Aug 12, 2022
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The West also decided to engage in import substitution

Globalization has gone backwards, the world is entering a phase of protectionism and isolationism

In Russia, the wordimport substitutionbecame popular in 2014. And now in the West, the term “import substitution” (“import substitution”) began to gradually come into use. This is due, firstly, to the sanctions war against Russia in February of this year, and secondly, to the sharp aggravation of US-Chinese relations and the expected imposition of sanctions by Washington and allies against Beijing.

Not only Russia depends on European imports, but Europe also depends on Russian imports. And the second dependence is more critical. For the first time in the West, they thought about the need for fast and reliable import substitution, understood as the replacement of imports from Russia with imports from other countries. The most striking example is Europe’s attempt to replace Russian pipeline natural gas with LNG supplies. This is the first type of import substitution, which can be called “trade import substitution“.

However, there is another type of import substitution. We are talking about those resources and goods for which Russia held monopoly positions before the start of the sanctions war. In this case, it is necessary to create or increase the production of such resources and goods outside of Russia. This variant can be calledindustrial import substitution“.

Russia’s leading positions in the extraction and export of natural gas and oil are out of the question. First place in the export of natural gas, first-second place in the export of “black gold”, second place in the export of petroleum products. The West believed that it could simply change its hydrocarbon suppliers from Russia to suppliers from other countries. It turns out that there are no such mining capacities. In order to reliably block Russia and at the same time not suffer ourselves, it is necessary to build up oil and gas production capacities. In which countries is a special question. Donald Trump wanted it to be the USA. BUT Joe Biden with his “green agenda” prevents this. And America cannot fully fulfill its promises made to Europe to replace Russian gas with supplies of its own LNG.

Special mention should be made of nuclear energy. Russia ranks first in the world in terms of the number of simultaneously constructed nuclear power plants abroad. It is in first place in the world in the production of highly enriched uranium for the needs of nuclear energy, as well as in first place in the world in the export of nuclear fuel. Russian centrifugal uranium enrichment technologies are the most efficient in the world.

And here are Russia’s positions in metallurgy, chemical industry and mineral production.

First place in the export of cast iron and steel semi-finished products, in the export of mineral fertilizers, in the production of palladium, in the production of aviation titanium, in terms of the total value of mined diamonds, etc.

Second place in aluminum production, magnesium production, nickel production, platinum production, ammonia production, silicon production, export of mineral wool, export of building products from bitumen, etc.

Third place in the total production of titanium, in gold mining (in some years – second), in the export of polished glass, etc.

The list of critical goods of Russian origin includes wheat, barley, buckwheat, flax (Russia traditionally ranks first in the world in the production of these types of products).

I do not touch on the topic of positions of products of the military-industrial complex of Russia at all, for the reason that most of the Russian types of weapons and military equipment are unique. The question of import substitution of Russian military products cannot arise by definition.

But for the above (and many other) types of products, because of the war with Russia, a shortage has already arisen or may arise in the West. For example, Moscow radically limited the supply of neon abroad, which is necessary in microelectronics and in the production of which Russia occupied a leading (almost monopoly) position in the world. This caused serious problems in microelectronics in the US and other Western countries and forced them to set up their own production of purified neon.

The second type of import substitution involves increasing production in the group of “own” countries. First of all, within the framework of NATO. It is assumed that the goods without any restrictions can be delivered to any country from the group of “friends”.

But there is a third type of import substitution, which was used without much publicity long before the current sanctions war, and by only one country – the United States. We are talking about import substitution in the military industry, which produces unique types of weapons and military equipment. American figures have always shown the utmost caution in matters of military security and tried to ensure that the final product of the military industry contained exclusively domestic parts and components. So that everything down to the last screw really had an American origin. Today, there is no such 100% import substitution in the US military-industrial complex, but both the White House and the Pentagon are constantly talking about its need.

This type of import substitution can be called “sovereign import substitution“. In connection with the growing tension between the US and China and the likelihood of it escalating into an economic war, Washington decided to extend “sovereign import substitution” to another area – microelectronics. We are talking about the American program of import substitution in the field of microchip production. In the American media, headlines like “US LAUNCHES MICROCHIP IMPORT SUBSTITUTION PROGRAM” flashed (US launches a microchip import substitution program).

11th August Joe Biden signed the relevant law and immediately held a meeting on the lawn of the White House. The ceremony was attended by representatives of the electronics and automotive industries, as well as representatives of trade unions and politicians. There were heads of such IT companies as Micron, Intel, Lockheed Martin, HP and Advanced Micro Devices (AMD), governors of Pennsylvania and Illinois, mayors of Detroit, Cleveland and Salt Lake City, lawmakers.

It was announced that the US authorities will allocate $52 billion for the construction of electronics manufacturing facilities in America. The program is large-scale, very necessary for America because of its lagging behind other countries, primarily Asian ones (Biden said that Asia today accounts for 75% of the world’s production of microchips). Probably, this program was a reaction to the initiative of Beijing. Last year, the Chinese authorities noted the country’s lag in the field of microelectronics and adopted a program for the development of the industry for five years. At the same time, it was stated that 1.4 trillion dollars were allocated for the program. A serious competition in the field of microelectronics is starting between Washington and Beijing. Here and there, they think about the same: who will own the leadership in electronics, that will belong to the world economic, military and political leadership.

Senate Democratic Majority Leader Chuck Schumer (from the State of New York) at the ceremony expressed his confidence that the implementation of these measures to support the production of semiconductors will allow the United States “end dependence on foreign chip supplies“. As stated by the Speaker of the US House of Representatives Nancy Pelosithe law aims to ensure that the United States “could beat any country in the competition“.

Biden even exaggerated a little on August 11, saying the following words: “Unfortunately, we currently produce 0% of high-tech semiconductors. China is taking the lead in developing this industry. At the same time, the Chinese Communist Party is actively setting up American business to fight the new law.“. He exaggerated for the reason that, of course, America accounts for more than zero percent of the production of high-tech semiconductors. There is only a decrease in the share of the United States in world chip production: from 38% in 1990 to 10% today. And even more so, China is far from the only country in Asia that is making progress in microelectronics. In the first place – Taiwan (the most closely cooperating with the United States in the field of microelectronics). Not inferior to China, South Korea and Japan.

It is noteworthy that the program and the corresponding law intend to make American microelectronics and electronics “self-sufficient”, i.e. final products should be created exclusively on the basis of domestic parts, components, and even domestic equipment. To this feat unpleasant experience of Taiwan. America is hooked on the “needle” of Taiwanese microchips, and now it can lose them at any moment. Now everything should be in the United States.

The program provides for the construction of 13 enterprises in the United States. Subsidies of up to $3 billion will be issued for the construction of each facility. Washington invites both American and foreign corporations to build. In the first place among potential participants is the famous Taiwanese TSMS. In addition to it, South Korean companies will apply for subsidies. Samsung as well asSC Hynixamerican Intel, Micron Technologies and a number of other companies. The only one who will not be among the applicants is Chinese companies.

Washington is especially afraid of Chinese penetration into American microelectronics. From the law and the program reeks of anti-Chinese spirit. Thus, the recipients of subsidies undertake for 10 years not to engage in the development of exports of semiconductor products to China and other “countries of concern.” Recipients of subsidies are prohibited from developing the production of semiconductor products in the territory of the PRC and other countries that will be subject to such restrictions.

Beijing has already responded to the launch of the American program. Spokesperson for the Ministry of Foreign Affairs of the People’s Republic of China Wang Wenbin said the subsidies would lead to disruptions in global chip supply chains and cause international trade turmoil. The Chinese official opined that the US law promotes a differentiated industry support policy, as it involves the allocation of huge subsidies to domestic producers. According to Wang Wenbin, a number of provisions of the document restrict the investment and trade and economic activities of Chinese enterprises for the production of semiconductors, as well as hinder scientific and technical cooperation between China and the United States. The United States has the right to independently determine the direction of its economic development, but its actions must comply with the principles of the WTO and help maintain the security and stability of global production chains. The Chinese diplomat concluded:This will deform global semiconductor supply chains and cause international trade turmoil. China strongly opposes this“.

Import substitution starting in the West is another manifestation of the fact that globalization has gone backwards, the world is entering a phase of protectionism and isolationism.


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