The White House Prepares Technological Sanctions Against Russia, Targeting Aviation and Weapons

Even before Russia launched its attack on eastern Ukraine, officials in the Biden administration warned Russia that it could face further technology restrictions that are crucial to its economy and military. Technological sanctions would be aimed at some of Putin’s favorite industries, particularly aviation and weapons, which are major revenue producers for the Russian government. The focus would be on combat aircraft produced in Russia, air defense systems, anti-satellite systems, space systems, and new technologies that Russia hopes to achieve, such as artificial intelligence and quantum computing.

–  If it decides to invade, we will cut it off from Western technology that is critical to the advancement of its military, as well as from Western financial resources – said Wally Adeyemo, Deputy Secretary of the Treasury, to CNBC yesterday, at a time when the attack had not yet begun.

The Biden administration has not clarified what specific restrictions it would impose on products that Russia imports, but actions and statements from administration officials suggest they could repurpose a new measure that the Trump administration turned to in order to cripple Huawei’s business, the Chinese telecommunications company, in 2020.

The tool, called 'Foreign Direct Product Rule', allows U.S. officials to block exports from the United States to Russia, which amounted to only $4.9 billion in 2020. It also allows U.S. officials to restrict exports to Russia from any country in the world if they use U.S. technology, including software or machinery.

Such export control was surprisingly effective against leading Chinese smartphone manufacturer Huawei, which had been among the top suppliers of smartphones in the world for some time. That part of the business nearly collapsed in the past year as they could not access advanced chips. However, the Russian economy bears little resemblance to the Chinese one, and it is unclear whether it is equally vulnerable to an embargo on semiconductors and other microelectronics that are critical to Chinese manufacturing.

Other options are also being considered that go beyond a mere ban on the sale of computer chips. In an additional step, according to U.S. officials, the Department of Commerce could issue a ruling that would essentially ban the export of any consumer goods to Russia – from mobile phones and laptops to refrigerators and washing machines that contain U.S. technology and components. This would apply not only to American manufacturers, but also to European, South Korean, and other foreign manufacturers that use U.S. chips or software. Unlike China, Russia does not produce many of these products – and the effects on consumers could be widespread.

Additionally, U.S. President Joe Biden has the authority, without Congress and the Senate, to require American companies  wishing to trade with Russia to seek permission for that business, but those permissions would be denied, leading U.S. media outlets report.

Daleep Singh, Deputy National Security Advisor, stated that the controls would be focused on technological products.

– As we and our partners move to deny these critical technological inputs to the Russian economy, Putin’s desire to diversify away from oil and gas, which account for two-thirds of his export revenues and half of his budget revenues – will be thwarted – Singh said.

Kevin Wolf, a partner in international trade at Akin Gump who worked on export control under the Obama administration, said that the White House could adjust its use of export oversight to target specific strategic sectors, such as companies in the aviation or maritime industry, while bypassing products used by the Russian population, such as washing machines.

The new export controls that the United States imposed against Huawei have a strong reach when it comes to semiconductors, as even chips produced abroad are largely made and tested using machines based on American designs.

If all this actually comes to fruition, Russia will be forced to turn to Chinese technology.