How microchips migrate from China to Russia

At the center of the trade is China and, allegedly, a few other intermediary countries such as Turkey
At the center of the trade is China and, allegedly, a few other intermediary countries such as Turkey

Summary

Like birds, microprocessors often take a circuitous route to arrive at their destination. Controlling where they fly to is proving difficult.

The U.S. invented microchips and it has threatened sanctions on anyone who sells many, if not most, varieties to Russia. Still, recent leaks—and some publicly available data—make clear that they keep showing up on Russian shores. At the center of the trade is China and, allegedly, a few other intermediary countries such as Turkey.

The adaptability of global trade networks in response to sanctions and tariffs isn’t a new story: For another recent example, look no further than global energy markets, which have adapted with remarkable speed to the West’s decision to wean itself off Russian energy. But stemming the flow of semiconductors—which power both everyday appliances and military equipment—into Russia presents a particularly tough problem.

One key reason is that China, which has refused to join Western sanctions on Russia, sits at the center of the global chip trade. It is the world’s electronics factory floor and the largest global importer of chips, as well as a significant manufacturer of low-end chips itself. Its publicly available export statistics also omit comprehensive information on overseas business partners.

Public data does show a certain number of semiconductor devices, for example, continuing to flow to Russia—but not who sold them or whether they were in fact sanctioned items. That makes curbing the flow of semiconductors from China to Russia—directly or via third countries “repackaged" as new goods—extremely difficult without completely halting chip exports to China and bringing the world’s electronics industry to a crashing halt.

What is clear is that, after a dip in early 2022 following the U.S.’s initial sanctions, Russia’s semiconductor imports have rebounded strongly, and Chinese companies play a key role. Leaked Russian customs records show that Russia’s imports of chips and chip components were nearing their prewar monthly average by late 2022, more than half of which came from China. And publicly available Chinese customs data show that integrated-circuit shipments to Russia were valued at $179 million in 2022—against just $74 million in 2021.

Chips and chip components from China are showing up in some other interesting places too. Chinese customs data shows that exports of certain semiconductors to Turkey—including basic building blocks of electronics such as diodes and transistors—also more than doubled in 2022. China’s total exports of such semiconductors only grew 36%.

Turkish exports of similar semiconductors to Russia, meanwhile, rose from $79,000 in 2021 to $3.2 million in 2022, United Nations data shows. And Turkey, which has also declined to endorse U.S. and European sanctions on Russia, has become a major exporter of overall electronic equipment to Russia. Turkey’s total electrical machinery and electronics exports to Russia more than doubled in 2022 to $559 million, U.N. data shows.

U.S. Treasury officials visited Turkey and several other Middle Eastern nations including Oman and the United Arab Emirates in early February to try to clamp down on Russian procurement networks. Turkey’s foreign minister said on Feb. 20 that Turkey doesn’t export electronics used in the defense industry to Russia.

Curtailing sales and shipments of the most advanced chips to China and Russia is one thing but, as Western nations are once again discovering to their chagrin, trying to stifle trade flows of more-commoditized items like basic semiconductors is a different matter. That is particularly true when the world’s largest trading nation is directly involved and large portions of the developing world are openly skeptical of the West’s sanctions regime.

As in the 2018 and 2019 Sino-U.S. trade war—when tariff-laden Chinese goods made their way to third countries and overall Chinese exports held up well—Washington is finding that trade flows, like life, tend to find a way.

 

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