A senior Treasury Department official called for European allies to line up in applying pressure to Beijing to cease supporting the Kremlin's war efforts.
Citing the Russian econmy's "war footing," Deputy Secretary of the Treasury Wally Adeyemo said "this war is not just an existential threat to Ukraine, but to Europe and our national security."
In his speech to the Atlantik Brücke and the Transatlantic Business Initiative Event Mr. Adeyemo called for European allies to "make the choice stark for China: Chinese firms can either do business in our economies or they can equip Russia’s war machine with dual-use goods. They cannot do both. "
[Mr. Adeyemo's remarks have been condensed for brevity]
Putin has decided to turn Russia into a war economy, where the entire industrial base is geared toward his war in Ukraine. Within this economy, Russia allocated 29 percent of Russia’s total budget this year for defense spending, more than double its 2021 level. Production of military-industrial goods has risen by 35 percent.
Perhaps the clearest example of the fundamental change in how Putin views the importance of industry to his military ambitions is the fact that he named an economic advisor, Andrey Belousov, to lead the Russian Ministry of Defense. What this should signal to us all is that Putin is focused on making sure the Russian economy can power Russia’s war machine.
Russia’s ambitions are not just to replenish its war equipment but to build a stronger, more powerful military that surpasses what it had before the invasion began. Putin’s goal is to subjugate Ukraine, with his troops stationed at the border of Poland, Finland, and the Baltics. Failure to stop Putin now risks a resurgent Russia directly threatening NATO.
That’s why this war is not just an existential threat to Ukraine, but to Europe and our national security.
And that’s why this is not a moment for incrementalism, but a time for our coalition to take decisive steps to cut off Russia’s access to the goods it needs to build the weapons the Kremlin wants. This includes looking to expand our sanctions and export control regime to capture the fact that Russia’s entire economy is now on a war footing.
Russia has always needed goods from abroad to support its industrial base. For many decades, companies in this room and across the G7 provided the electronics, engines, and other components that powered Russian machinery. Our decision to cut Russia off from these goods made it more difficult for the Kremlin to build the tanks and bombs it needs to sustain its war of choice.
Russia has now adapted by deepening ties with Iran, North Korea, and particularly, China. Last year, Russia imported $5.2 billion worth of sensitive, dual-use goods from China-based suppliers, an increase of over 40 percent in just one year.
No other country has the capacity to supply Russia with the quantity of machine tools, microelectronics, and other goods the Kremlin needs to build weapons. Beijing may not be sending tanks or missiles to Russia, but the Kremlin cannot produce these weapons at scale or continue its war without the assistance of companies and financial institutions in China.
In addition, many of the goods from our coalition’s countries that are still being found in Russian military equipment are largely being transshipped through China. There is more we can and must do in our countries to prevent transshipment through third countries, but we must recognize that Chinese firms today are Russia’s indispensable partner in building weapons.
I want to be clear: our goal is not to shut down all bilateral trade between Russia and China. Our goal is to convince China to stop sending Russia a set of dual-use goods that are actively being used to prosecute a war Beijing has told us they want to see end.
We have provided China and other countries around the world with a list of these dual-use goods that are being used to make weapons for the battlefield. Many countries have stopped selling these dual-use goods to Russia, but the partnership between China and Russia has only deepened.
We should not be blind to the fact that a growing Russian military with material support from Chinese companies will only grow in ambition.
That’s why we must be explicit with every individual, company, and country that providing the Russian military-industrial complex with support is unacceptable.
The United States is engaging with our manufacturing, distribution, and freight forwarding firms to build out better compliance regimes to prevent our goods from ending up in Russia. We need our allies to do the same housekeeping with their private sectors, and we need companies around the world to take similar steps.
When the private sector doesn’t act, we are ready to. That includes taking action against companies in countries that are facilitating transactions to help the Russian military industrial complex get these goods. We must also strengthen our domestic customs and export control enforcement in order to make sure that unscrupulous companies in our countries cannot support the Russian war machine.
Every country in our coalition and every member of NATO must also consistently and clearly communicate to Beijing that it is unacceptable for Chinese to abet the Russian military-industrial base.
The EU as a whole is China’s largest export market, and China remains the largest exporter in key sectors like chemicals and machinery to the EU. We recognize the EU’s economic relationship with China is mutually significant, and we must make the choice stark for China: Chinese firms can either do business in our economies or they can equip Russia’s war machine with dual-use goods. They cannot do both.
We must make clear to Chinese companies that we are all prepared to use our sanctions and export controls to hold them accountable. And the United States, Europe, and all of our allies have to act together in following through by using our economic tools so that there is no daylight between our policies.
We do not seek to decouple from China. We want a healthy economic relationship with China that benefits both sides. But if China does not put a stop to the trade of dual-use goods to Russia, we will have to take action to hold them accountable.
I recognize that if we are forced to take these steps, many in this room may worry about the economic repercussions to our companies and our economies. But my view is that failure to convince China to stop selling dual-use goods to Russia poses a significant threat to Europe’s national security – to global security – which in turn will disrupt our economic futures.
When he was in China, Putin said that cooperation between the PRC and Russia “serves as one of the main stabilizing factors in the international arena.” I am doubtful that many of you think that an emboldened Russia would be stabilizing for the German, European, or global economy—that a Russian victory in Ukraine would be an economically preferable outcome for your companies. That’s why we have to take concerted actions to scrutinize our supply chains, adapt our business models, and stop Putin’s military ambitions.
And we don’t have endless time to deliberate. The Russian military-industrial complex is growing in size because Putin has gone all in. He is confident that with a reconfigured economy he can overpower Ukraine and challenge NATO. His confidence stems from the fact that he thinks he can wait us out—that our support for Ukraine will wane and that we will grow complacent in our response to his aggression. Let us prove him wrong.
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