In One Sentence

• The United States has issued export controls on technology items for “all of Russia” under its Foreign Direct Product rule. 
• The U.S. also sanctioned several Russian financial institutions and prohibited new investments in Russia.
• Further sanctions were also imposed on the Russian government, certain officials, personnel and their families, as well as several state-owned and private enterprises.
• Current and former U.S. officials generally expect China to violate U.S. sanctions in support of the Russian military and have questioned the United States’ ability to detect violations. 
• U.S. Secretary of Commerce Gina Raimondo has warned Chinese companies against backfilling sanctions and exporting to Russia.
• China has consistently opposed unilateral sanctions, arguing that they have no basis in international law and tend to only escalate tensions. 
• The Foreign Direct Product rule was initially deployed by the Trump administration to punish the Chinese tech company Huawei.
• The number of U.S. sanctions on China, especially those related to trade, has grown significantly since the Trump administration, with several new impositions under the Biden administration.
• China introduced the Anti Foreign Sanctions Law in 2021, allowing the Chinese government and private individuals to counter “discriminatory” foreign sanctions.

Mark the Essentials

• Under the new Foreign Direct Product rule, Chinese companies are prohibited from exporting any sophisticated (or other controlled) technology items to Russia that include U.S. content or are made with U.S. technology if the item has a military end use or end user. Exports that do not have a military end use or end user require a license which is granted but rarely. “Dual-use items” that can serve both a civilian and a military purpose are also prohibited. 
• The United States has imposed property blocking sanctions, i.e., asset freezes, on Alfa Bank, the largest private bank in Russia, and Sberbank, a majority state-owned bank with a significant presence in both Russia and several European countries. 
• Highlighting the semiconductor industry, Secretary Raimondo said that Chinese companies “have their own self-interest” to abide by U.S. sanctions. According to her, the U.S. could “essentially shut SMIC down” by denying the Chinese chip manufacturer U.S. equipment and software if it exports to Russia.
• Nazak Nikakhtar, formerly an acting head of the Commerce Department’s Bureau of Industry and Security (BIS), cited China’s Anti-Foreign Sanctions Law as a legal basis that China can use to reject the U.S.’ and the West’s unilateral sanctions on Russia. 
• Commerce Department officials have expressed concerns over the United States’ ability to detect Chinese violation of U.S. sanctions, highlighting the lack of BIS agents on the ground in China and increased difficulty to work with the Chinese government. 
• China’s Foreign Ministry has repeatedly stated that sanctions are ineffective in addressing the Ukraine situation, hamper attempts to advance peace talks, add to the turmoil of the Ukraine crisis, and will lead to spillover effects in broader regions of the world.
• The China Banking and Insurance Regulatory Commission (CBIRC) has specifically expressed its disapproval for the financial sanctions against Russia, noting that unilateral financial sanctions tend to be ineffective and lack basis in international law. CBIRC said China will not join the financial sanctions and will maintain normal financial and trading relationships with all relevant parties.
• Since the enactment of the Huawei sanctions by the U.S. government, some experts and commentators have speculated that the Foreign Direct Product rule will spill over to other China-related sanctioned entities. 

Keeping an Eye On…

• The Russia-Ukraine war is the first instance in the post-Cold war era of the United States responding against the unlawful actions of a United Nations Security Council peer with its full array of non-military measures, including financial and central bank sanctions, export controls, embargoes, and revocation of trade privileges, among others. Washington and the West have veritably unleashed ‘economic warfare’ on Moscow, seizing control of the centralized chokepoints of the 21st century’s global economic networks to asphyxiate the Russian economy. Moscow’s ability to adapt and substitute for the loss of economic, financial and technological access will determine the cost of the imposed sanctions regime. Be that as it may, it has not gone unnoticed in Beijing as well as in other emerging economy capitals that the measures being inflicted on Moscow may one day be imposed, fully or in part, upon them. Indeed, a few of the measures taken by the United States against Russia have been attempted during the U.S.-China trade war and the ongoing trade and technology conflict. Should the various ‘economic warfare’ measures prove their worth against Moscow, the likelihood of many of them becoming the go-to ‘non-military weapons’ to be applied against China is high. As such, the measures offer a handy playbook—a proof of concept—of how economic warfare is prosecuted in the 21st century. What are its key nodes and chokepoints? What are the instruments of punishment and levers of control? Just as importantly, where are the carve outs and what do these carve outs signify? And foremost from Beijing’s perspective, what policy reforms and actions must it take in order to be deemed to be a state ‘too big to fail’—as in, a state that is too systemically important and too economically, financially and technologically interconnected within the global economic architecture to be unilaterally sanctioned by the United States and the West?

Expanded Reading

• Export Controls on Cutting-Edge Technology to Russia, German Marshall Fund of the United States, April 13, 2022
• The New Arms Race: Sanctions, Export Control Policy, and China, Center for Strategic & International Studies, March 25, 2022
• U.S. Government Imposes Expansive, Novel and Plurilateral Export Controls Against Russia and Belarus, Akin Gump, March 8, 2022
• Event Recap: “2022 Export Enforcement Priorities,” Silverado Policy Accelerator, February 24, 2022