At War with Russia

One might argue cogently that the war in Eastern Europe is not our fight. Russians and Ukrainians fighting for who knows what; does the conflict really threaten American national security?

In the largest sense the question has now been decided. Like it or not, Congressional debate and declaration or not, we are now at war with Russia.

We are not at war with the Russian military, but we are at war with Russia proper. Our economic and financial attacks, combined with our propaganda assault, are designed to destroy Russia and to overthrow the tyrant Putin. One notes that the Biden administration, which is gaining a political advantage as the nation rallies around the flag, is not conducting a similar war against Iran. In truth, it is sucking up to Iran, offering them a legitimate chance to gain nuclear weapons, as long as they ship more oil to us.

As we seem to be winning on the financial and propaganda fronts, the Russian military has stepped up its military assault, which is not always going very well. Apparently, they are less interested in winning hearts and minds than in outright destruction. Besides, the Russian military has not exactly shown itself to be fearsome and invincible. Dare I say more….

If we needed to nominate the dumbest remark on the current war, the hands down winner would be Tom Friedman of the New York Times. Yesterday Friedman suggested that we could end the whole conflict by appealing to China. After all, China is Russia’s principle ally. President Xi gave a green light to the war. Why would China not join the international coalition working to destroy the Russian economy and the Russian nation, when it has already allied itself with Russia in a war against the West.

Why not, indeed.

Friedman writes:

If China announced that, rather than staying neutral, it was joining the economic boycott of Russia — or even just strongly condemning its unprovoked invasion of Ukraine and demanding that it withdraw — it might shake Vladimir Putin enough to stop this vicious war. At a minimum, it would give him pause, because he has no other significant ally aside from India in the world now.

It makes some sense, until you consider that we have been warring against China for some years now. In the propaganda war against China we have been accusing that nation of having committed genocide. Apparently, the world’s Muslim leaders, most of whom are not allied with us against Russia anyway, do not much care about what is happening to the Uighurs. We, however, between our rounds of tariffs and sanctions, have stepped up the propaganda war against genocidal China.

No one with an ounce of sense imagines that we can appeal to China’s interest to join us in destroying Russia. In truth, considering that Putin and Xi conferred in person in China before the war began, we might imagine that Xi is happy to use the Russian army and the Russian nation to fight back against the Western nations that have been harassing him and his nation and their companies for many years now.

Besides, China is profiting from our war against Russia. Now that our credit card companies have shut down operations in Russia, Russian banks are turning to China and apparently to Japan. Tell me you were not surprised. I would note that since Japan is presumably on our side in this war, it is slightly strange to see Japanese companies working to pick up business from Russia. But it should not surprise us. After all, what happens in Ukraine is not Japan's problem either.

The Wall Street Journal reports:

Russian banks that have been cut off from global payments networks are turning to China’s state-owned UnionPay system as the country tries to sidestep boycotts by Western businesses for its invasion of Ukraine.

Visa Inc. V -3.35% and Mastercard Inc. MA -3.00% said they are suspending their Russian operations, making it difficult for Russians to buy goods from abroad. The moves by the two companies go beyond sanctions issued against many Russian banks.

Sberbank, SBRCY -42.22% Russia’s largest bank by assets, Alfa Bank and Tinkoff Bank said Sunday they were working on the possibility of issuing cards powered by China’s UnionPay. Another Russian lender, Gazprombank, said customers can do cross-border transactions by getting cards that use UnionPay or Japan’s JCB system.

And, of course, Chinese tech companies are trying to step into the breach left by the West. You see, Western tech companies have ceased doing business in Russia. Ergo, Chinese companies see an opportunity. Considering the pressure we have been exerting on nations around the world to reject Huawei, and considering the fact that we had the company's chief financial officer held under house arrest for years, none of this should surprise anyone. For the record, Huawei is China's largest private company.

The Wall Street Journal reports:

As Western tech companies halt sales to Russia following its invasion of Ukraine, their Chinese rivals have an opportunity to capitalize on their departure. Doing so won’t be easy in the face of growing logistical, financial and legal hurdles.

Companies that have suspended sales to Russia include smartphone makers Apple Inc. AAPL -1.84% and Samsung Electronics Co. , PC manufacturers HP Inc. HPQ -0.74% and Dell Technologies Inc., DELL -1.20% and telecoms-gear provider Ericsson ERIC 0.37% AB. Their exits come as expansive sanctions by the U.S. and allies on Russia prompt companies to review business ties there.

Chinese tech giants, however, have stayed silent and show no signs of joining the exit. Many have built strong ties in Russia over recent decades, capturing more than 40% of the market for some tech products. They often take their cue from Beijing, which has declared its opposition to U.S. sanctions.

While Russia is a small tech market by global standards—it accounts for about 2% of global smartphone and PC shipments—it is Europe’s largest phone market and a competitive tech battleground where Western brands vie with Chinese rivals for top billing.

Fair enough, it will not be easy. But still, you can see the writing on the wall, can’t you?

In the meantime, on another front in the war, wheat shipments from Russia and Ukraine have been shut down. This is very bad news for many people. We might not intend to starve the peoples of North Africa, but the Russian invasion, coupled with our financial war on Russia is producing this effect.

The Associated Press has the story:

The Russian tanks and missiles besieging Ukraine also are threatening the food supply and livelihoods of people in Europe, Africa and Asia who rely on the vast, fertile farmlands of the Black Sea region — known as the “breadbasket of the world.”

Ukrainian farmers have been forced to neglect their fields as millions flee, fight or try to stay alive. Ports are shut down that send wheat and other food staples worldwide to be made into bread, noodles and animal feed. And there are worries Russia, another agricultural powerhouse, could have its grain exports upended by Western sanctions.

While there have not yet been global disruptions to wheat supplies, prices have surged 55% since a week before the invasion amid concerns about what could happen next. If the war is prolonged, countries that rely on affordable wheat exports from Ukraine could face shortages starting in July, International Grains Council director Petit Arnold told The Associated Press.

That could create food insecurity and throw more people into poverty in places like Egypt and Lebanon, where diets are dominated by government-subsidized bread. In Europe, officials are preparing for potential shortages of products from Ukraine and increased prices for livestock feed that could mean more expensive meat and dairy if farmers are forced to pass along costs to customers.

Russia and Ukraine combine for nearly a third of the world’s wheat and barley exports. Ukraine also is a major supplier of corn and the global leader in sunflower oil, used in food processing. The war could reduce food supplies just when prices are at their highest levels since 2011.

Apparently, for reasons I do not pretend to understand, agribusiness in Russia too has had problems financing grain production.

And, we can close with the words of a Credit Suisse strategist, one Zoltan Poszar, to the effect:

If you believe that the West can craft sanctions that maximize pain for Russia, while minimizing financial stability risks in the West, you could also believe in unicorns.

That is the problem. As the markets look rather dicey this morning, we need to wonder how well our war against Russia is really going. Fair enough, Russia’s war with the Ukraine does not seem to be going very well at all. But, we should ask whether we have done more than solidify the Russian alliance with China, as we and several others have predicted.