Chips Act II
Great powers threaten ASEAN, Indian refiners pay for oil in Chinese yuan, Dutch ASML export restricts global supply chain, China de-risk on rare elements, Haass - "US in real danger, from itself"
UPDATE: As great power rivalry casts its long shadow over Southeast Asia, the imperative of regional unity grows more urgent. Yet diversity, divisions and disputes remain consequential features of the region that pose a significant threat to unity.
Indian refiners have begun paying for some oil imports from Russia in Chinese yuan, sources with direct knowledge of the matter said, as Western sanctions force Moscow and its customers to find alternatives to the dollar for settling payments.
The latest chip export restrictions announced by the Netherlands will jeopardize the global semiconductor supply chains and increase the uncertainty of global economic recovery, as industrial decoupling poses a huge risk to growth, officials and experts said.
Beijing will impose export controls on two rare elements essential for manufacturing semiconductors, in apparent retaliation after the United States and Europe restricted chip exports to China.
Everywhere he has gone as president of the Council on Foreign Relations, Richard N. Haass has been asked the same question: What keeps him up at night? “It’s us, the United States itself” he said ruefully the other day.
ASEAN’s internal discord
By Joseph Liow
As great power rivalry casts its long shadow over Southeast Asia, the imperative of regional unity grows more urgent. Yet diversity, divisions and disputes remain consequential features of the region that pose a significant threat to unity.
Differences in cultures, languages, religions, historical experiences, political systems and developmental pathways have shaped Southeast Asia as it stands today. Geopolitically, these differences make the challenge of forging unity a particularly onerous task.
During the Cold War, diversity manifested in the ideological division of Southeast Asia into communist and non-communist states. This division also assumed a geographical expression in terms of the divide between mainland (mostly communist) and maritime (non-communist) Southeast Asia.
Yet the picture that emerges on closer inspection is far more complex. Among the communist mainland states were Chinese and Soviet clients, at a time when the Sino–Soviet split was at its height. While relations among non-communist maritime states were more harmonious, they were still fraught with residual suspicion and mistrust, much of which took the form of sovereignty disputes stemming from decolonisation projects.
Since 2022, diversity has also manifested in regional states’ positions on the Russian invasion of Ukraine. Regional powers such as Vietnam (because of longstanding ties with Russia) and Indonesia (because of its foreign policy non-alignment principle) have taken restrained positions, whereas Singapore has openly condemned the invasion and imposed unilateral sanctions.
Meanwhile, the military junta that seized power in Myanmar in February 2021 has unsurprisingly been one of Russia’s staunchest supporters. While other Southeast Asian states voted at the United Nations to condemn the invasion, they have avoided taking more robust stances.
Then come divisions. One of the most pressing challenges to ASEAN cohesion is the Myanmar crisis. While ASEAN has strained to maintain a semblance of unity in its efforts to pressure the junta leadership in Myanmar, differences between member states on the issue diminished the prospects of the organisation resolving the crisis.
In the lead-up to the ASEAN Foreign Ministers’ Meeting in Jakarta in February 2023, Thailand departed from the organisation’s formal exclusion of the junta from regional talks by reaching out to it in different capacities. Thailand hosted an ‘open-ended informal consultation’ with the junta in December 2022 that involved several other mainland Southeast Asian states. In February 2023, Thailand invited Myanmar to the ASEAN Defence Ministers’ Meeting Plus meeting on maritime security that it co-chaired with the United States.
Thailand’s visibly accommodative posture contrasts to those of several other ASEAN member states who continue to pressure the Myanmar junta to abide by the five-point consensus agreed upon at the 2021 special summit. Malaysian Prime Minister Anwar Ibrahim even reached out to his Thai counterpart on 10 February 2023, urging Bangkok to take a firmer stance against the junta. These divisions prevented ASEAN from issuing a joint statement on the second anniversary of the coup.
Persisting fault lines in Southeast Asia have periodically given rise to diplomatic disputes and even low-key conflicts. For instance, in 2013, militants from the Sulu archipelago of the Philippines landed in the East Malaysian state of Sabah to assert the sovereignty of the historic Sulu Sultanate over that territory. The situation served as a reminder that the Philippine claim to the Malaysian territory of Sabah remains unresolved.
On the Southeast Asian mainland, differences exist between Mekong riparian states over Laos’ unilateral move to build dams — with Chinese assistance — along sections of the river that pass Laotian territory. In maritime Southeast Asia, the Philippine move to submit their case against China over their South China Sea territorial disputes in 2013 to an international tribunal was described by a senior official from an ASEAN member state as an ‘unfortunate development’ and an ‘inconvenience to ASEAN’.
Detractors have often criticised ASEAN for its inability to resolve differences between member states. This criticism betrays a fundamental misunderstanding of ASEAN’s intended role and limitations. Since its creation, ASEAN’s primary purpose has been to create a more conducive environment for cooperation among Southeast Asian states. It also seeks to manage their differences such that these do not hamper broader aspirations to enhance cooperation. Though ASEAN’s success on this score has been patchy, it was never envisaged to be the panacea for all the region’s problems.
In that sense, it should be no surprise that member states have never used the mechanism of the High Council in Article 14 of the Treaty of Amity and Cooperation. Dispute resolutions involving Southeast Asian states have usually come in the form of third-party mediation and efforts of international institutions such as the International Court of Justice.
Southeast Asia has come a long way from the Cold War years when it was described as a ‘region of revolt’. Still, despite the attention on great power rivalry and its consequences for regional security, intramural conflicts persist.
Unless Southeast Asian states can get their regional house in order, the challenge of fostering much-needed regional unity in the face of sharpening great power rivalry will grow more acute — as will the consequences of their inability to do so.
Read more here.
India refines Yuan oil
By Nidhi Verma
Indian refiners have begun paying for some oil imports from Russia in Chinese yuan, sources with direct knowledge of the matter said, as Western sanctions force Moscow and its customers to find alternatives to the dollar for settling payments.
Western punishments over Russia’s invasion of Ukraine have shifted global trade flows for its top export, with India emerging as the largest buyer of seaborne Russian oil even as it casts about for how to pay for it amid shifting sanctions.
The U.S. dollar has long been the main global oil currency, including for purchases by India, but now the yuan is playing an increasingly important role in Russia’s financial system because Moscow has been frozen out of the dollar and euro financial networks by international sanctions.
China has also shifted to the yuan for most of its energy imports from Russia, which overtook Saudi Arabia to become China’s top crude supplier in the first quarter this year.
“Some refiners are paying in other currencies like yuan if banks are not willing to settle trade in dollars,” said an Indian government source.
Indian Oil Corp, the country’s biggest buyer of Russian crude oil, in June became the first state refiner to pay for some Russian purchases in yuan, three sources familiar with the matter said.
At least two of India’s three private refiners are also paying for some Russian imports in yuan, two other sources said.
All the sources declined to be named because of the sensitivity of the matter. None of India’s private refiners - Reliance Industries Ltd, Russia-backed Nayara Energy and HPCL Mittal Energy Ltd - responded to requests for comment. Indian Oil also did not reply to a request for comment.
It could not immediately be determined how much Russian oil Indian refiners have bought with yuan, although Indian Oil has paid in yuan for multiple cargoes, sources said.
The rise in yuan payments has given a boost to Beijing’s efforts to internationalise its currency, with Chinese banks promoting its use specifically for Russian oil trade.
Since the imposition of sanctions on Moscow, Indian refiners have mostly bought Russian crude from Dubai-based traders and Russian oil companies such as Rosneft, the Litasco unit of Russian oil major Lukoil, and Gazprom Neft, according to shipping data compiled by Reuters.
Indian refiners have also settled some non-dollar payments for Russian oil in the United Arab Emirates’ dirham, sources have said.
“First preference is to pay in dollars but refiners sometimes pay in other currencies such as dirham and yuan when sellers ask them,” said the government source, who did not elaborate further and declined to identify any Indian companies paying in yuan for Russian oil.
India’s oil and finance ministries, which had previously been trying to convince Russia to accept rupees for oil payments, did not respond to requests for comments.
Reuters reported in March, citing government officials and banking sources, that India had asked banks and traders to avoid using the yuan to pay for Russian imports because of long-running political differences with China. It was not immediately clear whether recent purchases represent a change in that view.
India’s imports from Russia rose to a record in May, with Russian crude oil accounting for 40% of India’s overall oil imports compared with 16.5% a year earlier, denting purchases from Iraq and Saudi Arabia.
While Western sanctions against Moscow are not recognised by India and its purchases of Russian oil may not violate them, Indian banks are wary of clearing payments for such imports.
In May, State Bank of India, the country’s top lender and a key banker for state refiners, rejected IOC’s planned payment in dollars for a cargo delivered by Rosneft, two sources said.
The cargo was loaded on tanker NS Bora, handled by Dubai-based Sun Ship Management, an entity connected to Russia’s largest state shipping company, Sovcomflot , which the European Union sanctioned in February and the United Kingdom in May.
In June, IOC used ICICI Bank, a private-sector Indian lender, to settle this trade with Rosneft by paying in yuan to Bank of China , two sources with direct knowledge of the matter said. One private refiner has also been using the same mechanism for payments for Russian oil, one of the sources said.
Since then, IOC has used the same method to pay with yuan for other cargoes from Rosneft, one of the sources with direct knowledge of the matter said.
“Whenever IOC will face problems it would push for payment in yuan,” the person said, adding that IOC had asked Rosneft to consider supplying oil in vessels not managed by sanctioned entities.
Rosneft did not reply to a request for comment.
Another state refiner, Bharat Petroleum Corp Ltd, is also exploring yuan payment for Russian oil, a separate source said.
“Many traders (sellers) are insisting for yuan payments,” the source said.
Read more here.
By Ma Si and Zhong Nan
The latest chip export restrictions announced by the Netherlands will jeopardize the global semiconductor supply chains and increase the uncertainty of global economic recovery, as industrial decoupling poses a huge risk to growth, officials and experts said.
To break the United States-led containment in chips, China needs to promote the re-globalization of the semiconductor industry by teaming up with countries that are willing to cooperate and by achieving self-reliance in crucial technologies, they added.
The Netherlands announced on Friday a set of new regulations to restrict the export of certain advanced chipmaking equipment by aligning its trade rules with the US strategy of curbing China's ability to make advanced semiconductors.
China has expressed its displeasure over the restrictions and called on the Dutch government to refrain from implementing measures that hinder normal cooperation between the two countries and impede the development of the semiconductor industry, according to a statement released by the Ministry of Commerce on Saturday.
In response to a media query, the ministry's spokesperson said the US, driven by its pursuit of global hegemony, has broadened the scope of national security and misused export control measures in recent years.
By deliberately fostering industrial decoupling, these moves have disrupted the global development of the semiconductor sector, the spokesperson added.
Bai Ming, deputy director of international market research at the Chinese Academy of International Trade and Economic Cooperation, said that despite Washington's shift in rhetoric from "decoupling" to "de-risking" in key supply chains, the US continues to coerce other countries to contain China in chips.
Such moves will further disrupt the semiconductor industry's globalization, wreak havoc on international economic and trade cooperation, and impede global economic recovery, said Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing.
Dutch company ASML, which manufactures cutting-edge chipmaking equipment, said the new export controls focus only on advanced chip manufacturing technology, denying media reports that all its deposition and immersion lithography systems are targeted.
The company said it needs to apply for export licenses with the Dutch government for shipments of its most advanced immersion deep ultraviolet lithography systems.
Data from the International Monetary Fund shows that technological decoupling could impose significant costs on Asian economies — about 5 percent loss in GDP.
"That's quite a big number. ... In general, technological decoupling is very expensive for not just Asia but also for the rest of the world," said Krishna Srinivasan, director of the IMF's Asia and Pacific department.
Li Xianjun, an associate researcher at the Institute of Industrial Economics, which is part of the Chinese Academy of Social Sciences, said that China should take the initiative to promote the re-globalization of the semiconductor industry, given the county's role as the largest chip market and its growing presence in semiconductor manufacturing.
To break the US' containment in chips, China needs to rely on long-term input in research and development to achieve self-reliance in key chip technologies, Li said.
It is also of high importance to promote deeper ties with countries that are willing to cooperate in chips, said Xiang Ligang, director-general of the Information Consumption Alliance, a telecom industry association.
Making more friends and fewer enemies is always better, Xiang added.
"Restrictions have made us more determined to pool resources into R&D and to achieve breakthroughs," a senior executive from a Chinese chip company said on condition of anonymity.
In 2022, China consumed about 60 percent of all semiconductors in the world, which were then assembled into technological products to be re-exported or sold in the domestic market for final consumption, according to US market research company Gartner Inc. Last year, the market size of the global chip industry stood at about $600 billion, according to Gartner.
Roger Sheng, vice-president of research at Gartner, said that though big gaps with advanced foreign counterparts exist, China's chip industry has made steady progress and the restrictions imposed by the US government have, in fact, accelerated the progress of Chinese enterprises.
Data from the China Semiconductor Industry Association shows that the sales revenue of China's homegrown chip industry jumped to around 516 billion yuan ($71 billion) in 2022 from 8.15 billion yuan in 2004.
Read more here.
China de-risk on rare elements
By Olesya Dmitracova
Beijing will impose export controls on two rare elements essential for manufacturing semiconductors, in apparent retaliation after the United States and Europe restricted chip exports to China.
Gallium and germanium will be subject to export controls starting August 1 “to protect national security and interests,” China’s Ministry of Commerce said in a statement Monday.
Exporters of these raw materials will need to apply for “special permission from the state” to ship them out the country, the statement said.
Gallium and germanium are used in a variety of products, including computer chips and solar panels. Both are on the European Union’s list of critical raw materials, which are deemed “crucial to Europe’s economy.”
China is by far the world’s biggest gallium producer and a leading global producer and exporter of germanium, according to the U.S. Geological Survey.
The measure is the latest development in the global battle to control chipmaking technology, which is vital for everything from smartphones and self-driving cars to advanced computing and weapons manufacturing.
Beijing’s move comes just days after the Dutch government announced new restrictions on exports of some semiconductor equipment, drawing an angry response from Beijing, according to Reuters. The new rules mean that ASML, Europe’s largest tech firm, will need to apply for export licenses for products used to make microchips.
Japan and the United States have also taken steps to limit Chinese companies’ access to chips and chipmaking equipment. Italy last month imposed several curbs on Pirelli’s biggest shareholder, Sinochem, to block the Chinese government’s access to sensitive chip technology.
An editorial Monday in a prominent state-owned newspaper China Daily hinted that Beijing’s new policy was retaliation for similar moves by Washington and its allies.
Critics of the decision “could ask the US government why it holds the world’s largest germanium mines but seldom exploits them. Or they could ask the Netherlands why it included certain semiconductor-related products… in its export control list,” the editorial said.
China’s announcement of the new export curbs comes on the eve of a visit by US Treasury Secretary Janet Yellen to Beijing from July 6 to July 9. Yellen will meet with senior Communist Party officials, according to a statement from the Treasury.
Read more here.
Richard N. Haass: USA danger is at home
By Peter Baker
Everywhere he has gone as president of the Council on Foreign Relations, Richard N. Haass has been asked the same question: What keeps him up at night? He has had no shortage of options over the years — Russia, China, Iran, North Korea, climate change, international terrorism, food insecurity, the global pandemic.
But as he steps down after two decades running America’s most storied private organization focused on international affairs, Mr. Haass has come to a disturbing conclusion. The most serious danger to the security of the world right now? The threat that costs him sleep? The United States itself.
“It’s us,” he said ruefully the other day.
That was never a thought this global strategist would have entertained until recently. But in his mind, the unraveling of the American political system means that for the first time in his life the internal threat has surpassed the external threat. Instead of being the most reliable anchor in a volatile world, Mr. Haass said, the United States has become the most profound source of instability and an uncertain exemplar of democracy.
“Our domestic political situation is not only one that others don’t want to emulate,” he said in an interview ahead of his last day at the Council on Foreign Relations on Friday. “But I also think that it’s introduced a degree of unpredictability and a lack of reliability that’s really poisonous. For America’s ability to function successfully in the world, I mean, it makes it very hard for our friends to depend on us.”
The challenges at home have prompted a man who has spent his entire career as a policymaker and student of world affairs to turn his attention inward. Mr. Haass recently published a book called “The Bill of Obligations: The Ten Habits of Good Citizens,” outlining ways Americans can help heal their own society, like “Be Informed,” “Remain Civil,” “Put Country First” — all admittedly bromides and yet somehow often elusive these days. In addition to consultant work, he wants to spend much of the next chapter of his life promoting the teaching of civics.
“My own trajectory has changed,” he observed during a pair of interviews summing up two decades at the council. “This new book is not something I would have predicted writing five or 10 years ago, but I actually think it’s almost a recasting of American democracy. Now it’s become a national security concern. And that’s different.”
By dint of position as well as temperament, Mr. Haass, 71, is a member in good standing of the establishment that has fallen into disfavor in the era of Donald J. Trump, a voice of the largely bipartisan “realist” consensus that for better or worse defined America’s place in the world for most of the three-quarters of a century since World War II. It is a clubby world, of course, one that invariably leads to charges of elitist groupthink or even conspiracy theories. For his final appearance as president of the council this past week, Mr. Haass interviewed Secretary of State Antony J. Blinken onstage and online, the 27th secretary of state to appear before the council.
“It’s hard to think of anyone who’s done more to make this institution what it is,” Mr. Blinken said, praising his host.
“I want to thank him for that,” Mr. Haass replied with a smile. “But I’m still going to ask him tough questions.”
A veteran of four administrations, one Democrat and three Republican, Mr. Haass has nonetheless transcended the insular world of think tank policy wonks through regular appearances on MSNBC’s “Morning Joe,” where in measured but unmistakable terms he has lamented the political polarization and excesses of recent years and tried to make sense of it all.
From the set at Rockefeller Plaza in New York, Mr. Haass would head most mornings about 20 blocks north to the council’s Upper East Side headquarters. His relatively modest-sized fourth-floor office looked exactly like what you would imagine that the cluttered office of the president of the Council on Foreign Relations would look like, crammed with literally thousands of books, dozens of globes, stacks of paper, honorary degrees from various universities and photographs with family members, presidents and colleagues from past administrations.
It will be hard to imagine the council without him. The longest- serving president in the century-old organization’s history, he takes pride in preserving its place in the firmament while increasing and diversifying its membership, opening an expanded Washington office, focusing on education and maintaining a bipartisan approach, albeit not one that embraces America First Trumpism. He will be succeeded by Michael Froman, who was the U.S. trade representative under President Barack Obama.
Born in Brooklyn and raised on Long Island, Mr. Haass studied at Oberlin College, where he made a documentary on the student response to the Kent State shootings. After graduating in 1973, he became a Rhodes scholar. He worked for Senator Claiborne Pell, Democrat of Rhode Island, on Capitol Hill, where he met a young senator named Joe Biden in 1974.
Mr. Haass went on to serve in the Pentagon under President Jimmy Carter, the State Department under President Ronald Reagan and the National Security Council under President George H.W. Bush. Under President George W. Bush, he served as director of policy planning at the State Department but ultimately left in 2003, disenchanted with the Iraq war, which he later called “a poor choice poorly implemented.”
As a young man, Mr. Haass opposed the Vietnam War and thought of himself as liberal but then became inspired by the writings of Alexander Solzhenitsyn, the rise of Margaret Thatcher and the Reagan-Bush vision of American leadership abroad and restrained government at home. For more than 40 years, he was a Republican, although he sometimes voted for Democrats. But by 2020, he renounced the party that had been captured by Mr. Trump and after the Jan. 6, 2021, attack on the Capitol and publicly declared himself unaffiliated.
Over the past century, America has experienced other periods of division and discord — Jim Crow, McCarthyism, Vietnam, civil rights, Watergate. The assassinations and riots and war of 1968 often come to mind as a singularly miserable year in the life of the nation. But Mr. Haass sees this moment as even worse. “These were not threats to the system, the fabric,” he said. “That’s why I think this is more significant.”
Mr. Haass, who agreed to meet with Mr. Trump in 2015 to advise him on foreign affairs, just as he would any presidential candidate, admitted that he misjudged the bombastic real estate developer.
“Where I was dead wrong is I assumed the weight of the office would moderate him or normalize him, whatever word you want to use — that he would be more respectful of traditions and inheritances,” Mr. Haass said. “And I was wrong on that. If anything, he became more radical. He doubled down.”
The question is whether America has changed for the long run. “I should have a nickel,” he said, “for every non-American, every foreign leader who said to me: I don’t know what’s the norm and what’s the exception anymore. Is the Biden administration a return to the America I took for granted and Trump will be a historical blip? Or is Biden the exception and Trump and Trumpism are the new America?”
After exploring other countries for most of the past half-century, Mr. Haass is ready to explore his own. Putting his foreign policy hat aside for now, he said he wants to expand the message from his book and help refocus the country on the core values embodied in the Declaration of Independence as the 250th anniversary of the document approaches three years from now.
For all his worries, he insists he is not pessimistic. “When I go around speaking about this topic, people know there’s something wrong with American democracy,” he said. “They know it’s going on off the rails. And we may not necessarily agree on how to fix it. But there’s a real openness to the conversation.”
Read more here.