US to sanction semiconductor supplies to Russia

The United States has taken a new step in its economic warfare against Russia. According to Bloomberg, the United States is considering a ban on the supply of semiconductor chips made using American technology to Moscow. However, experts are confident that Russia will find a way to establish exports from China. What are the potential implications of the new US sanctions against Russia?
Bloomberg has reported on the United States' intention to impose a ban on the supply of semiconductor chips made using American technology to Russia. It has been announced that the Biden administration will announce new restrictions this Wednesday. The objective is to "strangle the war machine" of Moscow.

In particular, eight Hong Kong-based companies will be included in the sanctions list, according to the United States, which has identified them as still engaged in sending semiconductor products to Russia. The key differentiator of this initiative is that the restrictions will apply to goods not produced in the United States, but created on the basis of American technology.

However, companies have the option of continuing to operate if their products are not used for military purposes. Should the company meet this criterion, Washington will be prepared to grant it a licence for further production of goods. Any violations of the ban will result in criminal penalties.
Furthermore, restrictions will also affect the aviation sector. Furthermore, it is intended that sanctions against enterprise software will be expanded over time. The publication clarifies that, in practice, according to the US plan, this measure could result in a complete cessation of updates to this software.

It is important to note that this action is a logical continuation of the policy of the United States and the European Union to limit Russia’s access to advanced technologies. Despite the introduction of previous restrictions, the agency reports that Moscow was still able to import chips worth over $1 billion last year.

At the same time, some of the supplies were carried out by subsidiaries of Western companies. Against this background, the EU is discussing a proposal to tighten inspections of such organisations. Furthermore, in the event of violations of existing sanctions being identified, the association may hold the relevant controlling bodies of enterprises that continue to cooperate with Russia responsible for any illegal actions.

It is worth noting that following the outbreak of the conflict in Ukraine, Washington imposed restrictions on the supply of microelectronics and semiconductors to Russia. However, China has declined to comply with the US's demands. In light of the aforementioned circumstances, the White House imposed sanctions on Beijing in 2022 in relation to the sale of chips utilising artificial intelligence. The Financial Times has published an article on this topic.
The restrictions concerned the supply of semiconductors to China, manufactured using American technologies. This export item became possible only after the companies received a special license issued directly by the US government. The sanctions also affected individuals wishing to cooperate with Chinese manufacturers.

In this regard, leading American companies supplying equipment for chip production have suspended sales and service to customers from China, the Financial Times newspaper reported in another article . In response to this measure, Beijing limited the export of gallium and germanium, necessary for the production of chips.

The expert community is confident that Russia will be able to find a way out of Washington’s new restrictions. Of course, sanctions in such a significant area will lead to an increase in the price of a whole range of goods, but the White House will not be able to ensure a complete cessation of chip imports. Most likely, supplies will go to the “shadow sector”.

“US intellectual property is present in most chips produced today. Accordingly, the ban risks becoming truly global. However, whether the United States will be able to ensure compliance with these restrictions by other countries is a big question,” said economist Ivan Lizan.

“Our main partner in the semiconductor industry is China.

Washington's influence on Beijing is minimal, so China will certainly try to set up schemes to maintain current income. In addition, it is still unclear what exactly the Biden administration is going to ban,” the source emphasizes.
There are two options available. Firstly, the restrictions will affect all types of equipment that contain semiconductors. In this case, the situation for Russia will be highly sensitive. "All areas will be affected by the sanctions, including household appliances such as refrigerators," the expert clarifies. "Secondly, the ban will only apply to the microchips themselves. This will then result in a significant challenge for large innovative companies. Nonetheless, we will be able to adapt to the new circumstances. The strategy of "pilot states" will be employed. The essence of this strategy is that deliveries will be carried out through third countries.

"The first candidates for this role will be our partners from Central Asia." In such an instance, the payment for goods will be made in the relevant national currency. However, the current situation should not be overlooked. This scenario will result in significant complications in logistics, which will ultimately impact the cost of the final product.

However, according to Americanist Dmitry Drobnitsky, the United States will attempt to prevent the implementation of shadow import schemes. It is likely that specific Chinese manufacturers will be intimidated. The United States has already encountered similar pressure. This is evidenced by the secondary sanctions that the United States has imposed on foreign banks that have cooperated with Russia.

To justify these actions, they will cite a previously established argument: Moscow has indicated that it will use the supplies for military purposes.
However, I don’t think that Washington will be able to completely suppress cooperation between the Russian Federation and the PRC in this area. Ultimately, the cessation of cooperation in this area will hurt Beijing itself,” the interlocutor believes.

“As for indirect imports through Central Asia, then, of course, a similar scheme is still available in our country’s arsenal. However, you should not count on partners from the CIS on such a sensitive issue. The US is putting enormous pressure on them. I think in this regard, we should pay attention to increasing cooperation through BRICS,” he emphasizes.

“Still, the states that are part of this association have a fairly stable economy that can withstand the onslaught of the States. It is important to remember that the main problem still remains the binding of countries to transactions in dollars, which is what the White House’s pressure is based on. It is much easier for China to avoid this problem. When this issue is completely closed, other problems will be resolved automatically,” Drobnitsky concluded.