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    Supply Chain Hurdles Will Outlast Covid Pandemic, White House Says

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    The administration’s economic advisers see climate change and other factors complicating global trade patterns for years to come.The coronavirus pandemic and its ripple effects have snarled supply chains around the world, contributing to shipping backlogs, product shortages and the fastest inflation in decades.But in a report released Thursday, White House economists argue that while the pandemic exposed vulnerabilities in the supply chain, it didn’t create them — and they warned that the problems won’t go away when the pandemic ends.“Though modern supply chains have driven down consumer prices for many goods, they can also easily break,” the Council of Economic Advisers wrote. Climate change, and the increasing frequency of natural disasters that comes with it, will make future disruptions inevitable, the group said.White House economists analyzed the supply chain as part of the Economic Report of the President. The annual document, which this year runs more than 400 pages, typically offers few new policy proposals, but it outlines the administration’s thinking on key economic issues facing the country, and on how the president hopes to address them.This year’s report focuses on the role of government in the economy, and calls for the government to do more to combat slowing productivity growth, declining labor force participation, rising inequality and other trends that long predated the pandemic.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: Times readers sent us their questions about rising prices. Top experts and economists weighed in.Interest Rates: As it seeks to curb inflation, the Federal Reserve announced that it was raising interest rates for the first time since 2018.How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“The U.S. is among and remains one of the strongest economies in the world, but if we look at trends over the last several decades, some of those trends threaten to undermine that standing,” Cecilia Rouse, chair of the Council of Economic Advisers, said in an interview. The problem is in part that “the public sector has retreated from its role.”The report dedicates one of its seven chapters to supply chains, noting that the once-esoteric subject “entered dinner-table conversations” in 2021. In recent decades, Ms. Rouse and the report’s other authors write, U.S. manufacturers have increasingly relied on parts produced in low-cost countries, especially China, a practice known as offshoring. At the same time, companies have adopted just-in-time production strategies that minimize the parts and materials they keep in inventory.The result, the authors argue, are supply chains that are efficient but brittle — vulnerable to breaking down in the face of a pandemic, a war or a natural disaster.“Because of outsourcing, offshoring and insufficient investment in resilience, many supply chains have become complex and fragile,” they write, adding: “This evolution has also been driven by shortsighted assumptions about cost reduction that have ignored important costs that are hard to turn into financial measures, or that spilled over to affect others.”But some economists noted that making supply chains more resilient could carry its own costs, making products more expensive when inflation is already a major concern.Adam S. Posen, the president of the Peterson Institute for International Economics in Washington, said the pandemic and Russia’s invasion of Ukraine might lead companies to locate at least some of their supply chains in places that were more politically stable and less strategically vulnerable. But pushing companies to duplicate production could waste taxpayer dollars and introduce inefficiencies, raising prices for consumers and lowering growth.“At best you’re paying an insurance premium,” he said. “At worst you’re doing something for completely political reasons that’s very economically inefficient.”Other economists have emphasized that global supply chains are not always a source of fragility — sometimes they can be a source of resilience, too.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Treasury Aims for Economic Pain on Russia, but Critics Question Effectiveness

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    The Treasury Department’s deputy secretary, Wally Adeyemo, has been leading the effort to crack down on evasion and to coordinate with Europe.WASHINGTON — When Russia imposed retaliatory sanctions on top American officials last month, its government targeted President Biden and his top national security advisers, along with Wally Adeyemo, the deputy Treasury secretary, whose agency has been crafting the punitive measures aimed at crippling Russia’s economy.Russia’s move, while wholly symbolic, underscored the central role that the Treasury Department has been playing in designing and enforcing the most expansive financial restrictions that the United States has ever imposed on a major economic power.Those restrictions amount to an economic war against Russia, which is entering a critical phase as the toll of fighting in Ukraine continues to escalate and as the Russian government tries to find ways to evade or mitigate fallout from Western sanctions.In an attempt to prevent Russia from skirting the penalties, Mr. Adeyemo, a 40-year-old former Obama administration official, spent last week crisscrossing Europe to coordinate a crackdown on Russia’s evasion tactics and to plot future sanctions. In meetings with counterparts, Mr. Adeyemo discussed plans by European governments to target the supply chains of Russian defense companies, some of which the U.S. placed under sanctions last week, and he talked about ways the United States could help provide more energy to Europe so European countries could scale back purchases of Russian oil and gas, a Treasury official said.On Wednesday, five days after Mr. Adeyemo returned, the Biden administration announced additional sanctions on Russian banks, state-owned enterprises and the adult daughters of President Vladimir V. Putin.Still, it remains to be seen whether the sweeping penalties aimed at neutering Russia’s economic power are working.Over the past six weeks, the United States and its allies in Europe and Asia have imposed sanctions on large financial institutions in Russia, its central bank, its military-industrial supply chain and Mr. Putin’s allies, seizing their yachts and planes. Imports of Russian oil to the United States have been banned, and Europe is developing plans to wean itself off Russian gas and coal, albeit slowly. This week, the Treasury Department prohibited Russia from making sovereign debt payments with dollars held at American banks, potentially pushing Russia toward its first foreign currency debt default in a century.But thus far Russia has kept paying its debts. Currency controls imposed by Mr. Putin’s central bank, which restricted Russians from using rubles to buy dollars or other hard currencies, along with continuing energy exports to Europe and elsewhere have allowed the ruble to stabilize and are replenishing Russia’s coffers with more dollars and euros. That has raised questions about whether the measures have been effective.“I think we’re grappling with the aftershocks of the shock and awe of the sanctions that were put in place and the recognition that sanctions take time to fully impact an economy,” said Juan C. Zarate, a former assistant secretary of the Treasury for terrorist financing and financial crimes. “It’s asking too much of sanctions to actually turn back the tanks, especially when sanctions have been implemented after the invasion.”At a speech in London last week, Mr. Adeyemo promoted the ability of sanctions to change behavior, describing the measures as a part of the equation that adversaries such as Russia need to consider when they violate international norms.“The idea that you can violate the sovereignty of another country and enjoy the privileges of integration into the global economy is one our allies and partners will not tolerate,” Mr. Adeyemo said at Chatham House, a think tank.Yet even the United States, which is not reliant on Russian energy, has wrestled with how far to go with its penalties.Within the Treasury Department, officials have been in a debate about how far to push the sanctions without creating unintended consequences that would rattle the financial system and inflame inflation, which is soaring across much of the world.The impact on the U.S. economy has been a top priority, and Janet L. Yellen, the Treasury secretary, has expressed concern about measures that would amplify inflation. The sanctions on Russia have already led to higher prices for gasoline, and officials are wary that they could bring spikes in food and car prices as Russian wheat and mineral exports are disrupted.“Our goal from the outset has been to impose maximum pain on Russia, while to the best of our ability shielding the United States and our partners from undue economic harm,” Ms. Yellen told lawmakers on Wednesday.As officials considered how to target the ruble, Ms. Yellen, a former Federal Reserve chair, argued against just imposing a ban on foreign exchange transactions, which would prevent Russia from buying dollars. She suggested instead that immobilizing Russia’s foreign reserves — savings that are held in U.S. dollars, euros and other liquid assets — while creating exemptions for Russia to accept payment for certain energy transactions would be the most effective way to inflict pain on Russia’s economy while minimizing the impact on the United States and its allies.At a congressional hearing this week, Republicans criticized those carve-outs for being giant loopholes that allow Russia to earn hundreds of millions of dollars per day through oil and gas sales.Treasury Department officials have been tracking measures that Russia has been using to prop up its economy, such as buying stocks and bonds, and monitoring signs of a growing black market for rubles, which indicates the currency’s actual diminished value. The Biden administration has watched with concern as the value of the ruble has rebounded in recent weeks, undercutting pronouncements made by Mr. Biden that sanctions reduced the Russian currency to “rubble.”“Of course that means that, having said that, when the ruble rebounds for reasons that do not necessarily indicate weakness of sanctions, people will say, ‘Well, see, they failed,’” said Daniel Fried, a former U.S. ambassador to Poland and assistant secretary of state for Europe.A Treasury official said the United States was also keeping a private list of oligarchs whose financial transactions were under surveillance in preparation for sanctions so they could gain a better understanding of the networks of people that helped those individuals conceal their money. The United States has yet to impose sanctions on Roman Abramovich, a Russian billionaire who is already subject to European Union sanctions.Economists at the Institute of International Finance wrote in a research note this week that Russia’s domestic markets appeared to be stabilizing as a result of tight monetary policy, severe capital controls and its current account surplus.Russia-Ukraine War: Key DevelopmentsCard 1 of 4Missile attack. More

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    Supply Chains Tainted by Forced Labor in China, Panel Told

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    Human rights activists and others urged the Biden administration to cast a wide net to stop imports of products made with forced labor in Xinjiang.WASHINGTON — Human rights activists, labor leaders and others urged the Biden administration on Friday to put its weight behind a coming ban on products made with forced labor in the Xinjiang region of China, saying slavery and coercion taint company supply chains that run through the region and China more broadly.The law, the Uyghur Forced Labor Prevention Act, was signed by President Biden in December and is set to go into effect in June. It bans all goods made in Xinjiang or with ties to certain entities or programs that are under sanctions and transfer minority workers to job sites, unless the importer can demonstrate to the U.S. government that its supply chains are free of forced labor.It remains to be seen how stringently the law is applied, and if it ends up affecting a handful of companies or far more. A broad interpretation of the law could cast scrutiny on many products that the United States imports from China, which is home to more than a quarter of the world’s manufacturing. That could lead to more detentions of goods at the U.S. border, most likely delaying product deliveries and further fueling inflation.The law requires that a task force of Biden administration officials produce several lists of entities and products of concern in the coming months. It is unclear how many organizations the government will name, but trade experts said many businesses that relied on Chinese factories might realize that at least some part or raw material in their supply chains could be traced to Xinjiang.“I believe there are hundreds, perhaps thousands, of companies that fit the categories” of the law, John M. Foote, a partner in the international trade practice at Kelley Drye & Warren, said in an interview.The State Department estimates that the Chinese government has detained more than one million people in Xinjiang in the last five years — Uyghurs, Kazakhs, Hui and other groups — under the guise of combating terrorism.China denounces these claims as “the lie of the century.” But human rights groups, former detainees, participating companies and the Chinese government itself provide ample documentation showing that some minorities are forced or coerced into working in fields, factories and mines, in an attempt to subdue the population and bring about economic growth that the Chinese government sees as key to stability.Rushan Abbas, the founder and executive director of the nonprofit Campaign for Uyghurs, who has written about the detention of her sister in Xinjiang, said at a virtual hearing convened by the task force on Friday that forced labor had become a “profitable venture” for the Chinese Communist Party, and was meant to reduce the overall population in Xinjiang’s villages and towns.“The pervasiveness of the issue cannot be understated,” she said, adding that forced labor was made possible by “the complicity of industry.”Gulzira Auelkhan, an ethnic Kazakh who fled Xinjiang for Texas, said in the hearing that she had been imprisoned for 11 months in Xinjiang alongside ethnic Kazakhs and Uyghurs who were subject to torture and forced sterilization. She also spent two and a half months working in a textile factory making school uniforms for children and gloves, which her supervisors said were destined for the United States, Europe and Kazakhstan, she said through a translator.It is already illegal to import goods made with slave labor. But for products that touch on Xinjiang, the law will shift the burden of proof to companies, requiring them to provide evidence that their supply chains are free of forced labor before they are allowed to bring the goods into the country.Supply chains for solar products, textiles and tomatoes have already received much scrutiny, and companies in those sectors have been working for months to eliminate any exposure to forced labor. By some estimates, Xinjiang is the source of one-fifth of the world’s cotton and 45 percent of its polysilicon, a key material for solar panels.But Xinjiang is also a major provider of other products and raw materials, including coal, petroleum, gold and electronics, and other companies could face a reckoning as the law goes into effect.In the hearing on Friday, researchers and human rights activists presented allegations of links to forced labor programs for Chinese manufacturers of gloves, aluminum, car batteries, hot sauce and other goods.Horizon Advisory, a consultancy in Washington, claimed in a recent report based on open-source documents that the Chinese aluminum sector had numerous “indicators of forced labor,” like ties to labor transfer programs and the Xinjiang Production and Construction Corps, which has been a target of U.S. government sanctions for its role in Xinjiang abuses.Xinjiang accounts for about 9 percent of the global production of aluminum, which is used to produce electronics, automobiles, planes and packaging in other parts of China.The State Department estimates that China has detained more than one million people in Xinjiang in the last five years. The Urumqi No. 3 Detention Center has room for at least 10,000 people. Mark Schiefelbein/Associated Press“China is an industrial hub for the world,” Emily de La Bruyère, a co-founder of Horizon Advisory, said at the hearing.The Latest on China: Key Things to KnowCard 1 of 4Marriages and divorces. More

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    Amid Sanctions, Putin Reminds the World of His Own Economic Weapons

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    The Russian leader has stabilized the ruble and kept Europe’s leaders guessing by threatening to cut off energy. But he has left the country financially isolated.LONDON — In the five weeks since Russia invaded Ukraine, the United States, the European Union and their allies began an economic counteroffensive that has cut off Russia’s access to hundreds of billions of dollars of its own money and halted a large chunk of its international commerce. More than 1,000 companies, organizations and individuals, including members of President Vladimir V. Putin’s inner circle, have been sanctioned and relegated to a financial limbo.But Mr. Putin reminded the world this past week that he has economic weapons of his own that he could use to inflict some pain or fend off attacks.Through a series of aggressive measures taken by the Russian government and its central bank, the ruble, which had lost nearly half of its value, clawed its way back to near where it was before the invasion.And then there was the threat to stop the flow of gas from Russia to Europe — which was set off by Mr. Putin’s demand that 48 “unfriendly countries” violate their own sanctions and pay for natural gas in rubles. It sent leaders in the capitals of Germany, Italy and other allied nations scrambling and showcased in the most visible way since the war began how much they need Russian energy to power their economies.It was that dependency that caused the United States and Europe to exempt fuel purchases from the stringent sanctions they imposed on Russia at the start of the war. The European Union gets 40 percent of its gas and a quarter of its oil from Russia. A cutoff from one day to the next, Chancellor Olaf Scholz of Germany warned this past week, would plunge “our country and the whole of Europe into a recession.”President Vladimir V. Putin has taken steps to insulate Russia’s economy from the impact of sanctions and to prop up the ruble.Pool photo by Mikhail KlimentyevFor the time being, it appears that the prospect of an imminent stoppage of gas has been averted. But Mr. Putin’s sudden demand for rubles helped prompt Germany and Austria to prepare their citizens for what might come. They took the first official steps toward rationing, with Berlin starting the “early warning” phase of planning for a natural gas emergency.Although President Biden has announced plans to release 180 million barrels of oil from the U.S. reserve supply over the next six months and diverted more liquefied natural gas to Europe, that still would not be enough to replace all of what Russia supplies. Russian oil exports normally represent more than one of every 10 barrels the world consumes.Europe’s ongoing energy purchases send as much as $850 million each day into Russia’s coffers, according to Bruegel, an economics institute in Brussels. That money helps Russia to fund its war efforts and blunts the impact of sanctions. Because of soaring energy prices, gas export revenues from Gazprom, the Russian energy giant, injected $9.3 billion into the country’s economy in March alone, according an estimate by Oxford Economics, a global advisory firm.“The lesson for the West is that the effectiveness of financial sanctions can only go so far absent trade sanctions,” the firm said in a research briefing.Mr. Putin’s feints and jabs — at one point this past week he promised to stop and continue gas deliveries in the same statement — have also kept European leaders off-balance as they try to divine his strategy and motivations.The war has prompted democracies to move away from relying on Russian exports. They’ve proposed cutting natural gas deliveries by two-thirds before next winter and to end them altogether by 2027. Those goals may be overly ambitious, experts say.In any case, the transition to other suppliers and eventually to more renewable energy sources will be expensive and painful. On the whole, Europeans may be poorer and colder at least for a few years because of spiraling prices and dampened economic activity caused by energy shortages.And unlike in Russia, governments in these countries have to answer to voters.“Putin has already demonstrated he’s willing to sacrifice civilians — his and Ukrainians — to score a win,” said Meg Jacobs, a historian at Princeton University. For European democracies, turning down thermostats, reducing speed limits and driving less is a choice, she said. “It only works with mass cooperation.”A liquefied natural gas facility in Italy. President Biden has diverted more gas to Europe, but that will still not be enough to replace what Russia supplies.Clara Vannucci for The New York TimesBut leverage, like gas, is a limited resource. And Mr. Putin’s willingness to use it now means that he will have less of it in the future. It will not be an easy transition for Russia either. Most analysts believe that Europe’s aggressive moves to reduce its reliance on Russian energy will have far-reaching consequences, however.“They are done with Russian gas,” David L. Goldwyn, who served as a State Department special envoy on energy in the Obama administration, said of Europe. “I think even if this war would end, and even if you had a new government in Russia, I think there’s no going back.”The European Commission president, Ursula von der Leyen, said as much when she announced the new energy plan last month: “We simply cannot rely on a supplier who explicitly threatens us.”Security concerns aren’t the only development that has undermined Russia’s standing as a long-term energy supplier. What seemed surprising to economists, lawyers and policymakers about Mr. Putin’s demand to be paid in rubles was that it would have violated sacrosanct negotiated contracts and revealed Russia’s willingness to be an unreliable business partner.As he has tried to wield his energy clout externally, Mr. Putin has taken steps to insulate Russia’s economy from the impact of sanctions and to prop up the ruble. Few things can undermine a country as systemically as an abruptly weakened currency.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Biden Invokes Cold War Statute to Boost Critical Mineral Supply

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    The action aims to enhance American production of crucial materials for electric vehicles, defense systems and other technologies.WASHINGTON — President Biden took steps on Thursday to try to increase domestic production of critical minerals and metals needed for advanced technologies like electric vehicles, in an attempt to reduce America’s reliance on foreign suppliers.Mr. Biden invoked the Defense Production Act, a move that will give the government more avenues to provide support for the mining, processing and recycling of critical materials, such as lithium, nickel, cobalt, graphite and manganese. Those are used to make large-capacity batteries for electric cars and clean-energy storage systems. Yet except for a handful of mines and facilities, they are almost exclusively produced outside the United States.“We need to end our long-term reliance on China and other countries for inputs that will power the future,” Mr. Biden said during remarks at the White House, where he also announced the release of one million barrels of oil per day from the Strategic Petroleum Reserve.The Defense Production Act is a Cold War-era statute that gives the president access to funding and other enhanced powers to shore up the American industrial base and ensure the private sector has the necessary resources to defend national security and face emergencies.In a determination issued Thursday, the president said that the United States depended on “unreliable foreign sources” for many materials necessary for transitioning to the use of clean energy, and that demand for such materials was projected to increase exponentially.Mr. Biden directed his secretary of defense to bolster the critical mineral supply by supporting feasibility studies for new projects, encouraging waste reclamation at existing sites, and modernizing or increasing production at domestic mines for lithium, nickel, cobalt, graphite and other so-called critical minerals.The secretary of defense would also conduct a survey of the domestic industrial base for critical minerals and submit that to the president and Congress, the presidential determination said.A person familiar with the matter said the actions being contemplated wouldn’t be loans or direct purchases of minerals, but rather funding studies and the expansion or modernization of new and existing sites.The administration will also review potential further uses of the act in relation to the energy sector, according to a White House announcement on Thursday.The United States imported more than half its supply of at least 46 minerals in 2020, and all of its supply of 17 of them, according to the U.S. Geological Survey. Many of the materials come from China, which leads the world in lithium ion battery manufacturing and has been known to shut off exports of certain products in times of political tensions, including rare earth minerals.The Biden administration has warned that a dependence on foreign materials poses a threat to America’s security, and promised to expand domestic supplies of semiconductors, batteries and pharmaceuticals, among other goods. While the United States does have some unexplored deposits of nickel, cobalt and other crucial minerals and metals, developing mines and processing sites can take many years. Two-thirds of the world’s entire production of cobalt is in the Democratic Republic of Congo, where Chinese companies owned or financed 15 of the 19 largest mines as of 2020.But bipartisan support for expanding American mining and processing of battery components has grown in recent years. In a March 11 letter to Mr. Biden, senators including Lisa Murkowski, a Republican of Alaska, and Joe Manchin III, a Democrat of West Virginia, proposed invoking the Defense Production Act to accelerate domestic production of the components of lithium-ion battery materials, particularly graphite, manganese, cobalt, nickel and lithium.Todd M. Malan, the head of climate strategy for Talon Metals, which is developing a nickel mine in Minnesota, said Washington had reached a bipartisan consensus around providing more support for the domestic mining of electric vehicle battery minerals “driven by concern about reliance on Russia and China for battery materials as well as the energy transition imperative.”But some domestic developments may face opposition from environmentalists in Mr. Biden’s own party.Representative Raúl M. Grijalva, an Arizona Democrat who chairs the Natural Resources Committee, said in a statement Wednesday that mining companies were “making opportunistic pleas to advance a decades-old mining agenda that lets polluters off the hook and leaves Americans suffering the consequences.”“Fast-tracking mining under antiquated standards that put our public health, wilderness, and sacred sites at risk of permanent damage just isn’t the answer,” he added.Dionne Searcey More

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    Soaring Cost of Diesel Ripples Through the Global Economy

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    Farmers are spending more to keep tractors and combines running. Shipping and trucking companies are passing higher costs to retailers, which are beginning to pass them on to shoppers. And local governments are paying hundreds of thousands of dollars extra to fill up school buses. Construction costs could soon rise, too.The source is the sudden surge in the price of diesel, which is quietly undercutting the American and global economies by pushing up inflation and pressuring supply chains from manufacturing to retail. It is one more cost of the war in Ukraine. Russia is a major exporter of both diesel and the crude oil that diesel is made from in refineries.Car owners in the United States have been shocked by gasoline prices of more than $4 a gallon, but there has been an even bigger increase in the price of diesel, which plays a critical role in the global economy because it powers so many different kinds of vehicles and equipment. A gallon of diesel is selling for an average of $5.19 in the United States, according to government figures, up from $3.61 in January. In Germany, the retail price has shot up to 2.15 euros a liter, or $9.10 a gallon, from €1.66 at the end of February, according to ADAC, the country’s version of AAA.Fueling stations in Argentina have begun rationing diesel, jeopardizing one of the world’s leading agricultural economies, and energy analysts warn that the same could soon happen in Europe, where some businesses report spending twice as much on diesel as they did a year ago.“Not only is it a historic level, but it’s increased at a historic pace,” said Mac Pinkerton, president of North American surface transportation for C.H. Robinson, which provides supply chain services to trucking companies and other customers. “We have never experienced anything like this before.”The sharp jump is putting immense pressure on trucking firms, especially smaller operations that are already suffering from driver shortages and scarce spare parts. Many can pass increased fuel costs on to their customers only after a few weeks or months.Eventually consumers will feel the effect in higher prices for all manner of goods. While hard to quantify, inflation will be most visible for big-ticket items like automobiles or home appliances, economists say.“Really, everything that we buy online or in a store is on a truck at some point,” said Bob Costello, the chief economist for American Trucking Associations.Trucks lining up on Terminal Island between the Port of Long Beach and the Port of Los Angeles.Alex Welsh for The New York TimesManufacturers are also heavy users of diesel, leading to higher prices for factory goods. Food will go up in price because farm equipment generally runs on diesel.“It’s not just the fuel we put into pickups, tractors, combines,” said Chris Edgington, an Iowa corn farmer. “It’s a cost of transporting those goods to the farm, it’s a cost of transporting them away.”At the start of the pandemic, diesel prices dropped steeply as the global economy slowed, factories shut down and stores closed. But beginning in early 2021 there was a sharp rebound as truck and rail traffic resumed. Prices, which increased pretty steadily last year, picked up momentum in January as Russia massed troops near Ukraine and then invaded. Low stockpiles of the fuel, particularly in Europe, have added to the price pressures.“Diesel is the most sensitive, the most cyclical product in the oil industry,” said Hendrik Mahlkow, a researcher at the Kiel Institute for the World Economy in Germany who has studied commodity prices. “Rising prices will distribute through the whole value chain.”Refineries, which turn crude oil into fuels that can be used in cars and trucks, have tried to play catch-up on both sides of the Atlantic in recent months. But they have not been able to make more diesel, gasoline and jet fuel fast enough. That is in part because refineries have closed in Europe and North America in recent years and more of the world’s fuels are being refined in Asia and the Middle East.Since January 2019, refinery capacity has declined 5 percent in the United States and 6 percent in Europe, according to Turner, Mason & Company, a consulting firm in Dallas.Europe is particularly vulnerable because it relies on Russia for as much as 10 percent of its diesel. Europe’s own diesel production is also dependent on Russia, which is a big supplier of crude oil to the continent. Some analysts say Europe may have to begin rationing diesel as early as next month unless the shortage eases.Diesel prices and Germany’s dependence on Russian energy were among the factors that on Wednesday prompted Germany’s Council of Economic Experts to cut its forecast for growth in 2022 by more than half, to 1.8 percent.Russian diesel has been flowing to Europe since the invasion last month, but traders, banks, insurance companies and shippers are increasingly turning away from the country’s diesel, oil and other exports.Several large European oil companies have announced that they are leaving Russia. TotalEnergies, the French oil giant, said this month that it would stop buying Russian diesel and oil by the end of the year.The market for oil and diesel is global, and companies can usually find another source if their main supplier can’t deliver. But no oil company or country can quickly make up for the loss of Russian energy.Saudi Arabia, for example, has not increased diesel exports because one of its largest refineries is undergoing maintenance. The kingdom and its allies in OPEC Plus have also refused to ramp up crude oil production because they are happy to have oil prices stay high. Russia belongs to the group and has significant sway over its fellow members.Christine Hemmel is a manager of a trucking company in Ober-Ramstadt, Germany, that has been in her family for four generations. Her family’s business has almost all the challenges that medium-size haulers have faced since the pandemic’s outbreak.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Russia-Ukraine War Is Reshaping How Europe Spends

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    Romania is buying iodine pills. Ireland enacted special incentives for its farmers to till essential crops. And military spending is rising across the continent.Nicolae Ciuca spent a lifetime on the battlefield before being voted in as prime minister of Romania four months ago. Yet even he did not imagine the need to spend millions of dollars for emergency production of iodine pills to help block radiation poisoning in case of a nuclear blast, or to raise military spending by 25 percent in a single year.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” Mr. Ciuca, a retired general, said through a translator at Victoria Palace, the government’s headquarters in Bucharest. “We never expected this kind of war in the 21st century.”Across the European Union and Britain, Russia’s invasion of Ukraine is reshaping spending priorities and forcing governments to prepare for threats thought to have been long buried — from a flood of European refugees to the possible use of chemical, biological and even nuclear weapons by a Russian leader who may feel backed into a corner.The result is a sudden reshuffling of budgets as military spending, essentials like agriculture and energy, and humanitarian assistance are shoved to the front of the line, with other pressing needs like education and social services likely to be downgraded.The most significant shift is in military spending. Germany’s turnabout is the most dramatic, with Chancellor Olaf Scholz’s promise to raise spending above 2 percent of the country’s economic output, a level not reached in more than three decades. The pledge included an immediate injection of 100 billion euros — $113 billion — into the country’s notoriously threadbare armed forces. As Mr. Scholz put it in his speech last month: “We need planes that fly, ships that sail and soldiers who are optimally equipped.”The commitment is a watershed moment for a country that has sought to leave behind an aggressive military stance that contributed to two devastating world wars.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” said Nicolae Ciuca, prime minister of Romania.Cristian Movila for The New York TimesA wartime mind-set has also spread to sectors aside from defense. With prices soaring for oil, animal feed and fertilizer, Ireland introduced a “wartime tillage” program last week to amp up grain production, and created a National Fodder and Food Security Committee to manage threats to the food supply.Farmers will be paid up to €400 for every additional 100-acre block that is planted with a cereal crop like barley, oats or wheat. Planting additional protein crops like peas and beans will earn a €300 subsidy.“The illegal invasion in Ukraine has put our supply chains under enormous pressure,” Charlie McConalogue, the agriculture minister, said in announcing the $13.2 million package. Russia is the world’s largest supplier of wheat and with Ukraine accounts for nearly a quarter of total global exports.Spain has been running down its supplies of corn, sunflower oil and some other produce that also come from Russia and Ukraine. “We’ve got stock available, but we need to make purchases in third countries,” Luis Planas, the agriculture minister, told a parliamentary committee.Mr. Planas has asked the European Commission to ease some rules on Latin American farm imports, like genetically modified corn for animal feed from Argentina, to offset the lack of supply.Extraordinarily high energy prices have also put intense pressure on governments to cut excise taxes or approve subsidies to ease the burden on families that can’t afford to heat every room in their home or fill their car’s gas tank.Ireland reduced gasoline taxes, and approved an energy credit and a lump-sum payment for lower-income households. Germany announced tax breaks and a $330-per-person energy subsidy, which will end up costing the treasury $17.5 billion.Ireland introduced a “wartime tillage” program last week to increase grain production.Niall Carson – PA Images, via Getty ImagesIn Spain, the government agreed last week to defray the cost of gasoline in response to several days of strikes by truckers and fishermen, which left supermarkets without fresh supplies of some of their most basic items.And in Britain, a cut in fuel taxes and support for poorer households will cost $3.2 billion.The outlook is a change from October, when Rishi Sunak, Britain’s chancellor of the Exchequer, announced a budget for what he called an “economy fit for a new age of optimism,” with large increases in education, health and job training.In his latest update to Parliament, Mr. Sunak warned that “we should be prepared for the economy and public finances to worsen potentially significantly,” as the country faces the biggest drop in living standards it has ever seen.The energy tax relief was welcomed by the public, but the reduced revenues put even more pressure on governments that are already managing record high debt levels.“The problem is that some countries have quite a big chunk of legacy debt — in Italy and France, it’s over 100 percent of gross domestic product,” said Lucrezia Reichlin, an economics professor at the London Business School, referring to the huge amounts spent to respond to the pandemic. “That is something which is very much new for the economic governance of the union.” European Union rules, which were temporarily suspended in 2020 because of the coronavirus, limit government debt to 60 percent of a country’s economic output.And the demands on budgets are only increasing. European Union leaders said this month that the bill for new defense and energy spending could run as high as $2.2 trillion.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Why the U.S. Can’t Quickly Wean Europe From Russian Gas

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    The Biden administration’s plan to send more natural gas to Europe will be hampered by the lack of export and import terminals.HOUSTON — President Biden announced Friday that the United States would send more natural gas to Europe to help it break its dependence on Russian energy. But that plan will largely be symbolic, at least in the short run, because the United States doesn’t have enough capacity to export more gas and Europe doesn’t have the capacity to import significantly more.In recent months, American exporters, with President Biden’s encouragement, have already maximized the output of terminals that turn natural gas into a liquid easily shipped on large tankers. And they have diverted shipments originally bound for Asia to Europe.But energy experts said that building enough terminals on both sides of the Atlantic to significantly expand U.S. exports of liquefied natural gas, or L.N.G., to Europe could take two to five years. That reality is likely to limit the scope of the natural gas supply announcement that Mr. Biden and the European Commission president, Ursula von der Leyen, announced on Friday.“In the near term there are really no good options, other than begging an Asian buyer or two to give up their L.N.G. tanker for Europe,” said Robert McNally, who was an energy adviser to former President George W. Bush. But he added that once sufficient gas terminals were built, the United States could become the “arsenal for energy” that helps Europe break its dependence on Russia. Friday’s agreement, which calls on the United States to help the European Union secure an additional 15 billion cubic meters of liquefied natural gas this year, could also undermine efforts by Mr. Biden and European officials to combat climate change. Once new export and import terminals are built, they will probably keep operating for several decades, perpetuating the use of a fossil fuel much longer than many environmentalists consider sustainable for the planet’s well-being.For now, however, climate concerns appear to be taking a back seat as U.S. and European leaders seek to punish President Vladimir V. Putin of Russia for invading Ukraine by depriving him of billions of dollars in energy sales.The United States has already increased energy exports to Europe substantially. So far this year, nearly three-quarters of U.S. L.N.G. has gone to Europe, up from 34 percent for all of 2021. As prices for natural gas have soared in Europe, American companies have done everything they can to send more gas there. The Biden administration has helped by getting buyers in Asian countries like Japan and South Korea to forgo L.N.G. shipments so they could be sent to Europe.The United States has plenty of natural gas, much of it in shale fields from Pennsylvania to the Southwest. Gas bubbles out of the ground with oil from the Permian Basin, which straddles Texas and New Mexico, and producers there are gradually increasing their output of both oil and gas after greatly reducing production in the first year of the pandemic, when energy prices collapsed.But the big problem with sending Europe more energy is that natural gas, unlike crude oil, cannot easily be put on oceangoing ships. The gas has to first be chilled in an expensive process at export terminals, mostly on the Gulf Coast. The liquid gas is then poured into specialized tankers. When the ships arrive at their destination, the process is run in reverse to convert L.N.G. back into gas.A large export or import terminal can cost more than $1 billion, and planning, obtaining permits and completing construction can take years. There are seven export terminals in the United States and 28 large-scale import terminals in Europe, which also gets L.N.G. from suppliers like Qatar and Egypt.Some European countries, including Germany, have until recently been uninterested in building L.N.G. terminals because it was far cheaper to import gas by pipeline from Russia. Germany is now reviving plans to build its first L.N.G. import terminal on its northern coast.A pier in Wilhelmshaven, Germany, the port where Uniper, a German energy company, wanted to build a liquified natural gas terminal before it was shelved. Now Germany is reviving plans to build it.The New York Times“Europe’s need for gas far exceeds what the system can supply,” said Nikos Tsafos, an energy analyst at the Center for Strategic and International Studies in Washington. “Diplomacy can only do so much.”In the longer term, however, energy experts say the United States could do a lot to help Europe. Along with the European Union, Washington could provide loan guarantees for U.S. export and European import terminals to reduce costs and accelerate construction. Governments could require international lending institutions like the World Bank and the European Investment Bank to make natural gas terminals, pipelines and processing facilities a priority. And they could ease regulations that gas producers, pipeline builders and terminal developers argue have made it more difficult or expensive to build gas infrastructure.Charif Souki, executive chairman of Tellurian, a U.S. gas producer that is planning to build an export terminal in Louisiana, said he hoped the Biden administration would streamline permitting and environmental reviews “to make sure things happen quickly without micromanaging everything.” He added that the government could encourage banks and investors, some of whom have recently avoided oil and gas projects in an effort to burnish their climate credentials, to lend to projects like his.“If all the major banks in the U.S. and major institutions like BlackRock and Blackstone feel comfortable investing in hydrocarbons, and they are not going to be criticized, we will develop $100 billion worth of infrastructure we need,” Mr. Souki said.A handful of export terminals are under construction in the United States and could increase exports by roughly a third by 2026. Roughly a dozen U.S. export terminal projects have been approved by the Federal Energy Regulatory Commission but can’t go ahead until they secure financing from investors and lenders.“That’s the bottleneck,” Mr. Tsafos said.Roughly 10 European import terminals are being built or are in the planning stages in Italy, Belgium, Poland, Germany, Cyprus and Greece, but most still don’t have their financing lined up.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More