Adeyemo Confident More Countries Will Adopt Russia Sanctions, Restrictions
Although the U.S. has been careful not to pressure some countries into imposing Russian energy restrictions and sanctions (see 2204110037), Deputy Treasury Secretary Wally Adeyemo is confident they will eventually join the more than 30 states imposing the measures. Those countries will realize the economic benefits of doing business with nations in the “sanctions coalition” outweighs the value of doing business with Russia, Adeyemo said.
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“Our goal over time is to make sure that the political and the economic coalition in all countries in the world follow our sanctions, because that's when we will have an impact on Russia,” Adeyemo said during an April 18 event hosted by the Peterson Institute for International Economics. “And our expectation is that countries will.”
Because such a large portion of the world’s economies impose sanctions against Russia -- including the U.S., Japan, Canada, Australia, the EU and South Korea -- Adeyemo believes nations outside the coalition will be incentivized to join. The long-term goal for the U.S. is that "all countries in the world follow our sanctions," he said, adding that Treasury is confident that countries such as China, India and Brazil will eventually comply.
He also said the U.S. initially only needed to recruit a select group of countries to impose specific consequences on Russia’s semiconductor sector -- including South Korea, Taiwan, Japan and the Netherlands -- because that was where a majority of the semiconductor suppliers are grouped. “The reality is that no other countries create the most advanced semiconductors in the world,” Adeyemo said.
But more countries will eventually need to join with their own sanctions, Adeyemo said. He said the “next phase” of the agency’s sanctions work will look to “take apart Russia's war machine piece by piece by disrupting their military industrial complex and its supply chain.” More countries participating in the sanctions could help expedite that process, Adeyemo said, adding that “now is the time to double down” on efforts to isolate Russia’s economy,
“Russia's military will need to restock,” he said. “We are continuing our efforts to use sanctions and export controls to deny Russia critical inputs it needs, targeting key sectors like aerospace, electronics and others related to the defense sector.”
The U.S. will also begin imposing a ban on Russian energy imports when the exemption period expires this week (see 2203080020). Adeyemo stressed that the U.S. can provide gas to some EU countries, including Germany and Italy, as both sides look to reduce dependency on Russia (see 2203250035).
Although Germany has been reluctant to impose an embargo on Russian oil (see 2203240026), Adeyemo applauded the country for canceling its work on the Nord Stream 2 gas pipeline (see 2202230054), which showed that it was willing to take some short-term pain in order to gain "long-term” energy independence. “We've seen that Europe, despite being differently situated then the United States, has taken action to cut themselves off from Russian energy already,” Adeyemo said. The long-term solution, he said, is moving to renewable energy.
One risk of sanctions is the possibility of driving bad actors to build alternative systems, Adam Posen, president of the Peterson Institute, said during the event. But Adeyemo said the U.S. isn’t worried that prolonged sanctions will pose a threat to dollar hegemony. He pointed to the Russian Central Bank's inability to conduct more than 20% of its transactions without the dollar even after moving $80 billion in assets in anticipation of U.S. financial sanctions.
"Outside of the G-7, there are not a lot of convertible currencies out there," he said, which is why the coalition is so important. U.S. economic power is an important enforcer of sanctions by itself, but when other trade and financial partners are on-board with a sanctions regime, Adeyemo said, it makes setting up alternative systems much more difficult. "It's less about centrality of the dollar and more about multilateral action,” Adeyemo said. But right now, "the dollar is ubiquitous even for countries trying to evade it.”