Boeing is Latest Company to Suffer from Russian Sanctions

Boeing has had a bad year. After the blowout of a door on a Boeing 737 Max earlier this year, the company has been under intense public scrutiny. Now the aeroplane giant is facing a new problem: an inability to meet its production target on its 787 Dreamliner due to a lack of critical parts from Russia.

The company appears to have relied on Russian production for a part called a “heat exchanger”. After sanctions were put in place following the Russian invasion of Ukraine, Boeing turned toward British and American suppliers, but they could not produce enough of the component to meet Boeing’s demands. This latest act in the sanctions saga highlights once again just how interdependent the globalised world economy is.

The reason there’s been so much scrutiny on Boeing is because it is part of a key strategic industry. Maintaining an edge in aerospace technology is essential to America’s geopolitical strategy, which has both a military and commercial component. By maintaining an edge in the production of military aircraft, the United States can provide this technology to allies and in doing so lock in global alliances. Meanwhile, the civilian aerospace industry is considered prestigious and captures the imagination of global jet-setters. If America were to fall seriously behind in this sphere, it would be embarrassing to the country.

The fact that the sanctions on Russia are causing such severe problems for a core strategic industry in the United States speaks to a contradiction in American geopolitical and economic strategy: sanctions programmes are designed to hobble foreign economies, but the Russian sanctions increasingly appear to be hobbling Western economies. American policymakers may have been able to tolerate the destruction of European industry under the high energy prices caused by the Russian sanctions, but now they are seeing their own critical industries under threat.

The fact that Russian sanctions can create such severe problems for a core strategic industry also shows how dangerous strategies such as “de-risking” and “decoupling” from China are. Russia is a large economy, but it is not enormous. Measured properly, on a PPP-adjusted GDP basis, it is an economy roughly as large as Germany. It has important sectors — such as energy and aerospace manufacture — but it is not generally seen as one of the big players.

If sanctions on the Russian economy can cause such problems, it is hard to even imagine what similar sanctions on the Chinese economy might do. Consider the situation with capital goods: recent studies show that the European Union now imports more of its capital goods from the rival Brics economies than China imports from the Western countries; the United States imports roughly the same.

Last year, in response to American sanctions on advanced semiconductors to China, the Chinese government put the export of two elements — germanium and gallium — on a restricted export list. China produces 60% of the world’s germanium and 80% of its gallium, which are crucial to the production of many electronic products, especially microchips.

Reports from earlier this year show exports of germanium and gallium from China to the West collapsing. Gallium exports were down by as much as two-thirds. It Is still unclear what impact this is having on Western industry, but it is worth noting that recently China has ramped up its production of lower-end chips. While these products may not have the same cachet of their higher-end equivalent, they are nevertheless used in a wide array of technology.

After promoting globalisation for the better part of three decades, western governments seem to think that they can withdraw from global supply chains at the click of a finger. To call this a fantasy would be too charitable; rather it is a dangerous delusion that risks denting Western economic prosperity and even social stability.

May 08, 2024