September 28, 2022

Chronicle-From chips to raw materials, the war in Ukraine defies globalization: Peter Apps

By Peter Apps

LONDON (Reuters) – As experts examine the charred remains of Russian missiles that slammed into Ukrainian apartment buildings and strategic sites, they point to a frequent common detail: the names and codes of manufacturers neatly scratched across the chips, leaving deliberately their origin at least initially hidden.

Now more than 100 days old, Russia’s invasion of Ukraine both highlights and threatens what, for the first part of the century, was a largely uncontested path to industrial, economic and supply chain globalization. supply – but now faces severe and wild headwinds.

Already, the conflict has upended the world’s food and fuel supply, seen the world’s most established companies leave Russia following Western sanctions and Moscow and NATO states blame each other for a looming global food crisis. But it has also energized growing global competition in chipmaking at the heart of modern technology.

This is part of a trend seen during the COVID-19 pandemic vaccine race and which has since intensified. Major countries and blocs seek to trade decades of reliance on global supply networks beyond their control for closer sources they trust, a process that brings its inherent challenges and new problems.

At the United Nations Security Council last month, Ghana’s Foreign Minister Shirley Ayorkor Botchwey warned that war was impacting lives around the world on a scale not seen since World War II, when a Sudden realignment of global supply routes triggered shortages that killed between 2 and 4 people. million people in the Indian state of Bengal alone.

In the short term, the central role of Russia and Ukraine in global and regional food and energy supplies has become the main challenge for Western efforts to isolate Russia from the world economy, oil, gas and Russian cereals continuing to reach international markets, albeit at a discount.

This offers a sort of lifeline to the Kremlin. Senegalese President and African Union Chair Macky Sall met his Russian counterpart Vladimir Putin on Friday, calling for an end to Western sanctions even as the United States and European Union blame the Russian invasion and the de facto blockade of the Ukrainian port of Odessa for having reduced its exports and “militarized” food.

COMPLEX NETWORKS

The importance of access to globalized networks, however, goes both ways – and nowhere is this truer than technology.

In the years following the fall of the Berlin Wall and the collapse of the Soviet Union, it was often predicted that the growth of a globalized capitalist economy would make war more difficult, potentially leading to a worldwide trend towards democracy. Steps. At the very least, the position of Western states, particularly the United States, at its heart gave them an advantage in meting out sanctions and hardship on those perceived to be breaking the rules.

The war in Ukraine – as well as Western efforts to pressure China over human rights and Iran over its atomic program – have shown that there is some truth to this. Russia finds itself cut off from large swathes of the global economy, with the threat of harsh US sanctions deterring even many Chinese companies from further involvement, especially when it comes to rearming the Kremlin.

Russia is believed to have used a significant amount of the chips needed for its long-range precision munitions – with Taiwan among those who imposed an embargo from the start of the invasion.

The Kremlin, it is now increasingly clear, has been heavily dependent on Western manufacturers and Western allies for chips for its precision weapons and key industries, including oil and gas. China has similar concerns and, like Russia, finds itself increasingly isolated from chips in Taiwan, the world’s largest semiconductor supplier.

MANDATORY MARKETS

Inevitably, Russia’s invasion of Ukraine – and fears that China will do the same with Taiwan – have further intensified nerves about the effect the war might have on the rest of the world, both through its immediate effect and by the wider consequences of potential Russian-level sanctions against China. , the world’s largest exporter and second largest economy and importer.

Taiwan’s position at the center of the global semiconductor industry – thanks in large part to Taiwan Semiconductor Manufacturing Co, the world’s largest microchip foundry – has garnered increasing attention since a global chip shortage began. in 2019 with the United States, the European Union, Japan and China. efforts to stimulate their own national production.

In 2020, jointly driven by chip shortages, concerns about Chinese state surveillance through telecommunications company Huawei, and deteriorating geopolitical relations amid the pandemic, the United States limited sales of US and other chips to dozens of Chinese companies, especially those associated with the military. Russia has also faced similar and now even more draconian restrictions, placing a risk on any major manufacturer that continues direct sales.

Inevitably, however, this has also led to a growing black market. Many Russian weapons guidance chips are believed to have been acquired through front organizations, while US restrictions on purchases by named Chinese companies in 2020 were followed by a dramatic increase in imports of chips made overseas by other Chinese companies in 2021.

It’s a similar picture when it comes to Russian food and fuel exports. The last three months have seen the emergence of a global “parallel market” in both countries, with Russian oil cargoes sometimes transferred from one ship to another offshore in risky transfers or resold legitimately after refining, notably by the ‘India.

But while the trade will find a way, legally or otherwise, most of the time it’s not always possible. If Ukraine cannot receive, ship or store its harvest and clear some 20 million tonnes already stored to freeze granaries for the current harvest, it will simply rot – with all the global hardship that could entail.

Russia may also need to find new chips to guide its rockets in a tighter post-invasion market. The now devastated Azovstal steelworks in Mariupol was among the largest producers of gases such as neon and argon, essential for the manufacture of microchips, and it is uncertain whether other producers, mainly in China, can make up the shortfall.

Wars may incite some to innovation and expediency, but first they only destroy and hurt everyone involved, as well as others. This one is no exception.

*** Peter Apps is a writer on international affairs, globalization, conflict and other issues. He is the founder and executive director of the Project for Study of the 21st Century; PS21, a non-national, non-partisan and non-ideological think tank. Paralyzed by a car accident in a war zone in 2006, he also blogs about his disability and other topics. He was previously a reporter for Reuters and continues to be paid by Thomson Reuters. Since 2016 he has been a member of the British Army Reserve and the UK Labor Party.

(Editing by Tomasz Janowski)