US and Taiwan Impose Chip Export Sanctions on Russia

The current situation in Ukraine and the world’s response to the crisis seems to be changing by the minute. Obviously, the situation on the ground is highly dynamic, and it’s difficult to keep up with updates; we hope the situation is resolved peacefully.

In the meantime, the world seems to have come together under one unifying cause: sanctioning the Russian government and defense ministry in response to instigating the crisis in Ukraine. As of February 25, the US and Taiwanese governments have agreed to joint technology export restrictions targeting technology used by the Russian defense, aerospace, and maritime industries. These moves are part of a broader effort to sanction the Russian government and defense industries by cutting them off from financing and critical technology developed by US companies. The EU and five other countries are expected to impose similar sanctions.

While we shouldn’t be surprised by all of this, it may have broader consequences when future geopolitical events arise and sanctions become necessary (again). Let’s dig deeper to see what’s involved in this new round of sanctions, and what the consequences might be in the future.

What’s Included in These Sanctions?

The major point in these sanctions is the inclusion of 49 Russian military end-user organizations on the US Commerce Department’s Entity List. According to Export Administration Regulations, placement on the Entity List requires exporters to obtain a special license in order to receive authorization to export certain products made in the US or foreign items produced using US equipment, software, and blueprints. Under these sanctions, the items restricted for export include:

• Semiconductors

• Computers

• Telecom and IT equipment

• Lasers and optical components

• Sensors

Similar sanctions are being imposed by the EU, UK, Japan, Australia, Canada, and New Zealand, and other nations are expected to impose similar restrictions. These sanctions are being imposed alongside financial restrictions that are intended to cut off access to the global financial system.

Export restrictions often go both ways, with export restrictions also being implemented by the party receiving sanctions. The effects of sanctions can also be largely one-sided. For example, after the sanctions imposed following the annexation of Crimea, the Russian economy was driven into recession by the following year, according to an analysis performed by NATO Review. However, Russia does have one bargaining chip that would directly affect Western ability to produce semiconductors; its significant exports of industrial gasses and metals used in semiconductor manufacturing.

The danger to the US semiconductor industry is not loss of access to electronics manufacturing capacity like we had at the outset of COVID. Russia and Ukraine’s collective exports include many raw materials used in semiconductor production. The White House National Security Council has met with members of the semiconductor industry and is pushing them to locate alternative sources of raw materials. As the situation unfolds, we’ll see how commodity and energy prices are affected by this round of sanctions, as well as any future rounds should they arise.

The Potential Role of China

In this entire situation, China is something of a wildcard. Prior to the announcement of this round of sanctions, and after the previous round of sanctions following the Crimea annexation, Russia was already looking to China as a prime trading partner, and China has since become Russia’s top export destination according to Reuters. Russia was already supplanting trade with Europe in favor of trade with China since 2016, as shown below. On the import side, Russia already imports approximately 70% of its semiconductors from China, although the US and Taiwan tech export ban will still have a major effect on the Russian defense capabilities.

China has largely remained silent on the issue of sanctions, trying to simultaneously protect its trade relationships with the West while still appearing to economically support Russia. President Xi Jinping’s government is giving no sign it might be willing to risk access to U.S. and European markets by helping too much.

For the moment, as long as China plays a neutral role, one shouldn’t expect any sort of supply chain situation due to the crisis in Ukraine and the resulting sanctions. In the future, should a similar crisis arise in Southeast Asia, we should not be surprised if tit-for-tat sanctions by the world’s largest economies will throw the industry into a new supply chain crisis. The geopolitical events underscore the risk inherent in the electronics supply chain, and there should be a continued focus on geographically broadening manufacturing capacity for electronics components and assemblies.

Onshoring Manufacturing May Reduce Risk

For now, the US and Europe have dodged another supply chain bullet, and we appear more unified than ever to support each other militarily and economically. All of this should underscore the need for greater onshoring of manufacturing capacity, rather than relying entirely on far-flung corners of the world for primary production capacity of semiconductors and electronics assemblies. A recent announcement from the IPC proclaiming the Biden administration’s recognition of the importance of PCB manufacturing capacity is encouraging, especially given the chilling conclusions from a new IPC report illustrating how the US has fallen behind in the electronics manufacturing arena.

The implications span beyond the US and will affect competitiveness throughout the Americas and Europe. One can only hope that the Senate-passed U.S. Innovation and Competitiveness Act (USICA) and similar legislation being prepared in the House will include PCB technologies in addition to semiconductors and other assemblies. Collectively, the measures can help secure supply chains by diversifying manufacturing capacity globally, thus reducing supply chain risks. Otherwise, the United States and its economic partners remain at significant risk of further geopolitical disruptions to the electronics supply chain such as we experienced during COVID.

Whenever you need to navigate supply chain visibility arising from geopolitical events, use the advanced search and filtration features in Octopart. When you use Octopart’s electronics search engine, you’ll have access to up-to-date distributor pricing data, parts inventory, and parts specifications, and it’s all freely accessible in a user-friendly interface. Take a look at our integrated circuits page to find the components you need.

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