A decision to cut off the flow of technology goods and services to Russia, among a raft of restrictions set in motion in response to the invasion of Ukraine, might not amount to much. It will take time before the moves have any impact, and there are ways to circumvent the sanctions’ effects. Yet the new rules serve as a reminder to Moscow that it will struggle over time to operate a healthy economy without access to state-of-the-art products.
The Biden administration on Thursday announced that the US and its partners would impose measures that would inflict “severe and immediate economic costs on Russia.” In addition to blocking access to financial services, the US will restrict exports to Russia of a range of technology products including semiconductors, encryption software, lasers and aviation equipment. The ban extends to sensitive technologies produced in foreign countries using software or other equipment developed in the US.
Despite the ban’s broad sweep, it shouldn’t be too difficult for Russia to find a way around it. For starters, most programming work today is carried out on desktop computers, servers and other equipment that is readily available in physical stores around the world. Russians in need of replacement hardware probably will be able to purchase it covertly in other countries and transport it home.
China could be another path around the sanctions. Russian President Vladimir Putin has built a close strategic relationship with President Xi Jinping and could turn to Chinese tech gear in a pinch.
But the biggest challenge to making tech sanctions work might be the sheer durability of modern computers. Earlier this month, Amazon.com Inc.’s cloud provider Amazon Web Services extended the projected lifespan for its servers and network equipment by one year to five and six years, respectively, citing the hardware’s better efficiency and reliability. Google parent Alphabet Inc. made a similar move this year on machines used for businesses such as Google Cloud.
This doesn’t mean Russia will be immune from needing to regularly upgrade its technology. But it gives businesses and government agencies more leeway to hold off on replacing critical equipment.
Restrictions imposed on Russia likely won’t have a pronounced financial impact on the technology industry. Russia accounts for just 0.1% of global semiconductor purchases, and a mere $25 billion of the multitrillion-dollar global market in information communication technology products, according to the Semiconductor Industry Association. US sales of chips to Russia amounted to just $114 million out of $6.4 billion in outbound trade last year. The European Union’s exports reveal an even more lopsided picture. Of the 79 billion euros ($97 billion) in exports to Russia in 2020, telecommunications and electronics accounted for less than 5%, and chips a mere 0.8%.
But the relatively low importance of tech exports, measured in dollars, may matter less than having the US and its allies signal that if Russia can’t act like a responsible international citizen, it eventually will lose access to the best products the world has to offer. Over the past two years, we’ve seen the butterfly effect that component shortages can have on industries ranging from electronics to cars. If, for example, Russia can’t import sophisticated oil extraction machinery because it uses Taiwanese-made chips built on American technology, then that could put pressure on Putin and the wartime economy he is trying to manage.
To bolster the cause, tech companies in the US and elsewhere need to come aboard willingly — not just because they are legally required to. Some have already done so. The US chip industry is “fully committed to complying with the new export control rules,” the semiconductor association said. And key US partners such as Taiwan, home to chipmaking giant Taiwan Semiconductor Manufacturing Co., have declared that they are ready to back the sanctions.
Others were more muted in their response. “I am deeply concerned with the situation in Ukraine,” Apple Inc. Chief Executive Officer Tim Cook tweeted. He pledged support for humanitarian efforts without condemning the invasion or even naming Russia. Such non-committal statements don’t help build a sense that all aspects of industry and society are in unity.
As the tragedy in Ukraine unfolds, more companies and business leaders might start to take a clearer stand. And their statements will be welcomed. For now, though, symbolism will have to do.
Bloomberg
