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    Why Japan’s Sudden Shift on Bond Purchases Dealt a Global Jolt

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    The world has relied on ultralow interest rates in Japan. What will happen if they rise?Japan is the world’s largest creditor. At the end of 2021, it held roughly $3.2 trillion in foreign assets, 30 percent more than No. 2 Germany. As of October, it owned over a trillion dollars of U.S. government debt, more than China. Japanese banks are the world’s largest cross-border lenders, with nearly $4.8 trillion in claims in other countries.Late last month, the world got an unexpected reminder of how integral Japan is to the global economy, when the country’s central bank unexpectedly announced that it was adjusting its stance on bond purchases.To those unversed in the intricacies of monetary policy, the significance of Japan’s decision to raise the ceiling on its 10-year bond yields may not have been immediately clear. But for the finance industry, the surprising change raised expectations that the days of rock-bottom Japanese interest rates could be numbered — potentially further squeezing global credit markets that were already tightening as the world economy slows.Since this summer, the Bank of Japan has been an outlier, keeping its interest rates ultralow even as other central banks raced to keep up with the Federal Reserve, which has ratcheted up lending costs in an effort to tame high inflation.As global rates have diverged from those in Japan, the value of the yen has fallen as investors sought better returns elsewhere. That has put pressure on the Bank of Japan to shift the world’s third-largest economy away from its decade-long commitment to cheap money, a policy known as monetary easing.Japan’s deep integration into global financial networks means that there is a lot of money riding on the timing of any move away from that policy, and investors have spent years fruitlessly waiting for a sign.As of mid-December, the overwhelming expectation was that the bank would hold off on any changes until next spring, when Haruhiko Kuroda, the Bank of Japan’s governor and an architect of its current policies, is set to step down.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Russia’s War on Ukraine Worsens Global Starvation

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    Moscow blocks most shipments from Ukraine, one of the world’s largest wheat producers, and its attacks on the country’s energy grid also disrupt the flow of food.ISTANBUL — Hulking ships carrying Ukrainian wheat and other grains are backed up along the Bosporus here in Istanbul as they await inspections before moving on to ports around the world.The number of ships sailing through this narrow strait, which connects Black Sea ports to wider waters, plummeted when Russia invaded Ukraine 10 months ago and imposed a naval blockade. Under diplomatic pressure, Moscow has begun allowing some vessels to pass, but it continues to restrict most shipments from Ukraine, which together with Russia once exported a quarter of the world’s wheat.And at the few Ukrainian ports that are operational, Russia’s missile and drone attacks on Ukraine’s energy grid periodically cripple the grain terminals where wheat and corn are loaded onto ships.An enduring global food crisis has become one of the farthest-reaching consequences of Russia’s war, contributing to widespread starvation, poverty and premature deaths.The United States and allies are struggling to reduce the damage. American officials are organizing efforts to help Ukrainian farmers get food out of their country through rail and road networks that connect to Eastern Europe and on barges traveling up the Danube River.But as deep winter sets in and Russia presses assaults on Ukraine’s infrastructure, the crisis is worsening. Food shortages are already being exacerbated by a drought in the Horn of Africa and unusually harsh weather in other parts of the world.The United Nations World Food Program estimates that more than 345 million people are suffering from or at risk of acute food insecurity, more than double the number from 2019.“We’re dealing now with a massive food insecurity crisis,” Antony J. Blinken, the U.S. secretary of state, said last month at a summit with African leaders in Washington. “It’s the product of a lot of things, as we all know,” he said, “including Russia’s aggression against Ukraine.”The food shortages and high prices are causing intense pain across Africa, Asia and the Americas. U.S. officials are especially worried about Afghanistan and Yemen, which have been ravaged by war. Egypt, Lebanon and other big food-importing nations are finding it difficult to pay their debts and other expenses because costs have surged. Even in wealthy countries like the United States and Britain, soaring inflation driven in part by the war’s disruptions has left poorer people without enough to eat.A line for food aid in Kabul. An enduring global food crisis has become one of the farthest-reaching consequences of Russia’s war.Agence France-Presse — Getty Images“By attacking Ukraine, the breadbasket of the world, Putin is attacking the world’s poor, spiking global hunger when people are already on the brink of famine,” said Samantha Power, the administrator of the United States Agency for International Development, or USAID.The State of the WarAerial Attacks: A deadly New Year’s Eve assault is the latest strike in Russia’s three-month campaign on Ukraine’s energy infrastructure, which analysts say is an effort to demoralize the Ukrainian population by plunging it into cold and darkness.A New Alliance: The United States is scrambling to stop Iran from producing drones, as officials believe the Middle Eastern nation is building a partnership with Russia.Hopes Dim for Peace Talks: Both Ukrainian and Russian officials say they are willing to discuss making peace, but their terms for sitting down at a negotiating table suggest otherwise.Clergymen or Spies?: To Ukraine’s security services, the Russian Orthodox Church poses a uniquely subversive threat — a trusted institution that is not only an incubator of pro-Russia sentiment but is also infiltrated by priests, monks and nuns who have aided Russia in the war.Ukrainians are likening the events to the Holodomor, when Joseph Stalin engineered a famine in Soviet-ruled Ukraine 90 years ago that killed millions.Mr. Blinken announced on Dec. 20 that the U.S. government would begin granting blanket exceptions to its economic sanctions programs worldwide to ensure that food aid and other assistance kept flowing. The action is intended to ensure that companies and organizations do not withhold assistance for fear of running afoul of U.S. sanctions.State Department officials said it was the most significant change to U.S. sanctions policy in years. The United Nations Security Council adopted a similar resolution on sanctions last month.But Russia’s intentional disruption of global food supplies poses an entirely different problem.Moscow has restricted its own exports, increasing costs elsewhere. Most important, it has stopped sales of fertilizer, needed by the world’s farmers. Before the war, Russia was the biggest exporter of fertilizer.Its hostilities in Ukraine have also had a major impact. From March to November, Ukraine exported an average of 3.5 million metric tons of grains and oilseeds per month, a steep drop from the five million to seven million metric tons per month it exported before the war began in February, according to data from the country’s Ministry of Agrarian Policy and Food.That number would be even lower if not for an agreement forged in July by the United Nations, Turkey, Russia and Ukraine, called the Black Sea Grain Initiative, in which Russia agreed to allow exports from three Ukrainian seaports.Russia continues to block seven of the 13 ports used by Ukraine. (Ukraine has 18 ports, but five are in Crimea, which Russia seized in 2014.) Besides the three on the Black Sea, three on the Danube are operational.The initial deal was only for four months but was extended in November for another four months. When Russia threatened to leave it in October, global food prices surged five to six percent, said Isobel Coleman, a deputy administrator at USAID.“The effects of this war are hugely, hugely disruptive,” she said. “Putin is pushing millions of people into poverty.”While increases in the price of food this past year have been particularly sharp in the Middle East, North Africa and South America, no region has been immune.“You’re looking at price increases of everything from 60 percent in the U.S. to 1900 percent in Sudan,” said Sara Menker, the chief executive of Gro Intelligence, a platform for climate and agriculture data that tracks food prices.Before the war, food prices had already climbed to their highest levels in over a decade because of pandemic disruptions in the supply chain and pervasive drought.The United States, Brazil and Argentina, key grain producers for the world, have experienced three consecutive years of drought. The level of the Mississippi River fell so much that the barges that carry American grain to ports were temporarily grounded.The weakening of many foreign currencies against the U.S. dollar has also forced some countries to buy less food on the international market than in years past.Russia attacked the port of Kherson, on Ukraine’s Black Sea coast, in November. Before the war, farmers shipped out 95 percent of the country’s wheat and grain exports through the Black Sea.Finbarr O’Reilly for The New York Times“There were a lot of structural issues, and then the war just made it that much worse,” Ms. Menker said.U.S. officials say the Russian military has deliberately targeted grain storage facilities in Ukraine, a potential war crime, and has destroyed wheat processing plants.Many farmers in Ukraine have gone to war or fled their land, and the infrastructure that processed and carried wheat and sunflower oil to foreign markets has broken down.At a farm 190 miles south of Kyiv, 40 of the 350 employees have enlisted in the army. And the farm is struggling with other shortages. Kees Huizinga, the Dutch co-owner, said Russia’s attacks on the energy grid have led to the shutdown of a plant that provides his farm and others with nitrogen fertilizer.Other fertilizer plants in Europe were forced to shut down or slow production last year as natural gas prices soared, a result of the war. Natural gas is critical for fertilizer production.“So this year’s harvest has already been reduced,” Mr. Huizinga said in November. “And if Russians continue like this, next year’s harvest might even be worse.”He added that transportation costs have risen sharply for farmers in Ukraine.Before the war, farmers shipped out 95 percent of the country’s wheat and grain exports through the Black Sea. Mr. Huizinga’s farm paid $23 to $24 per ton to transport its products to ports and onto ships. Now, the cost has more than doubled, he said. And an alternative route — by truck to Romania — costs $85 per ton.Mr. Huizinga said Russia’s compromise on Black Sea shipments has helped, but he suspects Moscow is hobbling operations by slowing inspections. Under the arrangement, each vessel leaving one of three Ukrainian ports on the Black Sea has to be inspected by joint teams of Ukrainian, Russian, Turkish and United Nations employees once the ship reaches Istanbul.The teams look for any unauthorized cargo or crew members, and vessels heading to Ukraine need to be empty of cargo, said Ismini Palla, a spokeswoman for the U.N. office overseeing the program.U.N. data shows that the rate of inspections has dropped in recent weeks. The parties agreed to deploy three teams each day, Ms. Palla said, adding that the United Nations has requested more.“We hope that this will change soon, so that the Ukrainian ports can operate again at higher capacity,” she said. “Ukrainian exports remain a vital element in combating global food insecurity.”Ms. Palla said the parties’ decision in November to extend the agreement contributed to a 2.8 percent drop in global wheat prices.Over the last six months, food prices have retreated from highs reached this spring, according to an index compiled by the United Nations. But they remain much higher than in previous years.An uncertainty for farmers this winter is the soaring price of fertilizer, one of their biggest costs.Farmers have passed on the higher cost by increasing the price of food products. And many farmers are using less fertilizer in their fields. That will result in lower crop yields in the coming seasons, pushing food prices higher.Subsistence farms, which produce nearly a third of the world’s food, are being hit even harder, Ms. Coleman said.Food rations were distributed in Sana, Yemen. The war in that country has left its people vulnerable to food insecurity.Yahya Arhab/EPA, via ShutterstockIn a communiqué issued at the close of their meeting in Bali, Indonesia, in November, leaders of the Group of 20 nations said they were deeply concerned by the challenges to global food security and pledged to support the international efforts to keep food supply chains functioning.“We need to strengthen trade cooperation, not weaken it,” Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said at the summit.The U.S. government spends about $2 billion per year on global food security, and it started a program called Feed the Future after the last big food crisis, in 2010, that now encompasses 20 countries.Since the start of the Ukraine war, the United States has provided more than $11 billion to address the food crisis. That includes a $100 million program called AGRI-Ukraine, which has helped about 13,000 farmers in Ukraine — 27 percent of the total — gain access to financing, technology, transportation, seeds, fertilizer, bags and mobile storage units, Ms. Coleman said.The efforts could help rebuild the country while alleviating the global food crisis — one-fifth of Ukraine’s economy is in the agriculture sector, and a fifth of the country’s labor force is connected to it.“It’s hugely important for Ukraine’s economy,” she said, “and for Ukraine’s economic survival.”Edward Wong More

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    U.S. Pours Money Into Chips, but Even Soaring Spending Has Limits

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    In September, the chip giant Intel gathered officials at a patch of land near Columbus, Ohio, where it pledged to invest at least $20 billion in two new factories to make semiconductors.A month later, Micron Technology celebrated a new manufacturing site near Syracuse, N.Y., where the chip company expected to spend $20 billion by the end of the decade and eventually perhaps five times that.And in December, Taiwan Semiconductor Manufacturing Company hosted a shindig in Phoenix, where it plans to triple its investment to $40 billion and build a second new factory to create advanced chips.The pledges are part of an enormous ramp-up in U.S. chip-making plans over the past 18 months, the scale of which has been likened to Cold War-era investments in the Space Race. The boom has implications for global technological leadership and geopolitics, with the United States aiming to prevent China from becoming an advanced power in chips, the slices of silicon that have driven the creation of innovative computing devices like smartphones and virtual-reality goggles.Today, chips are an essential part of modern life even beyond the tech industry’s creations, from military gear and cars to kitchen appliances and toys.Across the nation, more than 35 companies have pledged nearly $200 billion for manufacturing projects related to chips since the spring of 2020, according to the Semiconductor Industry Association, a trade group. The money is set to be spent in 16 states, including Texas, Arizona and New York on 23 new chip factories, the expansion of nine plants, and investments from companies supplying equipment and materials to the industry.The push is one facet of an industrial policy initiative by the Biden administration, which is dangling at least $76 billion in grants, tax credits and other subsidies to encourage domestic chip production. Along with providing sweeping funding for infrastructure and clean energy, the efforts constitute the largest U.S. investment in manufacturing arguably since World War II, when the federal government unleashed spending on new ships, pipelines and factories to make aluminum and rubber.“I’ve never seen a tsunami like this,” said Daniel Armbrust, the former chief executive of Sematech, a now-defunct chip consortium formed in 1987 with the Defense Department and funding from member companies.Sanjay Mehrotra, Micron Technology’s chief executive, at Onondaga Community College in Syracuse, N.Y., in October. The company is building a new manufacturing site nearby.Kenny Holston for The New York TimesWhite House officials have argued that the chip-making investments will sharply reduce the proportion of chips needed to be purchased from abroad, improving U.S. economic security.Kenny Holston for The New York TimesPresident Biden has staked a prominent part of his economic agenda on stimulating U.S. chip production, but his reasons go beyond the economic benefits. Much of the world’s cutting-edge chips today are made in Taiwan, the island to which China claims territorial rights. That has caused fears that semiconductor supply chains may be disrupted in the event of a conflict — and that the United States will be at a technological disadvantage.More on ChinaA Messy Pivot: As Beijing casts aside many Covid rules after nationwide protests, it is also playing down the threat of the virus. The move comes with its own risks.Space Program: Human spaceflight achievements show that China is running a steady space marathon rather than competing in a head-to-head space race with the United States.A Test for the Economy: China’s economy is entering a delicate period when it will face unique challenges, amid the prospect of rising Covid cases and wary consumers.New Partnerships: A trip by the Chinese leader Xi Jinping to Saudi Arabia showcased Beijing’s growing ties with several Middle Eastern countries that are longstanding U.S. allies and signaled China’s re-emergence after years of pandemic isolation.The new U.S. production efforts may correct some of these imbalances, industry executives said — but only up to a point.The new chip factories would take years to build and might not be able to offer the industry’s most advanced manufacturing technology when they begin operations. Companies could also delay or cancel the projects if they aren’t awarded sufficient subsidies by the White House. And a severe shortage in skills may undercut the boom, as the complex factories need many more engineers than the number of students who are graduating from U.S. colleges and universities.The bonanza of money on U.S. chip production is “not going to try or succeed in accomplishing self-sufficiency,” said Chris Miller, an associate professor of international history at the Fletcher School of Law and Diplomacy at Tufts University, and the author of a recent book on the chip industry’s battles.White House officials have argued that the chip-making investments will sharply reduce the proportion of chips needed to be purchased from abroad, improving U.S. economic security. At the TSMC event in December, Mr. Biden also highlighted the potential impact on tech companies like Apple that rely on TSMC for their chip-making needs. He said that “it could be a game changer” as more of these companies “bring more of their supply chain home.”U.S. companies led chip production for decades starting in the late 1950s. But the country’s share of global production capacity gradually slid to around 12 percent from about 37 percent in 1990, as countries in Asia provided incentives to move manufacturing to those shores.Today, Taiwan accounts for about 22 percent of total chip production and more than 90 percent of the most advanced chips made, according to industry analysts and the Semiconductor Industry Association.The new spending is set to improve America’s position. A $50 billion government investment is likely to prompt corporate spending that would take the U.S. share of global production to as much as 14 percent by 2030, according to a Boston Consulting Group study in 2020 that was commissioned by the Semiconductor Industry Association.“It really does put us in the game for the first time in decades,” said John Neuffer, the association’s president, who added that the estimate may be conservative because Congress approved $76 billion in subsidies in a piece of legislation known as the CHIPS Act.Still, the ramp-up is unlikely to eliminate U.S. dependence on Taiwan for the most advanced chips. Such chips are the most powerful because they pack the highest number of transistors onto each slice of silicon, and they are often held up a sign of a nation’s technological progress.Intel long led the race to shrink the number of transistors on a chip, which is usually described in nanometers, or billionths of a meter, with smaller numbers indicating the most cutting-edge production technology. Then TSMC surged ahead in recent years.But at its Phoenix site, TSMC may not import its most advanced manufacturing technology. The company initially announced that it would produce five-nanometer chips at the Phoenix factory, before saying last month that it would also make four-nanometer chips there by 2024 and build a second factory, which will open in 2026, for three-nanometer chips. It stopped short of discussing further advances.Morris Chang, founder of Taiwan Semiconductor Manufacturing Company, at the company’s site in Phoenix in December. The company said it would triple its investment there to $40 billion.Adriana Zehbrauskas for The New York TimesAt the TSMC event last month, President Biden highlighted the potential impact on tech companies that rely on TSMC for their chip-making needs.Adriana Zehbrauskas for The New York TimesIn contrast, TSMC’s factories in Taiwan at the end of 2022 began producing three-nanometer technology. By 2025, factories in Taiwan will probably start supplying Apple with two-nanometer chips, said Handel Jones, chief executive at International Business Strategies.TSMC and Apple declined to comment.Whether other chip companies will bring more advanced technology for cutting-edge chips to their new sites is unclear. Samsung Electronics plans to invest $17 billion in a new factory in Texas but has not disclosed its production technology. Intel is manufacturing chips at roughly seven nanometers, though it has said its U.S. factories will turn out three-nanometer chips by 2024 and even more advanced products soon after that.The spending boom is also set to reduce, though not erase, U.S. reliance on Asia for other kinds of chips. Domestic factories produce only about 4 percent of the world’s memory chips — which are needed to store data in computers, smartphones and other consumer devices — and Micron’s planned investments could eventually raise that percentage.But there are still likely to be gaps in a catchall variety of older, simpler chips, which were in such short supply over the past two years that U.S. automakers had to shut down factories and produce partly finished vehicles. TSMC is a major producer of some of these chips, but it is focusing its new investments on more profitable plants for advanced chips.“We still have a dependency that is not being impacted in any way shape or form,” said Michael Hurlston, chief executive of Synaptics, a Silicon Valley chip designer that relies heavily on TSMC’s older factories in Taiwan.The chip-making boom is expected to create a jobs bonanza of 40,000 new roles in factories and companies that supply them, according to the Semiconductor Industry Association. That would add to about 277,000 U.S. semiconductor industry employees.But it won’t be easy to fill so many skilled positions. Chip factories typically need technicians to run factory machines and scientists in fields like electrical and chemical engineering. The talent shortage is one of the industry’s toughest challenges, according to recent surveys of executives.The CHIPS Act contains funding for work force development. The Commerce Department, which is overseeing the doling out of grant money from the CHIPS Act’s funds, has also made it clear that organizations hoping to obtain funding should come up with plans for training and educating workers.Intel, responding to the issue, plans to invest $100 million to spur training and research at universities, community colleges and other technical educators. Purdue University, which built a new semiconductor laboratory, has set a goal of graduating 1,000 engineers each year and has attracted the chip maker SkyWater Technology to build a $1.8 billion manufacturing plant near its Indiana campus.Yet training may go only so far, as chip companies compete with other industries that are in dire need of workers.“We’re going to have to build a semiconductor economy that attracts people when they have a lot of other choices,” Mitch Daniels, who was president of Purdue at the time, said at an event in September.Since training efforts may take years to bear fruit, industry executives want to make it easier for highly educated foreign workers to obtain visas to work in the United States or stay after they get their degrees. Officials in Washington are aware that comments encouraging more immigration could invite political fire.But Gina Raimondo, the commerce secretary, was forthright in a speech in November at the Massachusetts Institute of Technology.Attracting the world’s best scientific minds is “an advantage that is America’s to lose,” she said. “And we’re not going to let that happen.” More

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    US Cracks Down on Chinese Companies for Security Concerns

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    The Biden administration placed severe restrictions on trade with dozens of Chinese entities, its latest step in a campaign to curtail access to technology with military applications.WASHINGTON — The Biden administration on Thursday stepped up its efforts to impede China’s development of advanced semiconductors, restricting another 36 companies and organizations from getting access to American technology.The action, announced by the Commerce Department, is the latest step in the administration’s campaign to clamp down on China’s access to technologies that could be used for military purposes and underscored how limiting the flow of technology to global rivals has become a prominent element of United States foreign policy.Administration officials say that China has increasingly blurred the lines between its military and civilian industries, prompting the United States to place restrictions on doing business with Chinese companies that may feed into Beijing’s military ambitions at a time of heightened geopolitical tensions, especially over Taiwan.In October, the administration announced sweeping limits on semiconductor exports to China, both from companies within the United States and in other countries that use American technology to make those products. It has also placed strict limits on technology exports to Russia in response to Moscow’s invasion of Ukraine.“Today we are building on the actions we took in October to protect U.S. national security by severely restricting the PRC’s ability to leverage artificial intelligence, advanced computing, and other powerful, commercially available technologies for military modernization and human rights abuses,” Alan Estevez, the under secretary of commerce for industry and security, said in a statement, referring to the People’s Republic of China.Among the most notable companies added to the list is Yangtze Memory Technologies Corporation, a company that was said to be in talks with Apple to potentially supply components for the iPhone 14.Congress has been preparing legislation that would prevent the U.S. government from purchasing or using semiconductors made by Y.M.T.C. and two other Chinese chip makers, Semiconductor Manufacturing International Corporation and ChangXin Memory Technologies, because of their reported links to Chinese state security and intelligence organizations.The Biden PresidencyHere’s where the president stands after the midterm elections.A New Primary Calendar: President Biden’s push to reorder the early presidential nominating states is likely to reward candidates who connect with the party’s most loyal voters.A Defining Issue: The shape of Russia’s war in Ukraine, and its effects on global markets, in the months and years to come could determine Mr. Biden’s political fate.Beating the Odds: Mr. Biden had the best midterms of any president in 20 years, but he still faces the sobering reality of a Republican-controlled House for the next two years.2024 Questions: Mr. Biden feels buoyant after the better-than-expected midterms, but as he turns 80, he confronts a decision on whether to run again that has some Democrats uncomfortable.The U.S. government added the companies to a so-called entity list that will severely restrict their access to certain products, software and technologies. The targeted companies are producers and sellers of technologies that could pose a significant security risk to the United States, like advanced chips that are used to power artificial intelligence and hypersonic weapons, and components for Iranian drones and ballistic missiles, the Commerce Department said.In an emailed statement, Liu Pengyu, the spokesman for the Chinese embassy in Washington, said that the United States “has been stretching the concept of national security, abusing export control measures, engaging in discriminatory and unfair treatment against enterprises of other countries, and politicizing and weaponizing economic and sci-tech issues. This is blatant economic coercion and bullying in the field of technology.”“China will resolutely safeguard the lawful rights and interests of Chinese companies and institutions,” he added.On Monday, China filed a formal challenge to the Biden administration’s chip controls at the World Trade Organization, criticizing the restrictions as a form of “trade protectionism.”The administration said that some companies, including Y.M.T.C. and its Japanese subsidiary, were added to the list because they posed a significant risk of transferring sensitive items to other companies sanctioned by the U.S. government, including Huawei Technologies and Hikvision.The Commerce Department said that another entity, Tianjin Tiandi Weiye Technologies, was added for its role in aiding China’s campaign of repression and surveillance of Uyghurs and other Muslim minority groups in the Xinjiang region of China, as well as providing U.S. products to Iran’s Islamic Revolutionary Guards Corps. U.S.-based firms will now be forbidden from shipping products to these companies without first obtaining a special license.Twenty-three of the entities — in particular, those supplying advanced chips used for artificial intelligence with close ties to the Chinese military and defense industry, and two Chinese companies that were found to be supporting the Russian military — were hit with even tougher restrictions.The companies will be subject to what is known as the foreign direct product rule, which will cut them off from buying products made anywhere in the world with the use of American technology or software, which would encompass most global technology companies.The administration also said it would lift restrictions on some companies that had successfully undergone U.S. government checks that ensured their products weren’t being used for purposes that the government deemed harmful to national security.As part of the restrictions unveiled in October, the Biden administration placed dozens of Chinese firms on a watch list that required them to work with the U.S. government to verify that their products were not being used for activities that would pose a security risk to the United States.A total of 25 entities completed those checks, in cooperation with the Chinese government, and thus have been removed from the list. Nine Russian parties that were unable to clear those checks were added to the entity list, the department said.A spokesperson for the Commerce Department said that the actions demonstrated that the United States would defend its national security but also stood ready to work in cooperation with companies and host governments to ensure compliance with U.S. export controls.In a separate announcement Thursday morning, a government board that oversees the audits of companies listed on stock exchanges to protect the interests of investors said that it had gained complete access for the first time in its history to inspect accounting firms headquartered in mainland China and Hong Kong.The agency, called the Public Company Accounting Oversight Board, said this was just an initial step in ensuring that Chinese companies are safe for U.S. investors. But the development marked a step toward a potential resolution of a yearslong standoff between the United States and China over financial checks into public companies. It also appeared to decrease the likelihood that major Chinese companies will be automatically delisted from U.S. exchanges in the years to come.Congress passed a law in 2020 that would have required Chinese companies to delist from U.S. stock exchanges if U.S. regulators were not able to inspect their audit reports for three consecutive years.Erica Y. Williams, the chair of the board, said the announcement should not be misconstrued as a “clean bill of health” for firms in China. Her staff had identified numerous potential deficiencies with the firms they inspected, she said, though that was not an unexpected outcome in a jurisdiction being examined for the first time.“I want to be clear: this is the beginning of our work to inspect and investigate firms in China, not the end,” Ms. Williams said. More

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    US Proposes Global Green Steel Club That Would Put Tariffs on China

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    A concept paper sent to the European Union suggests a new trade approach to tax metal made with higher carbon emissions in countries like China.WASHINGTON — The Biden administration on Wednesday sent a proposal to the European Union suggesting the creation of an international consortium that would promote trade in metals produced with less carbon emissions, while imposing tariffs on steel and aluminum from China and elsewhere, according to a copy viewed by The New York Times.The document, a concept paper drafted by the Office of the United States Trade Representative, provides the first concrete look at a new type of trade arrangement that the Biden administration views as a cornerstone of its approach to trade policy.The proposed group, known as the Global Arrangement on Sustainable Steel and Aluminum, would wield the power of American and European markets to try to bolster domestic industries in a way that also mitigated climate change. To do so, member countries would jointly impose a series of tariffs against metals produced in environmentally harmful ways.The levies would be aimed at China and other countries that did not join the group. Countries that did join would enjoy more favorable trade terms among themselves, especially for steel and aluminum produced more cleanly.To join the arrangement, countries would have to ensure that their steel and aluminum industries met certain emissions standards, according to the document. Governments would also have to commit to not overproduce steel and aluminum, which has pushed down global metal prices, and to limit activity by state-owned enterprises, which are often used to funnel subsidies to foreign metal makers. While the concept paper does not mention China, these requirements appear likely to bar it from becoming a member.The United States and European Union have been in talks about a climate-related trade deal for the steel and aluminum industries since last year. No U.S. trade agreement has ever included specific targets on carbon emissions, and negotiators have had much ground to cover to try to reconcile the varying U.S. and E.U. economic approaches to mitigating climate change.It is unclear what type of reception the proposal, which is still in its early stages, will receive from European leaders, as well as whether U.S. industry and politicians will support the idea. An E.U. official declined to comment on Wednesday on the details of an active negotiation, but said the two sides were discussing ways to continue and deepen their work on the arrangement.In recent weeks, trade tensions between the United States and Europe have risen to their highest levels since President Biden entered office, with leaders sparring over U.S. legislation aimed at encouraging the production of electric vehicles in North America. European leaders say the measures will put their industries at a disadvantage and have demanded changes that they say unfairly exclude European firms.A senior trade official, who spoke on the condition of anonymity because the paper was not yet public, said that the spat over electric vehicles was unlikely to spill over into negotiations over steel and aluminum, and that the governments were closely aligned on the goal of taking carbon intensity into account when it came to trade.After a meeting with European officials outside Washington this week, Katherine Tai, the U.S. trade representative, called the steel and aluminum effort “one of the most consequential things that we’re working on between the U.S. and the E.U. with respect to trade.” She said it was “on track” to meet a previous goal of completion by next year.“It is an important part of the track record that we have, Washington to Brussels, in terms of taking some of the most challenging issues of our time, some of the things that have been really challenging between us, and demonstrating that we can exercise leadership with a vision for the future,” Ms. Tai said during a news conference Monday.Valdis Dombrovskis, the European commissioner for trade, said the methods that the United States and Europe were developing to measure the carbon footprint of steel and aluminum could be expanded to other products, as part of a new trans-Atlantic initiative on sustainable trade that the governments had agreed to launch.“It will provide a common language for understanding many things,” he said.It’s also unclear how much support the plan will have from domestic makers of steel and aluminum. While some have voiced support for the broader strategy, company executives and labor union leaders are still reviewing the plans, and say the potential impact on U.S. industry would hinge on details that had yet to be determined..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;}What we consider before using anonymous sources. Do the sources know the information? What’s their motivation for telling us? Have they proved reliable in the past? Can we corroborate the information? Even with these questions satisfied, The Times uses anonymous sources as a last resort. The reporter and at least one editor know the identity of the source.Learn more about our process.The U.S. steel industry is already among the cleanest in the world, as a result of the country’s stronger environmental standards and a focus on recycling scrap metal. The agreement is designed to capitalize on those advantages and help American companies withstand competition from heavily subsidized steel and aluminum manufacturers in China and elsewhere.But the United States is also home to many industries that buy foreign steel and aluminum to make into other products. They could object that the move would increase their costs.If the United States and Europe move forward with the structure, there is likely to be an intense fight over where tariffs are set and how carbon emissions are measured.The development of a method for figuring out the amount of greenhouse gas emissions in the production of any particular product is still in the early stages, and much more data would need to be gathered at the level of specific products and companies, people familiar with the plans said.Both the United States and Europe have expressed interest in expanding the consortium’s membership to any country that can meet its high standards. But the arrangement could rankle American allies in the short term, if countries like Japan and South Korea are initially left out.The measure could also trigger retaliation from China, or be challenged at the World Trade Organization, which includes China and requires its members to treat one another equally in trade.It’s also still unclear what legal authority the Biden administration would use to impose the tariffs. The senior trade official said the Biden administration hoped to involve Congress in setting up the policy. But analysts speculated that the administration could also resort to the same national security-related executive authority that the Trump administration used in imposing its steel and aluminum tariffs.And while it will please the administration’s allies in labor unions and environmental advocacy groups, the proposal is likely to disappoint advocates of freer trade, who had hoped the Biden administration would reject the more protectionist approach of the Trump administration. Instead of getting rid of the global levies on steel and aluminum that the Trump administration introduced in 2018, this effort would replace them with a new global system of tariffs structured around climate concerns.The concept paper proposes a tiered system of tariffs that would rise with the level of carbon emitted in the production of a particular steel or aluminum good. Additional tariffs would be levied on any product coming from countries outside the consortium.The tariff rate would start at 0 for the cleanest products from member countries. Beyond that, the paper does not specify rates, instead representing them as X, Y or Z.The proposal to impose tariffs on steel from China and other countries as part of the arrangement was previously reported by Bloomberg.The thresholds for the tariff rates, and for membership in the consortium, are designed to increase over time to encourage countries to continue cleaning up their industries. The arrangement would “incentivize industry globally to decarbonize as a condition of market access,” the paper says.Todd Tucker, the director of industrial policy and trade at the Roosevelt Institute, compared the approach to “a carbon tariff imposed on countries that are outside the carbon club.”The United States and European Union appear to be going for “a higher-ambition route” to address global steel trade, Mr. Tucker said. “What that means is leveraging the power of the U.S. and European markets to drive decarbonization in the global steel market.” More

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    Global Car Supply Chains Entangled With Abuses in Xinjiang, Report Says

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    A new report on the auto industry cites extensive links to Xinjiang, where the U.S. government now presumes goods are made with forced labor.The global auto industry remains heavily exposed to the Xinjiang region of China for raw materials, components and other supplies, a new report has found, despite a recent U.S. law intended to restrict purchases from the area, where the Chinese government has committed human rights abuses against mostly Muslim minorities.The report, from a team of researchers led by Laura T. Murphy, a professor of human rights and contemporary slavery at Britain’s Sheffield Hallam University, details the links between Chinese companies with deep ties to Xinjiang and the automakers that use their supplies, such as metals, batteries, wiring and wheels.The report identifies major Chinese companies that the researchers determined have participated in coercive labor programs in Xinjiang, or have recently sourced their materials and products from the region, where China has engaged in mass internment of Uyghurs and other minorities. Those Chinese firms are major participants in the global supply chain for auto parts, the report says, raising the likelihood that automakers like Volkswagen, Honda, Ford Motor, General Motors, Mercedes-Benz Group, Toyota and Tesla have sold cars containing raw materials or components that have at some point touched Xinjiang.“There was no part of the car we researched that was untainted by Uyghur forced labor,” Dr. Murphy said. “It’s an industrywide problem.”Such links could pose serious problems for the international auto brands. The Biden administration, like the Trump administration before it, has taken an increasingly aggressive posture toward Chinese trade violations and imports of goods made with forced labor, which the United Nations estimates affects 28 million people worldwide.Under the Uyghur Forced Labor Prevention Act, products made wholly or partly in Xinjiang are now assumed to have been produced with forced labor, making them vulnerable to seizure by the federal government if they are brought into the United States. Customs officials say that since the law went into effect in June, they have stopped roughly 2,200 shipments — valued at more than $728 million — that were suspected of having Xinjiang content. More than 300 of those products were ultimately released into the United States.Federal officials did not disclose what kinds of products have been seized. But the new rules have been particularly disruptive for companies making clothing and solar panels, which source raw materials like cotton and polysilicon from Xinjiang.The New York Times has not independently verified the entire contents of the new report, which names roughly 200 companies, both Chinese and international, with potential direct or indirect links to Xinjiang. Many of the Chinese industrial giants named in the report have multiple production sites, meaning they could be supplying international automakers with metal, electronics or wheels made from their factories outside Xinjiang.The global supply chain for auto parts is vast and complex. According to estimates by McKinsey and Company, the average automotive manufacturer may have links to as many as 18,000 suppliers in its full supply chain, from raw materials to components.Many of those suppliers run through China, which has become increasingly vital to the global auto industry and the United States, the destination for about a quarter of the auto parts that China exports annually. Xinjiang is home to a variety of industries, but its ample coal reserves and lax environmental regulations have made it a prominent location for energy-intensive materials processing, like smelting metal, the report says.Chinese supply chains are complicated and opaque, which can make it difficult to trace certain individual products from Xinjiang to the United States. Over the past three years, Xinjiang and other parts of China have been intermittently locked down to keep the coronavirus at bay. Even before the pandemic, the Chinese government tightly controlled access to Xinjiang, especially for human rights groups and media outlets.Determining the extent of coercion that any individual Uyghur worker may face in Xinjiang’s mines or factories is also difficult given the region’s restrictions. But the overarching environment of repression in Xinjiang has prompted the U.S. government to presume that any products that have touched the region in their production are made with forced labor unless companies can prove otherwise.Workers in the region “don’t have a chance to say no,” said Yalkun Uluyol, a Xinjiang native and one of the report’s authors. Goods coming from Xinjiang “are a product of the exploitation of the land, of the resources and of the people,” he said.The report’s researchers identified numerous documents — including Chinese-language corporate filings, government announcements and ocean import records — indicating that international brands, at the very least, have multiple potential exposures to programs in Xinjiang that the U.S. government now defines as forced labor.Dr. Murphy said her team had identified nearly 100 Chinese companies mining, processing or manufacturing materials for the automotive industry operating in the Uyghur region, at least 38 of which had publicized their engagement in repressive state-sponsored labor programs through their social media accounts, corporate reports or other channels.International automakers contacted by The Times did not contradict the report but said they were committed to policing their supply chains against human rights abuses and forced labor.G.M., Volkswagen and Mercedes said their supplier codes of conduct prohibited forced labor. Honda said its suppliers were required to follow global sustainability guidelines. Ford said it maintained processes to ensure that its global operations, including in China, complied with all relevant laws and regulations.Toyota, in a statement, said, “We expect our business partners and suppliers to follow our lead to respect and not infringe upon human rights.”Tesla did not respond to repeated requests for comment.The Chinese government has insisted that there are no human rights violations in Xinjiang, and has called accusations of forced labor in Xinjiang “the lie of the century.”“‘Forced labor’ in Xinjiang is a lie deliberately made up and spread by the U.S. to shut China out of the global supply and industrial chains,” Liu Pengyu, the spokesman at the Chinese Embassy in Washington, said in a statement.Some of the Chinese companies named in the report are enormous industry suppliers that have proudly advertised their role in carrying out the Chinese government’s policies toward Uyghurs in social media postings, or in glossy annual reports.They include China Baowu Steel Group, the world’s largest steel maker, which has a subsidiary in Xinjiang that accounts for at least 9 percent of its total steel production, according to the report. Baowu and its subsidiaries make springs for car suspension systems, axles and body panels, as well as various kinds of steel that feed the supply chains of most international carmakers.In its 2020 corporate social responsibility report, which pledges adherence to China’s leader and the Communist Party, Baowu Group said that its subsidiary had “fully implemented the party’s ethnic policy” and that 364 laborers from poor families from villages in southern Xinjiang had “been arranged with employment.” Human rights advocates say the terms are euphemisms for organized mass transfers of Uyghur laborers into factories.According to the report, Baowu Group subsidiaries have participated in other transfers of workers from poor regions of Xinjiang, and in so-called poverty alleviation programs, which the United States now recognizes as a guise for forced labor. Under the new law, companies that participate in such programs can be added to a blacklist that blocks the products they make anywhere — even outside Xinjiang — from coming to the United States.The new report also builds on a June investigation published by The Times into Xinjiang’s role in producing electric vehicle battery minerals like lithium and nickel, as well as previous research by a firm called Horizon Advisory into the aluminum industry in Xinjiang. The report identifies recent transfers of Uyghur laborers at some of the world’s biggest aluminum companies, and traces these products to major auto industry suppliers, some of whom made shipments to the United States, Canada or Europe as recently as November, shipping records show.It also documents ties to Xinjiang and transfers of Uyghur workers for dozens of other significant auto industry suppliers, such as Double Coin, a tire maker that sells widely in the United States, including online at Walmart and Amazon.And it documents a recent investment by CATL — a Chinese firm that produces roughly a third of the world’s electric vehicle batteries and supplies Tesla, Ford, G.M., Volkswagen and other brands — in a major new lithium processing company in Xinjiang.Zhang Yizhi, a spokesman for CATL, said the company was a minority shareholder in the Xinjiang company and was not involved in its operations or management. CATL is committed to building a responsible supply chain and strictly opposes and prohibits any form of forced labor in its suppliers, he said.Baowu Group, Double Coin and its parent, Shanghai Huayi Group, did not respond to repeated requests for comment. Amazon declined to comment about its sale of Double Coin tires, while Walmart did not respond.The research suggests that the United States still has far to go in stopping the flow of goods linked to Xinjiang. Customs officials say they are working to enforce a ban on such products, but they are still hiring aggressively and working to build out the department’s capacity to identify and stop these goods.“We’re still in an upward trajectory,” said AnnMarie R. Highsmith, the executive assistant commissioner of the Office of Trade at Customs and Border Protection, in an interview in October.“Unfortunately,” she added, “the situation globally is such that we are going to have full employment for a while.” More

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    Chinese Solar Makers Evaded U.S. Tariffs, Investigation Finds

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    The Biden administration pre-emptively halted any penalties from the case in June, prompting critics to say the administration had shortcut its own trade rulesWASHINGTON — U.S. officials have determined that four of eight major Chinese solar companies under investigation in recent months tried to evade tariffs by funneling products into the United States through Southeast Asian countries, in a trade case that has pitted clean energy advocates against domestic solar panel manufacturers.The decision applies to the Thailand operations of Canadian Solar and Trina Solar, as well as BYD Cambodia and Vina Solar Vietnam, according to documents published by the Department of Commerce Friday morning.The ruling centered around esoteric trade laws that aim to protect American manufacturers from unfairly cheap foreign products. But more broadly, the case is related to an increasingly difficult question confronting U.S. policymakers: how quickly the United States can expect to wean itself off China’s supply of materials that are crucial for the American economy, including the solar panels that are needed for a transition to green energy.The investigation, initiated at the request of a small California-based company named Auxin Solar, centered on whether Chinese companies have been trying to bypass tariffs that the United States imposed on cheap solar panels imported from China. In recent years, Chinese solar companies have significantly expanded their manufacturing presence in Southeast Asian countries that do not face the same tariffs.The trade case rests on whether the Chinese companies are actually using these Southeast Asian countries as a significant site of manufacturing, or if they are just making minor changes to products that are largely made in China to try to get around U.S. trade rules.Other companies that were also under investigation — namely New East Solar Cambodia, Hanwha Q CELLS Malaysia, Jinko Solar Malaysia and the Vietnam operations of Boviet Solar — were found not to be violating U.S. trade rules.Typically, companies that are found to be circumventing U.S. tariffs would immediately be subject to higher duty rates to bring their products into the United States. But in an unusual measure, the Biden administration in June pre-empted those higher duties by announcing a two-year pause on any tariff increases on solar products.The administration said its decision to halt additional tariffs would help ensure that the United States has enough solar panels as it tries to reduce its reliance on fossil fuels in the months to come. The Biden administration has set an ambitious goal of generating 100 percent of the nation’s electricity from carbon-free energy sources by 2035, a goal that may require more than doubling the annual pace of solar installations.But domestic manufacturing groups have criticized the president’s decision to halt any imposition of tariffs, saying he is failing to enforce America’s trade rules and crack down on unfair Chinese practices.Solar importers, too, have expressed dissatisfaction with the decision, saying that the two-year pause is not enough time to establish sufficient manufacturing capacity outside China to meet rising U.S. demand.Enormous planned investments in solar energy have raised the stakes of the debate. The Inflation Reduction Act, a sweeping new climate law signed by President Biden in August, provides roughly $37 billion in incentives for companies to produce solar panels, wind turbines, batteries and other crucial minerals in the United States, aiming to reverse the longstanding migration of clean energy manufacturing to China and elsewhere.The clash is the latest chapter in a decade-long conflict between the United States and China over the solar industry. In 2012, the United States began imposing duties on Chinese solar panels, arguing that Chinese manufacturers were unfairly selling their products in the United States at prices below the cost of production. Chinese solar manufacturers shifted their operations to Taiwan instead, but the United States soon expanded its tariffs to apply to Taiwan, as well.In recent years, Chinese companies have set up new manufacturing operations in Southeast Asia, and exports of solar products to the United States from Vietnam, Malaysia, Thailand and Cambodia have exploded. In many cases, these factories appear to rely on raw materials sourced largely from China, like polysilicon.That business model has proved problematic in more ways than one. The U.S. government has found that major Chinese producers of polysilicon and solar products are guilty of using forced labor in the Xinjiang region of China and has banned any products using that polysilicon from the United States.Auxin Solar and other domestic manufacturers have also said that the boom in business in Southeast Asia was an attempt by Chinese companies to evade the duties that the United States had imposed on Chinese products.In a preliminary decision on the case on Friday, officials at the Commerce Department agreed, at least for some cases. The Commerce Department will now require solar companies exporting to the United States from Thailand, Malaysia, Vietnam and Cambodia to certify that a significant proportion of their materials are coming from outside China. Otherwise, companies in those countries will be subject to the same duties paid by their Chinese suppliers starting in 2024. The Commerce Department will continue to review the case and issue its final decision on the matter on May 1, 2023.Mamun Rashid, the chief executive of Auxin Solar, said in a statement that the findings “largely validated and confirmed Auxin’s allegations of Chinese cheating.”“We will continue to press forward in these cases as they continue to make sure all trade cheats are playing by the rules,” he said.Abigail Ross Hopper, the chief executive of the Solar Energy Industries Association, which opposed the investigation, said the group was “obviously disappointed that commerce elected to exceed its legal authority” by ruling against the imports from Southeast Asia.“This decision will strand billions of dollars’ worth of American clean energy investments and result in the significant loss of good-paying, American, clean energy jobs,” she said, adding, “This is a mistake we will have to deal with for the next several years.”Major solar importers have complained for months of difficulties obtaining enough solar panels to meet growing demand for clean energy solutions. George Hershman, the chief executive of SOLV Energy, a large solar contracting firm that has provided engineering, construction and maintenance services for projects across 26 states, said the decision was likely to disrupt an industry that has already been reeling from supply chain constraints in recent years.“The upside is that commerce took a nuanced approach to exempt a number of manufacturers rather than issuing a blanket ban of all products from the targeted countries,” Mr. Hershman said. “While it’s positive that companies will be able to access some of the crucial materials we need to deploy clean energy, it’s still true that this ruling will further constrict a challenged supply chain.”Some members of the Biden administration are sympathetic to these arguments. In a hearing in May before the Senate Energy Committee, Jennifer M. Granholm, the secretary of energy, said the investigation put at stake “the complete smothering of the investment and the jobs and the independence that we would be seeking as a nation to get our fuel from our own generation sources.”The investigation was under the purview of the Department of Commerce, not the Department of Energy, she said. “But I am certainly deeply concerned about the goal of getting to 100 percent clean electricity by 2035 if this is not resolved quickly.”But the Biden administration’s decision to effectively neutralize the trade investigation by halting any additional tariffs that would result from it until June 2024 has also attracted its share of criticism.Along with the small group of solar manufacturers who do not have ties to China, groups that lobby in favor of domestic manufacturing have protested the Biden administration’s taking action in a type of trade decision that is typically independent and quasi-judicial.“This is illegal activity that is directly harming our companies. That’s why we have trade laws,” said Nick Iacovella, the communications director for the Coalition for a Prosperous America, which called Friday for the Biden administration to rescind its emergency declaration halting the tariffs. “There’s absolutely no reason we should allow the Chinese to continue illegal activity for two years.”In a letter to the Biden administration in July, Democratic lawmakers, including Daniel T. Kildee of Michigan, also criticized the decision to pause the tariffs, saying it would undercut “existing and planned domestic solar manufacturing investments, hurting American workers and companies.”Trade remedy laws are one of the only tools available to defend American manufacturers and “should not be undermined,” they wrote.But other lawmakers called on Friday for an extension of the two-year pause on tariffs. Eight Democratic senators, led by Jacky Rosen from Nevada, said solar projects needed access to more basic components to operate.The debate is taking on increasing urgency now that the United States is preparing to make huge investments in its clean energy industry, through bills such as the Inflation Reduction Act.Analysts say it will still take time for the United States to be independent of foreign solar imports. In 2021, the United States had the capacity to manufacture roughly 7.5 gigawatts’ worth of solar modules a year, according to industry figures.In the wake of the passage of the new climate law, several companies have announced plans to increase that capacity by another 20 gigawatts a year over the coming decade, according to ClearView Energy Partners, a Washington research firm.But solar companies are expected to install far more than that — nearly 40 gigawatts worth of solar capacity in 2023, according to government forecasts — spurred on by other tax breaks for solar power in the new climate law. And the country still lacks the capacity to produce solar cells and wafers, key components that are primarily produced overseas.“Therefore, domestic solar panel manufacturers appear likely to rely heavily on an overseas supply chain after” any tariffs are potentially put in place by the end of 2024 as a result of the Commerce Department’s decision, the analysts at ClearView concluded. More

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    Chinese Unrest Over Lockdown Upends Global Economic Outlook

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    Growing protests in the world’s biggest manufacturing nation add a new element of uncertainty atop the Ukraine war, an energy crisis and inflation.The swelling protests against severe pandemic restrictions in China — the world’s second-largest economy — are injecting a new element of uncertainty and instability into the global economy when nations are already struggling to manage the fallout from a war in Ukraine, an energy crisis and painful inflation.For years, China has served as the world’s factory and a vital engine of global growth, and turmoil there cannot help but ripple elsewhere. Analysts warn that more unrest could further slow the production and distribution of integrated circuits, machine parts, household appliances and more. It may also encourage companies in the United States and Europe to disengage from China and more quickly diversify their supply chains.Millions of China’s citizens have chafed under a tight lockdown for months as the Communist Party seeks to overcome the spread of the Covid-19 virus, three years after its emergence. Anger turned to widespread protest after an apartment fire last week killed 10 people and comments on social media questioned whether the lockdown had prevented their escape.It is unclear whether the demonstrations flaring across the country will be quickly snuffed out or erupt into broader resistance to the iron rule of its top leader, Xi Jinping, but so far the most significant economic damage stems from the lockdown.“The biggest economic hit is coming from the zero-Covid policies,” said Carl Weinberg, chief economist at High Frequency Economics, a research firm. “I don’t see the protests themselves being a game changer.”“The world will still turn to China for what it makes best and cheapest,” he added.Police officers during a protest in Beijing on Sunday.Kevin Frayer/Getty ImagesAsked how the Biden administration assessed the economic fallout from the latest unrest, John Kirby, coordinator for strategic communications at the National Security Council, said Monday, “We don’t see any particular impact right now to the supply chain.”Concerns about the economic impact of the spreading unrest in China, nonetheless, appeared to be partly responsible for a decline in world markets. The S&P 500 index closed 1.5 percent lower, while the dollar, often a haven in turbulent times, moved higher. Oil prices began the day with a sharp drop before rebounding.The sheer magnitude of China’s economy and resources makes it a critical player in world commerce. “It’s extremely central to the global economy,” said Kerry Brown, an associate fellow in the Asia-Pacific program at Chatham House, an international affairs institute in London. That uncertainty “will have a massive impact on the rest on the world.”China now surpasses all countries as the biggest importer of petroleum. It manufactured nearly 30 percent of the world’s goods in 2021. “There is simply no alternative to what China offers in terms of scale and capacities,” Mr. Brown said.Delays and shortages related to the pandemic prompted many industries to re-evaluate the resilience of their supply chains and consider additional sources of raw materials and workers. Apple, which recently announced that it expected sales to decline because of stoppages at its Chinese plants, is one of several tech companies that have shifted a small portion of their production to other countries, like Vietnam or India.The tilt by some companies away from China predates the pandemic, reaching back to former President Donald J. Trump’s determination to start a trade war with China, a move that resulted in a spiral of punishing tariffs.Yet even if business and political leaders want to be less reliant on China, Mr. Brown said, “the brute reality is that’s not going to happen soon, if at all.”“We shouldn’t kid ourselves that we can quickly decouple,” he added.China’s size is a lure for American, European and other companies looking not only to make products quickly and cheaply, but also to sell them in great numbers. There is simply no other market as big.Tesla, John Deere and Volkswagen are among the companies that have bet on China for future growth, but they are likely to suffer some setbacks at least in the short run. Volkswagen announced last week that its sales in China had stagnated this year, running 14 percent below expectations.A Volkswagen stand at the Auto Shanghai trade show last year. Volkswagen is one of the companies counting on the Chinese market for sales growth.Alex Plavevski/EPA, via ShutterstockThe protests highlight the political risks associated with investing in China, but analysts say the recent wave doesn’t reveal anything that investors didn’t already know.“Many investors will be looking ahead and positioning their portfolios now for the reopening,” said Nigel Green, chief executive of deVere Group, a financial advisory firm. They will be “seeking to take advantage of the country’s transition from an export economy to a consumption one,” he added.Luxury brands continue to stake their future on growth in China.As interconnected as the global economy is, one way in which China’s slowdown may be helping other nations is by keeping down the price of energy. Over the last 20 years, the growth of the Chinese economy has been a primary driver of global demand for oil and hydrocarbons in general.Energy experts say rising numbers of Covid infections and growing doubts that China will ease restrictions in major cities are a major reason that oil prices have dropped over the last three weeks to levels last seen before the Russian invasion of Ukraine in late February.“Chinese demand is the largest single factor in world oil demand,” said David Goldwyn, a senior energy diplomat in the Obama administration. “China is the swing demander.”As the Chinese economy has softened in the grip of the Covid lockdown, fewer oil tankers have sailed into Chinese ports in recent weeks, forcing the major Middle Eastern and Russian oil producers to lower their prices. Now spreading protests create another uncertainty about future demand.Chinese oil demand is expected to average 15.1 million barrels a day this quarter, down from 15.8 million a year ago, according to Kpler, an analytics firm.Barriers at a security checkpoint in Guangzhou, a southern Chinese manufacturing hub, this month.Associated PressAs for supply chain disruptions, Neil Shearing, chief economist at Capital Economics, a research firm, said he thought excessive blame had been heaped on China. “Everything has been framed around supply shortages,” he said, but in China, industrial production increased during the pandemic. The problem was that global demand surged more.For now, the biggest economic impact will be within China, rather than on the global economy. Sectors that depend on face-to-face contact — retail, hospitality, entertainment — will take the biggest hit. Over the past three days, measures of people’s movements have drastically fallen, Mr. Shearing said.He added that more people were quarantined now than at the height of the Omicron epidemic last winter. The wave of infections and the government’s response to it — not the protests — are what’s having “the biggest impact on China’s economy,” he said.Clifford Krauss More