U.S., G7 allies convene to examine Ukraine-Russia war, chips supply chain, China

Council on Foreign Relations Senior Fellow Charles Kupchan joins Yahoo Finance Live to discuss the new sanctions against Russia from the U.S. and UK at the G7 Summit, the Russia-Ukraine conflict, and the semiconductor chip industry.

Video Transcript

- While the US is tightening economic sanctions on Russia, the Biden administration adding more than 70 companies to a trade blacklist today, while halting the exports of a wide range of consumer goods. It's part of an effort by the world's wealthiest countries to up the pressure on the Kremlin, as world leaders gather for the G7 summit in Hiroshima.

Let's bring in Charles Kupchan, Council on Foreign Relations Senior Fellow, as well as Professor of International Affairs at Georgetown University. Professor, good to talk to you today. This, of course, comes at a very critical time as Ukraine prepares for its counteroffensive. If the ultimate goal is about finding some kind of diplomatic resolution to this fight, how did today's actions help the US and G7 countries get there?

CHARLES KUPCHAN: Well, you know, I think there are two lines of effort that have been very successful. One is arming providing economic assistance to Ukraine and the other is bolstering NATO's Eastern flank. The third line of effort, sanctions against Russia.

But they've been less successful because it's been very hard to close off the Russian economy. They have simply realign their supply chains. They're selling oil to the Indians and to the Chinese, rather than to the Europeans. They're getting goods from the South, rather than from the Europeans. Will these new sanctions make a difference? Maybe at the margins. But I don't think we're going to see a successful strangling of the Russian economy.

For now, I think what we're going to see is the playing out of this offensive. And there was an announcement today to start training Ukrainian pilots in high-end aircraft, including F-16. So the action is now on the battlefield. When this offensive does come to an end later this year, I think then the window will open for a possible diplomatic endgame.

- Charles, when it comes to the F-16 fighter jets, how big of a step is this? And you mentioned the fact that what the US and its allies have done with Russia hasn't worked maybe to the degree that we were hoping it would have. So what is the better strategy then at this point?

CHARLES KUPCHAN: Well, I think that the message that the G7 is sending to Moscow is, don't think that you can just wait us out, that our sanctions are getting stronger. We know that you've been finding loopholes and we're going to try to fill them. The message here is ultimately, you're going to have to back down. Ultimately, time is not on your side.

And the other side of the coin is, we are increasing Ukraine's ability to push into those areas of Ukraine that are still occupied by Russia. And the bar has moved over time. A few months ago, we weren't giving Ukraine tanks, now the Europeans and the Americans are sending tanks. Until today, the US was saying no to high-end aircraft. Now we're going to start training pilots. But it's important to note it takes a long time to train pilots, probably as many as 18 months.

So these are not aircraft they're going to be there for this offensive. Most of what the Ukrainians need to carry out this offensive they already have. I think they're basically waiting for the mud to dry up, so that they can use their armored vehicles and tanks to good effect.

- Charles, I want to talk about another issue that is going to be raised here at the G7, and that is about industrial policy. There's a number of threads, but specifically on semiconductors. What we have seen is, on the one hand, the likes of the US as well as the EU offer these really aggressive incentives to try and onshore a lot of the production.

At the same time, we've seen conversations between the two sides, as well as Japan to try and box out China. What's that next step we're likely to hear in Hiroshima?

CHARLES KUPCHAN: Well, you know, I think the conversation about China is much more difficult than the conversation about Ukraine. Ukraine, everybody agrees Russia has committed a bold act of aggression, and the West needs to stop the Russians. When it comes to China, I think the question is, yes, we are too interdependent. We need to friend-sure certain supply chains. We need to prevent them from getting the best semiconductors because that's where the cutting edge technology lies.

But beyond, that I think there are some differences beneath the surface about how far to go about whether decoupling should turn into a broader deglobalization. Right now, I think the US and its allies in Europe and Asia agree that this should be selective. As Jake Sullivan puts it, small yard, but a high fence.

I think what we don't know is as geopolitical rivalry mounts between the US and China, is this going to turn into a broader deglobalization, a fragmentation of the global economy. We don't know the answer to that question yet, but it's certainly on everybody's minds.

- To what extent does that get hashed out at this G7? I mean, to your point, you've got the likes of Japan, for example, saying yes, we are on board with the US policy. It's a little more questionable when it comes to Europe. Largely some of those chipmakers still supplying to the Chinese. Look at, for example, the Dutch, who have said, look, we're willing to go with some of the policy, but we're not 100% on board. Are we likely to see any progress on some of those differences in this meeting?

CHARLES KUPCHAN: And, you know, I think the answer to that is yes. And that's because we are still in a small and confined space, that is a certain amount of semiconductors preventing the Chinese from getting these machines that are needed to produce them. The bigger question I think is what next? Where do we draw the line?

If we're going to ban semiconductors, what about avionics? What about aircraft parts? I don't think this is a conversation that's going to happen at this G7. But beneath the surface, this is a conversation that's taking place.

It's important to keep in mind that when Emmanuel Macron, Olaf Scholz, the leaders of France and Germany went to China recently, they had dozens of CEOs with them. And that's because Europe is highly dependent on trade with China, so is the United States. So this is very much a work in progress. But we know from history that when geopolitics gets in the way of trade, geopolitics usually wins. And that's why we need to keep a close eye on this space.

- Charles, always good to get your insight. So Charles Kupchan, Senior Fellow at the Council on Foreign Relations, as well as Professor of International Affairs at Georgetown University.