the United States still spends more on defense than the next 10 countries combined — $877 billion in 2022, compared with $292 billion in reported spending by China.Trade relationsDespite the rising tensions, trade between the countries remains extremely strong. China is America’s third-largest trading partner, after Canada and Mexico.U.S. imports of goods and services from China hit a record $563.6 billion last year. But the share of U.S. imports that come from China has been falling, a sign of how some businesses are breaking off ties with China.China is also a major export market, with half of all soybeans that the United States sends abroad going to China. The U.S.-China Business Council estimated that U.S. exports to China supported nearly 1.1 million jobs in the United States in 2021.China dominates supply chains for both critical and everyday goods. It is the world’s largest producer of steel, solar panels, electronics, coal, plastics, buttons and car batteries, and it has quadrupled its car exports in just two years, becoming the world’s largest auto exporter through its growing clout in electric vehicles.The United States has steadily expanded sanctions against Chinese companies and organizations because of national security and human rights concerns, placing 721 Chinese companies, organizations and people on an “entity list” that restricts their ability to buy products from the United States, according to the Commerce Department.Financial and corporate tiesChina is one of America’s largest lenders and holds nearly $1 trillion of U.S. debt.Members of the S&P 500 index, which tracks the largest public companies in the United States, generate 7.6 percent of their revenue in mainland China, the biggest source of international sales by far, according to FactSet. The revenue that large U.S. firms derive from China is more than their revenue from the next three countries — Japan, Britain and Germany — combined.But the outlook for American companies doing business in China has turned grimmer. In the American Chamber of Commerce in China’s most recent survey of U.S. companies in China, 56 percent described their business as unprofitable in 2022, with some blaming China’s strict Covid-19 lockdown measures.Also in the survey, 46 percent of American companies thought that U.S.-China relations would deteriorate in 2023, while only 13 percent thought they would improve.Personal and cultural connectionsThe United States is home to nearly 2.4 million Chinese immigrants, making it the top destination for Chinese immigrants worldwide. Chinese immigrants in the United States are more than twice as likely as U.S.-born adults to have a graduate or professional degree.In the 2021-22 school year, 296,000 students from China attended U.S. institutions of higher learning, nearly a third of all international students in the United States.Roughly three in four Chinese Americans experienced racial discrimination in the previous 12 months, and 9 percent were physically intimidated or assaulted, according to a survey by Columbia University and the Committee of 100, a Chinese American leadership organization.Long considered a low-end manufacturer, China has become more of a source for innovation and cultural creation. TikTok, the popular social media app whose parent company is China’s ByteDance, says it has more than 150 million users in the United States.Last year, 20 American movies opened in China, and their box office total was roughly $673 million, according to Comscore. China had more than 80,000 movie screens by late 2021, compared with roughly 39,000 in the United States.Pandemic restrictions have made it much harder to travel between the countries. Air carriers are running only 24 flights a week between the United States and China, compared with about 350 before the pandemic.Sapna Maheshwari and Nicole Sperling contributed reporting. More

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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