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Why Russia’s invasion of Ukraine is a warning to U.S. tech

February 28, 2022, 6:40 PM UTC

As the European Union tries to beat back Vladimir Putin’s invasion of Ukraine, the alliance is hamstrung by a long-simmering issue: its reliance on Russian energy. 

Germany, Italy, Poland, and many other European nations still draw a significant chunk of their oil and gas from Russian sources, with no immediate replacements available. As a result, it’s politically perilous for EU leaders to punish Russia by dramatically restricting energy imports, which would mean a costly, cold winter for millions of Europeans in need of heat and gasoline. 

It’s a stark lesson in leverage that the U.S. and its tech industry should consider as America continues to stare down its most fearsome geopolitical foe: China. 

While the U.S. maintains a strong edge over China in technological breakthroughs and development, America remains deeply reliant on products sourced and made in China. The U.S. totaled a record $151 billion in imports of advanced technology products from China in 2021, more than all imports from allies in the European Union, Japan, and South Korea combined, according to Census Bureau data. By contrast, China imported about $38 billion worth of advanced technology products from the U.S.

Just as America “targeted Russia’s technological fabric” with sanctions this month, as The Economist detailed, China could take similar aim at the U.S. in a future standoff. As such, diversifying and realigning the American tech supply chain could gain more momentum.

After decades of outsourcing and transpacific partnerships within the tech sector, fueled by a period of minimal international conflict, U.S.-China tensions are once again building. 

President Donald Trump ushered in a new era of anti-China sentiment, launching a trade war and instituting sanctions that devastated Chinese telecommunications giant Huawei. His successor, Joe Biden, has largely maintained Trump’s stance, albeit with a bit less bombast.

Chinese leaders, in turn, are turning inward. They pledged in their most recent five-year plan, published in 2021, to make tech self-reliance a cornerstone of China’s future. President Xi Jinping also continues to rein in the power of Chinese tech firms, bringing more authority under the central regime’s control.

Looming over these developments: China’s interest in reunification with Taiwan, a democratic quasi-ally of the U.S. While Xi has wavered in his approach to Taiwan, alternately threatening a forceful takeover and encouraging a “peaceful reunification,” his rhetoric and rapid crackdown on Hong Kong suggests conflict could arise in the coming years. (The U.S. does not formally support Taiwan’s independence or commit to defend it militarily, but it sells arms to Taipei.)

To be sure, the Russia-Ukraine-EU conflict bears little resemblance to the U.S.-China friction. The Russian tech and manufacturing industry pales in comparison to China’s. The intertwined economies of the U.S. and China give each side more incentive for cooperation. Xi moves with more tactical acumen than Putin.

Still, the biggest break in the post–World War II order serves as a reminder that peace isn’t permanent. 

“China’s technological investments are guided by strategic clarity on objectives, including strengthening social control, expanding international influence, and enhancing military capabilities,” a team of 13 Brookings Institution scholars concluded in December as part of a wide-ranging analysis of Chinese global influence. 

“The United States does not currently maintain the same level of clarity on its own technological priorities. It should work with like-minded partners to examine how technology can be employed to uphold shared values and international rules and norms.”

In an early test of potential supply-chain reorientation, American and European political leaders are pushing for huge semiconductor subsidies in their respective regions, seeking to ease their reliance on Taiwanese manufacturers that dominate the industry. While the fruits of any such move remain years away, the ambition serves notice that the Western bloc won’t stand idly by as China’s nationalist approach takes root. 

The U.S. remains well ahead of its Chinese tech counterparts in terms of innovation and human capital, allowing American leaders to operate from a position of strength. But as last week’s developments showed, nothing in this world lasts forever. 

Want to send thoughts or suggestions for Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Hold the assembly line. Toyota said it plans to suspend all factory operations in Japan starting Tuesday after a suspected cyberattack crippled a key supplier of plastic and electric parts, Automotive News reported. It’s not immediately clear whether the attack is tied to Japan’s opposition to the invasion of Ukraine by Russia, which issued broad threats of retaliation against critics of its incursion. Toyota, which operates 14 plants in Japan, expects to produce about 13,000 fewer vehicles as a result of the shutdown.

A plea for action. On Sunday, the leaders of four European nations called on Twitter, YouTube parent Alphabet, and Facebook parent Meta to more aggressively censor social media accounts backed by Russia and its wartime supporters, Bloomberg reported. In a letter to the tech companies, the prime ministers of Estonia, Latvia, Lithuania, and Poland said their respective social media platforms “have not done enough” to stem the spread of disinformation and propaganda published by pro-Kremlin accounts. The quartet proposed suspending accounts run by the Russian and Belarusian governments, the personal accounts of leaders and top associates of both countries, and state-controlled media outlets.

Losing your wallet. Binance, the world’s largest cryptocurrency exchange, announced Monday that it will freeze the accounts of Russian individuals targeted by U.S. and European Union sanctions following Russia’s invasion of Ukraine, CNBC reported. The crypto outfit, however, will not suspend the accounts of all Russian users, stopping short of the actions requested by Ukraine’s vice prime minister. Several other cryptocurrency exchanges have resisted calls to freeze any user accounts absent a legal order.

Running on empty. The struggling electric-auto maker Lordstown reported mounting losses in the fourth quarter, sending its already weak share price down another 20% in midday trading Monday, the Wall Street Journal reported. The Ohio-based company’s quarterly net loss of $81.2 million equaled 42 cents per share, up year over year from 37 cents per share, with no revenue reported. Lordstown is expected to produce its first electric pickup truck in 2022, though its chief financial officer said the company will need to raise more capital to launch the vehicle line. Shares of Lordstown are down 92% since their all-time high in September 2020.

FOOD FOR THOUGHT

Coming to America? A popular app known as “the Instagram of China” could soon try to follow in the footsteps of its domestic counterpart TikTok. Insider reported Monday that job postings suggest Xiaohongshu, which combines social media and online shopping platforms into one app, aims to go global after building a monthly user base in China that exceeds 200 million. The outfit appears poised to expand into other Asian markets first, though China-based TikTok has amassed a huge following in the U.S.

From the article:

The app is wildly popular with China’s Gen Z generation, with about three-quarters of its users born in the 1990s and half living in the most affluent cities in China including Beijing and Shanghai. Most of its users are female, according to state media reports.

That young, affluent, urban user base has attracted big foreign brands. Kim Kardashian joined the app in 2018 to sell her KKW fragrance lines. Luxury brands such as Gucci use it to showcase their products. Olympics freestyle skier Eileen Gu held a livestream on the app earlier in February.

IN CASE YOU MISSED IT

At long last, Tesla’s German car factory might finally open, by Christiaan Hetzner

How Fortune 500 behemoth American Express quietly became a venture capital powerhouse, by Jessica Mathews

Ericsson risks being ‘uninvestable’ after reports it was involved in alleged payments to ISIS terrorist group in Iraq, by Thomas Seal and Bloomberg

Hackers in Belarus claim to have disrupted trains to ‘slow down the transfer’ of Russian troops into Ukraine, Ryan Gallagher and Bloomberg

Russian hackers started a vigilante cyber militia to take down Ukraine’s websites and steal data, by Carmela Chirinos

Russia limits access to Facebook as the social networking giant attempts to fact-check pro-Kremlin propaganda, by Jonathan Vanian

Toward data dignity: We need commonsense privacy regulation to curb Big Tech, by Tom Chavez, Maritza Johnson, and Jesper Andersen

BEFORE YOU GO

Wishing upon a Starlink. With a single 11-word tweet Saturday, Tesla CEO Elon Musk declared that Ukraine now has access to the company’s Starlink satellite internet service. Except it’s not quite that simple, as Fortunes Eamon Barrett writes. Starlink users must have satellite dishes to access the low-orbit satellites that beam in internet service—and it’s not clear whether any Ukrainians have that infrastructure in place. If both sides can clear the logistical hurdles, the secure service will help Ukraine navigate potential Russian attacks on its internet infrastructure.

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