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    What Price Is Right? Why Capping Russian Oil Is Complicated.

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    Officials from the Group of 7 are striving to strike a delicate balance that encourages Russia to keep pumping oil but to sell it at a discount.WASHINGTON — As the United States and its Western counterparts race to finalize the mechanics of an oil price cap intended to starve Russia of revenue and stabilize global energy markets, a crucial question remains unresolved: How should the price be set?The Group of 7 countries that formally backed the price cap concept this month are deliberating how much Russia should be allowed to charge for its oil as they prepare to release more details of the plan. It has emerged as a central question that could determine the success of the novel idea, Russia’s response and the trajectory of oil prices as winter approaches. Setting the price will require aligning the complex array of economic and diplomatic forces that govern volatile oil markets.The consequences of getting the oil price cap wrong could be severe for the world economy, and time is running short. The Biden administration fears that if the cap is not in place by early December, oil prices around the world could skyrocket given Russia’s outsize role as an energy producer. That’s because when a European Union oil embargo and a ban on financial insurance services for Russian oil transactions take effect on Dec. 5, the removal of millions of barrels of Russian oil from the market could send prices soaring.European financing and insurance dominate the global oil market, so the looming sanctions could disrupt exports to parts of the world that do not have their own embargoes — by making it harder or more expensive to get Russian oil at a time when energy costs are already high. The price cap will essentially be an exception to Western sanctions, allowing Russian oil to be sold and shipped as long as it remains below a certain price.The idea has won plaudits from economists who see it as an elegant win-win strategy for the West. But many energy analysts and traders have expressed deep skepticism about the concept. They believe that a fear of sanctions could scare financial services companies off Russian oil, and that Russia and its trading partners will circumvent the cap through new forms of insurance or illicit transactions.The impact of the proposed oil price cap and the potential for unintended consequences are two of the biggest quandaries facing the nations that have been enduring soaring inflation prompted by supply chain disruptions and Russia’s war in Ukraine.The leaders of the Group of 7 in June. In a joint statement this month, the group’s finance ministers said the “initial” price cap would be based on a range of “technical inputs.”Kenny Holston for The New York Times“We are looking at a far more complex oil market,” said Paul Sheldon, a geopolitical risk analyst at S&P Global Platts Analytics. “This is an unprecedented dynamic where you have such a large supplier of oil under unprecedented sanctions. We’re in new territory on several levels.”Exactly how the price cap will be set remains unclear.In a joint statement this month, finance ministers from the Group of 7 said the “initial” price cap would be based on a range of “technical inputs” and decided on by the group of countries that join the agreement. The Treasury Department’s Office of Foreign Assets Control said last week that the price cap would be determined by a “range of factors” and that countries that were part of the price cap coalition would make the decision by consensus. The coalition would be headed by a rotating coordinator from among the countries.A Treasury official said the process for setting the level of the oil price cap would constitute the next phase of the agreement, after technical details about enforcement had been decided and more countries had signed on to the coalition.The State of the WarDramatic Gains for Ukraine: After Ukraine’s offensive in the country’s northeast drove Russian forces into a chaotic retreat, Ukrainian leaders face critical choices on how far to press the attack.In Izium: Following Russia’s retreat, Ukrainian investigators have begun documenting the toll of Russian occupation on the northeastern city. They have already found several burial sites, including one that could hold the remains of more than 400 people.Southern Counteroffensive: Military operations in the south have been a painstaking battle of river crossings, with pontoon bridges as prime targets for both sides. So far, it is Ukraine that has advanced.An Inferno in Mykolaiv: The southern Ukrainian city has been a target of near-incessant shelling since the war began. Firefighters are risking their lives to save as much of it as possible.As U.S. officials think about setting the price cap, they are focused on two numbers: Russia’s cost of producing oil and the price that the commodity historically fetched on global markets before the war in Ukraine sent prices higher.The Biden administration realizes that Russia will not have an incentive to keep producing oil if a cap is set so low that Russia cannot sell it for more than it costs to pump it. However, setting the cap too high will allow Russia to benefit from the upheaval it has caused and blunt the cap’s ability to sufficiently curtail Russia’s oil export revenues.Before the war and the pandemic, Russian crude, known as Urals, typically sold for between $55 and $65 a barrel. Determining Russia’s cost of production is more complicated because some of its wells are more expensive to operate than others. Most estimates are around $40 per barrel.The price cap could settle somewhere among those numbers.Officials are also discussing whether shipping costs should be included in the cap or if it should just include the oil itself. Separate caps would be enacted for Russia’s refined oil products, such as gas oil and fuel oil, that are used for operating machinery and heating homes.A tanker with imported crude oil in China. The Biden administration hopes that even if China does not formally participate in the price cap the country will use it as leverage to negotiate lower prices with Russia.Agence France-Presse — Getty ImagesOil prices have hovered around $90 a barrel in recent weeks. Russian oil is currently selling at a discount of about 30 percent. Some analysts believe that designing the cap as a mandated level below global benchmark prices could be more effective since oil prices can swing sharply.“If you fix it at a certain level, that could create some risks because the market can fluctuate,” said Ben Cahill, a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies, who noted that oil prices could fall below the cap level if it was set too high.“To increase the economic pain on Russia, you want to make the capped price substantially lower than the global average,” he said.As of now, the Treasury Department does not appear to support such an idea. The United States intends for the cap to be a fixed price — one that would be regularly reviewed and could be changed if the countries in the pact agreed to do so. The frequency of the reviews would depend on market volatility. Setting the cap at a discounted rate would introduce additional complexity and compliance burdens, the Treasury official said, because the cap rate could change hourly.Making sure the price cap is adhered to is another hurdle. Treasury Department officials have been holding discussions with banks and maritime insurers to develop a system in which buyers of Russian oil products would “attest” to the price that they had paid, releasing providers of financial services of the responsibility for violations of the cap.In its guidance last week, the Treasury Department said service providers for seaborne Russian oil would not face sanctions as long as they obtained documentation certifying that the cap was being honored. However, it did warn that buyers who knowingly made oil purchases above the price cap using insurance that was subject to the ban “may be a target for a sanctions enforcement action.”The impact of a price cap on global markets is difficult to predict. Mr. Cahill suggested that it could essentially create three tiers of crude, with some Russian oil being sold at the capped price, other Russian oil being sold illicitly or with alternative forms of financing and non-Russian oil being sold by other oil-producing nations.It is not clear how many countries beyond the Group of 7 will join the agreement. The Biden administration is hopeful that even if countries such as China and India do not formally participate they will use it as leverage to negotiate lower prices with Russia.Besides the oil cap’s price, the other big wild card is Russia’s response to it. Russian officials have said they will not sell oil to countries that are part of the price cap coalition, and analysts expect that the country will do its best to fan the volatility with some form of retaliation.The United States hopes that economic logic will prevail and that oil will keep flowing, albeit at a cheaper price.“Russia may bluster and say they won’t sell below the capped price, but the economics of holding back oil just don’t make sense,” Wally Adeyemo, the deputy Treasury secretary, said at a Brookings Institution event last week. “The price cap creates a clear economic incentive to sell under the cap.”Edward Fishman, a senior research scholar at the Center on Global Energy Policy at Columbia University, argued that the price cap could work because the incentives that it would create aligned most buyers, sellers and facilitators of oil transactions toward compliance. He suggested that global oil prices could end up organically gravitating toward the level of the price cap.However, Mr. Fishman acknowledged that Russia and its president, Vladimir V. Putin, might read the incentives differently.“There’s always a sliver of a doubt in people’s minds about Putin’s rationality and his willingness to set the global economy, and his own economy, ablaze in order to make a point,” Mr. Fishman said. More

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    Taiwan and U.S. to Begin Formal Trade Talks

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    The Biden administration said on Wednesday that it would begin formal trade negotiations with Taiwan this fall, after several weeks of rising tensions over the island democracy that China claims as its own.The announcement marks a step toward a pact that would deepen economic and technological ties between the United States and Taiwan, after initial talks were announced in June. But relations between the United States and China have markedly deteriorated since then, on the heels of visits by two delegations of U.S. lawmakers to Taiwan this month, including by Speaker Nancy Pelosi.The trips angered the Chinese government, which sees the island as an incontestable part of its territory, and it has responded by ramping up military drills and firing missiles into the waters around Taiwan. The United States, in turn, has accused China of using the visits as a pretext to step up operations to intimidate Taiwan, and has vowed to maintain its own military operations in the region.Despite its small size, Taiwan is the United States’ eighth-largest trading partner. It is an important market for U.S. agriculture and a key supplier of technology, particularly advanced semiconductors.Talks for the pact, called the U.S.-Taiwan Initiative on 21st-Century Trade, will focus on 11 trade areas, the announcement from the Office of the United States Trade Representative said, including expanding trade in agriculture and digital industries, raising labor and environmental standards, and enhancing trade between small and medium-size businesses.The governments also said they would combat market distortions caused by state-owned enterprises, as well as nonmarket policies and practices — an apparent nod at China, where such practices are common.China responded to the news of the trade talks with displeasure. Shu Jueting, a representative for China’s Ministry of Commerce, said: “China always opposes any form of official exchanges between any country and the Taiwan region of China, including negotiating and signing any agreements with sovereign connotations or an official nature.”She added that China would “take all necessary measures to resolutely safeguard sovereignty, security and development interests.”The U.S.-Taiwan trade initiative will be negotiated by the American Institute in Taiwan, which is the unofficial U.S. embassy in Taipei, and the Taipei Economic and Cultural Representative Office in the United States, which represents Taiwan in Washington in the absence of diplomatic recognition.The Biden administration is also carrying out a separate trade negotiation with 13 Asian nations to form a pact known as the Indo-Pacific Economic Framework. Taiwan has expressed interest in joining those talks, but given its contested status, it has not been invited to participate.In a briefing on Wednesday, Daniel J. Kritenbrink, the assistant secretary of state for East Asian and Pacific affairs, defended what he called “an ambitious road map for trade negotiations” with Taiwan.“We will continue to fulfill our commitments under the Taiwan Relations Act,” he said. “That includes supporting Taiwan’s self-defense and maintaining our own capacity to resist any resort to force or other forms of coercion that would jeopardize Taiwan’s security. And we will continue, consistent with our ‘one China’ policy, to deepen our ties with Taiwan, including through continuing to advance our economic and trade relations.”Austin Ramzy More

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    Congress Is Giving Billions to the Chip Industry. Strings Are Attached.

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    Industrial policy is back in Washington, as a vast semiconductor and science bill gives the government new sway over a strategic industry.WASHINGTON — Amid a global semiconductor shortage, and as lawmakers dithered over a bill to boost U.S.-based chip manufacturing, Intel went to the Biden administration with a proposal that some officials found deeply alarming.Intel told Commerce Department officials that it was considering expanding its manufacturing capacity for chips by taking over an abandoned factory in Chengdu, China. The new facility, the company said, could help ease a global chip crunch that was shuttering car and electronics factories and beginning to fuel inflation.Intel ultimately shelved the plan. But for lawmakers and the administration it became a vivid example of the need to pass legislation aimed at luring the global chip industry back to the United States. It was also an argument for giving the federal government significant influence over the industry, according to lawmakers, congressional aides and administration officials, many of whom requested anonymity to discuss private deliberations.The sprawling bill that Congress finally passed last week, the CHIPS and Science Act, gives the federal government a primary role in deciding which chip makers will benefit from the legislation’s funding. The bill contains $52 billion in subsidies and tax credits for any global chip manufacturer that chooses to set up new or expand existing operations in the United States, along with more than $200 billion toward scientific research in areas like artificial intelligence, robotics and quantum computing.With concerns growing about China’s economic and technological ambitions, the bill includes strict new guardrails for firms considering expanding into China. Chip manufacturers that want to take U.S. funding cannot make new, high-tech investments in China or other “countries of concern” for at least a decade — unless they are producing lower-tech “legacy chips” destined only to serve the local market.The legislation will hand significant power over the private sector to the Commerce Department, which will choose which companies qualify for the money. Already the department has said it will give preference to companies that invest in research, new facilities and work force training, rather than those that engage in the kind of share buybacks that have been prevalent in recent years.“This is not a blank check to these companies,” Gina Raimondo, the secretary of commerce, said in an interview. “There are a lot of strings attached and a lot of taxpayer protections.”Ms. Raimondo’s department also has the authority to review future company investments in China and to claw back funds from any firm that it deems to have broken its rules, as well as the ability to make certain updates to the rules for foreign investment as time goes by.To the bill’s supporters, these provisions represent the benefits of big government spending. The new legislation will not only subsidize advanced research and manufacturing that has withered in the United States in recent decades but also give Washington a bigger role in writing the rules that shape cutting-edge industries globally.It’s an embrace of industrial policy not seen in Washington for decades. Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics who has surveyed U.S. industrial policy, said the bill was the most significant investment in industrial policy that the United States had made in at least 50 years.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    How Joe Manchin Left a Global Tax Deal in Limbo

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    Treasury Secretary Janet L. Yellen’s signature achievement is in jeopardy if the United States cannot ratify the tax agreement that she brokered.WASHINGTON — In June, months after reluctantly signing on to a global tax agreement brokered by the United States, Ireland’s finance minister met privately with Treasury Secretary Janet L. Yellen, seeking reassurances that the Biden administration would hold up its end of the deal.Ms. Yellen assured the minister, Paschal Donohoe, that the administration would be able to secure enough votes in Congress to ensure that the United States was in compliance with the pact, which was aimed at cracking down on companies evading taxes by shifting jobs and profits around the world.It turns out that Ms. Yellen was overly optimistic. Late last week, Senator Joe Manchin III, Democrat of West Virginia, effectively scuttled the Biden administration’s tax agenda in Congress — at least for now — by saying he could not immediately support a climate, energy and tax package he had spent months negotiating with the Democratic leadership. He expressed deep misgivings about the international tax deal, which he had previously indicated he could support, saying it would put American companies at a disadvantage.“I said we’re not going to go down that path overseas right now because the rest of the countries won’t follow, and we’ll put all of our international companies in jeopardy, which harms the American economy,” Mr. Manchin told a West Virginia radio station on Friday. “So we took that off the table.”Mr. Manchin’s reversal, couched in the language used by Republican opponents of the deal, is a blow to Ms. Yellen, who spent months getting more than 130 countries on board. It is also a defeat for President Biden and Democratic leaders in the Senate, who pushed hard to raise tax rates on many multinational corporations in hopes of leading the world in an effort to stop companies from shifting jobs and income to minimize their tax bills.The agreement would have ushered in the most sweeping changes to global taxation in decades, including raising taxes on many large corporations and changing how technology companies are taxed. The two-pronged approach would entail countries enacting a 15 percent minimum tax so that companies pay a rate of at least that much on their global profits no matter where they set up shop. It would also allow governments to tax the world’s largest and most profitable companies based on where their goods and services were sold, not where their headquarters were.Failure to get agreement at home creates a mess both for the Biden administration and for multinational corporations. Many other countries are likely to press ahead to ratify the deal, but some may now be emboldened to hold out, fracturing the coalition and potentially opening the door for some countries to continue marketing themselves as corporate tax havens.For now, the situation will allow for the continued aggressive use of global tax avoidance strategies by companies like the pharmaceutical giant AbbVie. A Senate Finance Committee report this month found that the company made three-quarters of its sales to American customers in 2020, yet reported only 1 percent of its income in the United States for tax purposes — a move that allowed it to slash its effective tax rate to about half of the 21 percent American corporate income tax rate.Not changing international tax laws could also sow new uncertainty for large tech companies, like Google and Amazon, and other businesses that earn money from consumers in countries where they do not have many employees or physical offices. Part of the global agreement was meant to give those companies more certainty on which countries could tax them, and how much they would have to pay.America’s refusal to take part would be a significant setback for Ms. Yellen, whose role in getting the deal done was viewed as her signature diplomatic achievement. For months last year, she lobbied nations around the world, from Ireland to India, on the merits of the tax agreement, only to see her own political party decline to heed her calls to get on board.Treasury Secretary Janet L. Yellen and Finance Minister Paschal Donohoe of Ireland met in Washington last month.Andrew Harnik/Associated PressAfter Mr. Manchin’s comments, the Treasury Department said it was not giving up on the agreement.“The United States remains committed to finalizing a global minimum tax,” Michael Kikukawa, a Treasury spokesman, said in a statement. “It’s too important for our economic strength and competitiveness to not finalize this agreement, and we’ll continue to look at every avenue possible to get it done.”Jared Bernstein, a member of Mr. Biden’s Council of Economic Advisers, told reporters at the White House on Monday that Mr. Biden “remains fully committed” to participating in a global tax agreement.Understand What Happened to Biden’s Domestic AgendaCard 1 of 6‘Build Back Better.’ More

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    U.S. Scrutinizes Swiss Currency Practices

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    The Treasury Department declined to label any country a currency manipulator, but singled out Switzerland as an offender in its semiannual foreign exchange report.WASHINGTON — The Treasury Department said on Friday that it was concerned that some of America’s trading partners were taking actions to weaken their currencies and gain unfair trade advantages against the United States — but declined to label any country a currency manipulator.In its semiannual foreign exchange report, the department singled out Switzerland, which in 2020 was deemed a manipulator, as a worst offender and said it was closely watching the foreign exchange practices of Taiwan and Vietnam. Department officials have been involved in “enhanced bilateral engagement” with all three countries in recent months.“The administration continues to strongly advocate for our major trading partners to carefully calibrate policy tools to support a strong and sustainable global recovery,” Treasury Secretary Janet L. Yellen said in a statement. “An uneven global recovery is not a resilient recovery.”The United States uses three sets of thresholds to determine if a country is weakening the value of its currency. It has broad discretion to determine if a country is manipulating the exchange rate between its currency and the dollar to gain a competitive advantage in international trade.A government can suppress the value of its currency by selling it in foreign exchange markets and stockpiling dollars. By depressing the value of its own currency, a country can make its exports cheaper and more competitive to sell on global markets.The Trump administration labeled Switzerland and Vietnam currency manipulators in 2020, but the Biden administration, seeking a more diplomatic approach, removed the designation.A Treasury official said the United States has had constructive talks with Switzerland over the last year, noting that its economy is facing unusual factors because it is a small and open European economy with a currency, the franc, that is considered a safe haven.Currency manipulation labels are supposed to set off talks with the United States and can involve input from the International Monetary Fund. If the concerns of the Treasury Department are not resolved, the United States can impose an array of penalties, including tariffs.Mark Sobel, the chairman of the Official Monetary and Financial Institutions Forum, noted that the more pressing issue in global currency markets was the strength of the dollar.“The real issue these days is the sharp dollar appreciation, which has clearly been generated by monetary policy divergences between a tightening Fed and others who are less aggressive,” Mr. Sobel said. “It would be hard to fault others.”The United States added Vietnam and Taiwan to its currency “monitoring lists,” a tally that includes China, Japan, South Korea, Germany, Italy, India, Malaysia, Singapore, Thailand and Mexico.The Treasury Department said it was closely watching the foreign exchange activities of China’s state-owned banks. It criticized China for providing “very limited transparency” over how it managed its currency. More

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    U.S. Technology, a Longtime Tool for Russia, Becomes a Vulnerability

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    Global restrictions on sending advanced technology to Russia are hampering the country’s military capacity, U.S. officials say, though Russia has stockpiled American equipment for years.WASHINGTON — With magnifying glasses, screwdrivers and a delicate touch from a soldering gun, two men from an investigative group that tracks weapons pried open Russian munitions and equipment that had been captured across Ukraine.Over a week’s visit to Ukraine last month, the investigators pulled apart every piece of advanced Russian hardware they could get their hands on, such as small laser range finders and guidance sections of cruise missiles. The researchers, who were invited by the Ukrainian security service to independently analyze advanced Russian gear, found that almost all of it included parts from companies based in the United States and the European Union: microchips, circuit boards, engines, antenna and other equipment.“Advanced Russian weapons and communications systems have been built around Western chips,” said Damien Spleeters, one of the investigators with Conflict Armament Research, which identifies and tracks weapons and ammunition. He added that Russian companies had enjoyed access to an “unabated supply” of Western technology for decades.U.S. officials have long been proud of their country’s ability to supply technology and munitions to the rest of the world. But since Russia invaded Ukraine in late February, the United States has faced an unfortunate reality: The tools that Russian forces are using to wage war are often powered by American innovation.Still, while the technology made by American and European companies has been turned against Ukraine, the situation has also given the United States and its allies an important source of leverage against Russia. The United States and dozens of countries have used export bans to cut off shipments of advanced technology, hobbling Russia’s ability to produce weapons to replace those that have been destroyed in the war, according to American and European officials.On Thursday, the Biden administration announced further sanctions and restrictions on Russia and Belarus, adding 71 organizations to a government list that prevents them from buying advanced technology. The Treasury Department also announced sanctions against a yacht-management company that caters to Russian oligarchs.While some analysts have urged caution about drawing early conclusions, saying the measures will take time to have a full effect, the Biden administration has called them a success. Since Western allies announced extensive restrictions on exports of semiconductors, computers, lasers, telecommunications equipment and other goods in February, Russia has had difficulty obtaining microchips to replenish its supply of precision-guided munitions, according to one senior U.S. official, who, along with most other officials interviewed for this article, spoke on the condition of anonymity to discuss matters based on intelligence.On Tuesday, when asked if a chip shortage was crippling the Russian military, Commerce Secretary Gina Raimondo, who oversees export controls, said the answer was “an unqualified yes.”“U.S. exports to Russia in the categories where we have export controls, including semiconductors, are down by over 90 percent since Feb. 24,” she said. “So that is crippling.”The restrictions halt direct technological exports from the United States and dozens of partner nations to Russia. But they also go beyond traditional wartime sanctions issued by the U.S. government by placing limitations on certain high-tech goods that are manufactured anywhere in the world using American machinery, software or blueprints. That means countries that are not in the sanctions coalition with the United States and Europe must also follow the rules or potentially face their own sanctions.Russia has stopped publishing monthly trade data since the invasion, but customs data from its major trading partners show that shipments of essential parts and components have fallen sharply. According to data compiled by Matthew C. Klein, an economics researcher who tracks the effect of the export controls, Russian imports of manufactured goods from nine major economies for which data is available were down 51 percent in April compared with the average from September 2021 to February 2022.The restrictions have rendered the old-school bombing runs on tank factories and shipyards of past wars unnecessary, Mr. Klein wrote. “The democracies can replicate the effect of well-targeted bombing runs with the right set of sanctions precisely because the Russian military depends on imported equipment.”Russia is one of the world’s largest arms exporters, especially to India, but its industry relies heavily on imported inputs. In 2018, Russian sources satisfied only about half of the military-related equipment and services the country needed, such as transportation equipment, computers, optical equipment, machinery and fabricated metal, according to data from the Organization for Economic Cooperation and Development compiled by Mr. Klein.The remainder of equipment and services used by Russia were imported, with about a third coming from the United States, Europe, Japan, Taiwan, Australia and other partner governments that imposed sanctions together on Moscow.A printed circuit board from a cruise missile internal computer collected by Conflict Armament Research during its investigation.via Conflict Armament ResearchU.S. officials say that in concert with a wide variety of other sanctions that ban or discourage commercial relations, the export controls have been highly effective. They have pointed to Russian tank factories that have furloughed workers and struggled with shortages of parts. The U.S. government has also received reports that the Russian military is scrambling to find parts for satellites, avionics and night vision goggles, officials say.Technology restrictions have harmed other Russian industries as well, U.S. officials say. Equipment for the oil and gas industry has been degraded, maintenance for tractors and heavy equipment made by Caterpillar and John Deere has halted, and up to 70 percent of the commercial airplanes operated by Russian airlines, which no longer receive spare parts and maintenance from Airbus and Boeing, are grounded, officials say.But some experts have sounded notes of caution. Michael Kofman, the director of Russia studies at CNA, a research institute in Arlington, Va., voiced skepticism about some claims that the export controls were forcing some tank factories and other defense companies in Russia to shutter.“There’s not been much evidence to substantiate reports of problems in Russia’s defense sector,” he said. It was still too early in the war to expect meaningful supply chain problems in Russia’s defense industry, he said, and the sourcing for those early claims was unclear.Maria Snegovaya, a visiting scholar at George Washington University who has studied sanctions on Russia, said the lack of critical technologies and maintenance was likely to start being felt widely across Russian industry in the fall, as companies run out of parts and supplies or need upkeep on equipment. She and other analysts said even the production of daily goods such as printer paper would be affected; Russian companies had bought the dye to turn the paper white from Western companies.“We expect random disruptions in Russia’s production chains to manifest themselves more frequently,” Ms. Snegovaya said. “The question is: Are Russian companies able to find substitutes?”U.S. officials say the Russian government and companies there have been looking for ways to get around the controls but have so far been largely unsuccessful. The Biden administration has threatened to penalize any company that helps Russia evade sanctions by cutting it off from access to U.S. technology.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

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    Biden Administration Begins Trade Dialogue With Taiwan

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    WASHINGTON — The Biden administration on Wednesday said that it would pursue negotiations to strengthen trade and technology ties with Taiwan, a move that is aimed at countering China’s influence in the Asia-Pacific region and one that is likely to rankle Beijing.The announcement follows the Biden administration’s efforts to build an Asia-Pacific economic bloc, known as the Indo-Pacific Economic Framework, that includes 13 countries and excludes Taiwan.China claims the island, a self-governing democracy that is critical to global technology supply chains, as an incontestable part of its territory.While Taiwan expressed interest in becoming a full member of the Indo-Pacific framework, that prospect was deemed too controversial by many participating countries.The talks with Taiwan will cover many of the same issues as the framework, from digital trade to reducing red tape for importers and exporters. U.S. officials said the talks, the first of which will be held in Washington at the end of June, would focus on a variety of issues, including opening up trade in agriculture and aligning technological standards.Several topics of the discussion are clearly aimed at addressing mutual complaints over Chinese trade practices. U.S. officials said they would work with Taiwan to eliminate forced labor in global supply chains and develop provisions to compete with nonmarket practices from state-owned enterprises.Negotiations will happen along two tracks, with the United States trade representative handling trade issues and the Commerce Department in charge of technology and investment, including coordination on export controls and measures to secure semiconductor supply chains.“Taiwan is an incredibly important partner to us, especially as it relates to semiconductors,” Gina Raimondo, the commerce secretary, said in a briefing Tuesday, adding, “We look forward to continuing to deepen our economic ties with Taiwan.”Taiwan has long pushed for deeper trade ties with the United States. In 2020, it eased restrictions on imports of U.S. beef and pork in an effort to entice the United States into formal negotiations. The following year, the United States and Taiwan resumed some trade talks despite Beijing’s opposition.Since then, a global shortage of semiconductors, among Taiwan’s most valuable exports, has further increased the island’s strategic importance.Because the Biden administration’s negotiations with Taiwan would not include so-called market access provisions that require changes in U.S. law, the administration does not anticipate needing congressional approval for any agreement, senior officials said, though they added that they would continue to consult with Congress on the process.Given Taiwan’s contested status, the two sides will also meet unofficially and under the auspices of the American Institute in Taiwan, which is the de facto U.S. embassy in Taipei, and the Taipei Economic and Cultural Representative Office, which represents Taiwan in the United States in the absence of diplomatic recognition.Senior U.S. officials said in a call with reporters Tuesday that while they didn’t include Taiwan among the initial members negotiating the Indo-Pacific Economic Framework, going forward they intended to take a flexible approach to participation. More

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    Seizing Russian Assets to Help Ukraine Sets Off White House Debate

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    WASHINGTON — The devastation in Ukraine brought on by Russia’s war has leaders around the world calling for seizing more than $300 billion of Russian central bank assets and handing the funds to Ukraine to help rebuild the country.But the movement, which has gained momentum in parts of Europe, has run into resistance in the United States. Top Biden administration officials warned that diverting those funds could be illegal and discourage other countries from relying on the United States as a haven for investment.The cost to rebuild Ukraine is expected to be significant. Its president, Volodymyr Zelensky, estimated this month that it could be $600 billion after months of artillery, missile and tank attacks — meaning that even if all of Russia’s central bank assets abroad were seized, they would cover only half the costs.In a joint statement last week, finance ministers from Estonia, Latvia, Lithuania and Slovakia urged the European Union to create a way to fund the rebuilding of cities and towns in Ukraine with frozen Russian central bank assets, so that Russia can be “held accountable for its actions and pay for the damage caused.”Confiscating the Russian assets was also a central topic at a gathering of top economic officials from the Group of 7 nations at a meeting this month, with the idea drawing public support from Germany and Canada.The United States, which has led a global effort to isolate Russia with stiff sanctions, has been far more cautious in this case. Internally, the Biden administration has been debating whether to join an effort to seize the assets, which include dollars and euros that Moscow deposited before its invasion of Ukraine. Only a fraction of the funds are kept in the United States; much of it was deposited in Europe, including at the Bank for International Settlements in Switzerland.Russia had hoped that keeping more than $600 billion in central bank reserves would help bolster its economy against sanctions. But it made the mistake of sending half those funds out of the country. By all accounts, Russian officials were stunned at the speed at which they were frozen — a very different reaction from the one it faced after annexing Crimea in 2014, when it took a year for weak sanctions to be imposed.Those funds have been frozen for the past three months, keeping the government of President Vladimir V. Putin from repatriating the money or spending it on the war. But seizing or actually taking ownership of them is another matter.At a news conference in Germany this month, Treasury Secretary Janet L. Yellen appeared to close the door on the United States’ ability to participate in any effort to seize and redistribute those assets. Ms. Yellen, a former central banker who initially had reservations about immobilizing the assets, said that while the concept was being studied, she believed that seizing the funds would violate U.S. law.Treasury Secretary Janet L. Yellen has cautioned against seizing Russian central bank assets to help pay for Ukraine’s reconstruction.Ina Fassbender/Agence France-Presse — Getty Images“I think it’s very natural that given the enormous destruction in Ukraine and huge rebuilding costs that they will face, that we will look to Russia to help pay at least a portion of the price that will be involved,” she said. “It’s not something that is legally permissible in the United States.”But within the Biden administration, one official said, there was reluctance “to have any daylight between us and the Europeans on sanctions.” So the United States is seeking to find some kind of common ground while analyzing whether a seizure of central bank funds might, for example, encourage other countries to put their central bank reserves in other currencies and keep it out of American hands.In addition to the legal obstacles, Ms. Yellen and others have argued that it could make nations reluctant to keep their reserves in dollars, for fear that in future conflicts the United States and its allies would confiscate the funds. Some national security officials in the Biden administration say they are concerned that if negotiations between Ukraine and Russia begin, there would be no way to offer significant sanctions relief to Moscow once the reserves have been drained from its overseas accounts.Treasury officials suggested before Ms. Yellen’s comments that the United States had not settled on a firm position about the fate of the assets. Several senior officials, speaking on the condition of anonymity to discuss internal debates in the Biden administration, suggested that no final decision had been made. One official said that while seizing the funds to pay for reconstruction would be satisfying and warranted, the precedent it would set — and its potential effect on the United States’ status as the world’s safest place to leave assets — was a deep concern.In explaining Ms. Yellen’s comments, a Treasury spokeswoman pointed to the International Emergency Economic Powers Act of 1977, which says that the United States can confiscate foreign property if the president determines that the country is under attack or “engaged in armed hostilities.”Legal scholars have expressed differing views about that reading of the law.Laurence H. Tribe, an emeritus law professor at Harvard University, pointed out that an amendment to International Emergency Economic Powers Act that passed after the Sept. 11, 2001, terrorist attacks gives the president broader discretion to determine if a foreign threat warrants confiscation of assets. President Biden could cite Russian cyberattacks against the United States to justify liquidating the central bank reserves, Mr. Tribe said, adding that the Treasury Department was misreading the law.“If Secretary Yellen believes this is illegal, I think she’s flatly wrong,” he said. “It may be that they are blending legal questions with their policy concerns.”Mr. Tribe pointed to recent cases of the United States confiscating and redistributing assets from Afghanistan, Iran and Venezuela as precedents that showed Russia’s assets did not deserve special safeguards.Russia-Ukraine War: Key DevelopmentsCard 1 of 4On the ground. More