Microchips, steel, and summit point to new globalisation era

As presidents Vladimir Putin and Xi Jinping come together in Uzbekistan this week for the face-to-face meeting of the Shanghai Cooperation Organisation since the pandemic, Russian and Chinese firms scour the globe to evade a U.S. ban on crucial microchip imports as the United States worries over Chinese steel in its F-35 fighters.

The Ukraine war, rising tensions over Taiwan and more broadly deteriorating relations between Moscow, Beijing and the West have upended globalisation since the start of the Covid-19 outbreak in early 2020. That brings mounting challenge to what were until recently largely unquestioned supply chains.

The consequences have been widespread and are still evolving. Europe is racing to wean itself from Russian gas, Ukraine and its Western allies are locked in an effort to deny Russia the Western and Taiwanese-made chips it needs for its long-range missiles, and Chinese and U.S. firms alike are trying to work out how to survive and grow without access to the others’ products.

It is a dynamic producing multiple unintended consequences. This week’s Uzbekistan meeting – the Chinese leader’s first post-pandemic foreign trip – was designed to signal further unity and cooperation between Moscow and Beijing, whose troops have been exercising together this month in Russia’s eastern “Vostok” military drills.

Last week, Indian prime minister Narendra Modi announced he was joining the gathering, amongst the most assertive members of a growing middle group of powers positioning themselves in what they see as the non-aligned central ground between a Russia-China axis and the West.

Were it not for the changing tides of war, the SCO summit commencing on Thursday would be a diplomatic victory for Putin. Modi’s presence in particular serving as a reminder of the limited success of Western efforts to cut Russia from the rest of the world. Indian firms continue to buy and invest in Russian energy throughout the war, and the Kremlin has done itself no harm by positioning itself as an interlocutor between New Delhi and Beijing following a 2020 Himalayan border clash.

Instead, however, it takes place against the backdrop of significant Russian reversals following Ukraine’s counteroffensive around Kharkiv, and further uncertainty in the Kremlin’s backyard following the worst fighting between Armenia and Azerbaijan since the 2020 Nagorno-Karabakh War.

The Putin-Xi meeting on Thursday will be scrutinised for signs that their countries wish to further deepen a relationship that has grown considerably closer in the last two years. Beijing was initially relatively cool to the Kremlin in the immediate aftermath of the invasion, prompting speculation that Putin had failed to properly brief the Chinese leader on the scale of the attack.

Since then, however, the two appeared to move back closer together, both anxious to build independence from the West and the United States in particular, both economically and militarily. Analysis by Britain’s Royal United services Institute last month showed Russian weaponry remained highly dependent on Western and Taiwanese-made microchips, with a global effort by the United States and Ukraine to tighten supply as Russia locked down its own exports of energy and blockaded Ukraine’s grains.

The result of that has been complex. China bought 17 per cent more Russian crude between April and July than a year earlier, 50 per cent more natural gas and 6 per cent more coal, paying both roubles and yuan and reducing the dependence of on the U.S. dollar. Western sanctions, deepening relationship further, may well be on the agenda in Uzbekistan, along potentially with defence procurement.

For all its technological leaps forward in recent years, China remains heavily dependent on microchips and other high-tech components from the United States and Taiwan, both of which have restricted supplies to Chinese firms. Further curbs are on the way. Earlier this month, U.S. chip manufacturer Nvidia reported that U.S. authorities had told it to stop exporting two top chips for artificial intelligence work to China, citing concerns that its products might wind up with a “military end user”.

As Europe’s efforts to diversify away from Russian gas and the Pentagon’s discovery that each of the 835 F-35s accepted into service so far contains banned Chinese alloy, show, dividing up supply chains in a deeply interconnected global economy is not devoid of challenge.

U.S. officials are reportedly already seeking a waiver to allow the resumption of F-35, reporting that the material involved – part of a magnet – should not compromise the security of the aircraft. More broadly, however, Washington has been working for some years on diversifying sources of both technological components and materials.

This week, U.S. Secretaries of State and Commerce Anthony Blinken and Gina Raimondo visited Mexico, pledging to help it grow its own semiconductor and electric car industry to reduce dependence on products from China and Taiwan that has produced a global semiconductor shortage. Like India’s Modi and Turkey’s Recep Tayyip Erdogan, Mexico’s president Andrés Manuel López Obrador has pursued a deliberately “non-aligned” course between East and West.

So have several of the Central Asian leaders who will be attending the SCO this week – often also uneasy line, in the world of Russia and China. Kazakhstan’s president Kassym-Jomart Tokayev has been walking a particularly awkward line, daring to criticise Putin publicly over Ukraine and reaching out to the European Union even as Russia demonstrated its ability to close its key export pipelines through its territory.

Putin and Xi both timetabled stops in Kazakhstan this week, where Chinese leader first announced Beijing’s “Belt and Road” initiative in 2013. That neither has succeeded in dominating completely, however, is a reminder of the headwinds both face as they seek to affirm their power in a complex interconnected world.

As the Ukraine war has shown, it is a world in which nations are increasingly ready to take greater risks in the pursuit of power and interest. But, as the two leaders may discover once again in central Asia, it is also likely to be one that defies simple solutions and divisions.

* Peter Apps is a writer on international affairs, globalisation, 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, non-ideological think tank. Paralysed by a war-zone car crash 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 Labour Party