diff --git a/_collections/_hkers/2022-08-02-securing-semicon-supply.md b/_collections/_hkers/2022-08-02-securing-semicon-supply.md new file mode 100644 index 00000000..56344c96 --- /dev/null +++ b/_collections/_hkers/2022-08-02-securing-semicon-supply.md @@ -0,0 +1,306 @@ +--- +layout: post +title : Securing Semicon. Supply +author: William A. Reinsch, et al. +date : 2022-08-02 12:00:00 +0800 +image : https://i.imgur.com/AAIk4xm.jpg +#image_caption: +description: "Affirmative Agenda for International Cooperation" +excerpt_separator: +--- + +_Technological innovation has been a driving force for U.S. global leadership and economic prosperity for over a century. This legacy of innovation largely stands on the foundation of a key component: semiconductor chips, found today in almost all electronic products._ _Semiconductors are an integral component of various consumer products across industries, including cars, smartphones, and household appliances. But semiconductors can also be used in dual-use goods — products that have both military and civilian applications — such as air guidance systems for both civilian and military aircraft. The tension between economic gain and security risk inherent within dual-use semiconductor goods is heightened in fields with national security implications, such as supercomputing and artificial intelligence (AI). How the government and private sector manage the global value chains (GVCs) of chips will directly affect U.S. global competitiveness and national security going forward._ + +The past two years have underscored the importance of semiconductors to the U.S. economy and its national security interests. Pandemic-induced spikes in consumer demand boosted semiconductor demand by 17 percent between 2019 and 2021. Global sales reached $555.9 billion in 2021, 26.2 percent more than the year before. Although China remains the largest market in the world for semiconductors, sales in the Americas represented the largest region for industry growth in 2021. However, this spike in demand, along with stagnating investment, inadequate input supplies, and logistics breakdowns, has led to an unprecedented shortage of semiconductors that has reverberated throughout the roughly 200 downstream industries that depend on chips. In the automotive industry alone, it was projected that global semiconductor shortages were responsible for $210 billion in lost revenue as of September 2021. Short-term supply chain disruptions for the semiconductor industry are compounded by long-term geopolitical challenges and the need to rethink what constitutes both secure and resilient supply chains. While China is a top customer for the semiconductor industry, the perception of China has shifted in recent years from potential partner to existential threat. This shift has led companies and countries alike to rethink their dependency on China as both partner and customer. In particular, the Biden administration has sought policies that attempt to accelerate progress and prolong the United States’ innovative edge, while simultaneously dampening China’s influence throughout the semiconductor marketplace. Countries around the world have begun thinking about ways to reduce dependencies on China, enhance supply chain resiliency, and keep costs down. + +In the United States, this confluence has manifested in calls for nearshoring and “friend-shoring.” As Treasury Secretary Janet Yellen said in April 2022 remarks, “friend-shoring means . . . that we have a group of countries that have strong adherence to a set of norms and values about how to operate in the global economy and about how to run the global economic system, and we need to deepen our ties with those partners and to work together to make sure that we can supply our needs of critical materials.” The key difference between onshoring and friend-shoring is that friend-shoring is not restricted to domestic production, but rather seeks to move production to allied partners. + +While moving supply chains away from East Asia could increase security in the long run, an ill-conceived implementation of this friend-shoring strategy could result in price hikes and a stronger China over time. In its 2022 capstone report on supply chains, the Biden administration explicitly stated that “the United States cannot make, mine, or manufacture everything ourselves. We must cooperate with our allies and partners to foster and promote collective supply chain resilience.” Thus emerges the need for the United States to choose its partners wisely when it comes to semiconductor supply chains. + +As the United States considers how to build more secure and resilient supply chains, it should seek closer collaboration with countries demonstrating the following characteristics: (1) the bloc should maintain robust support for technology development, whether through a conducive regulatory environment or significant government investment in research; and (2) as a matter of national security, the United States should enhance cooperation only with those parties whose export controls are consistent with its own, including compliance with the Foreign Direct Product Rule (FDPR). + +The United States is already leveraging relationships with foreign partners to enhance semiconductor supply chain resiliency; increase collaboration on distortive trade practices, investment screening, and export controls; and enhance transatlantic cooperation regarding secure internet and communication technology (ICT) supply chains. In its first year, the Biden administration pursued closer security relationships with both selected Asian countries and the European Union. In May 2022, the United States and the European Union held the second ministerial of the U.S.-EU Trade and Technology Council (TTC). The TTC seeks to promote closer transatlantic collaboration through 10 specific working groups, including rebalancing transatlantic semiconductor supply chains. The joint statement from the second ministerial underscores the need to build more geographically and commercially diversified supply chains and directly highlights an overdependence on China for the production and processing of certain inputs. In the supply chain annex, the parties agreed to develop an early warning and monitoring mechanism on semiconductor value chains, monitor and prepare for supply chain disruptions, and enhance transparency and commit to exchange information to avoid a subsidy race. These types of generalized commitments are relatively easy to put forth, but much more difficult to achieve in practice. + +Dealing with Russia’s invasion of Ukraine has also become a major focus of TTC activity, particularly regarding cooperation on sanctions and export controls. The united export control response is intended to cripple Russia’s war machine by cutting the country’s military off from advanced technologies like semiconductors, which are used in military goods like aircraft and tanks. Continued close coordination on sanctions is expected, but whether that will translate into the same level of cooperation outside the Ukraine context remains to be seen. Furthermore, the U.S. focus on export controls in the sector, coupled with the Russian invasion of Ukraine and mounting Chinese pressure on Taiwan, has injected a new level of national security discourse into the trade policy debate. + +In addition to closer collaboration with the European Union, the Biden administration has accelerated its engagement with Asian partners. In September 2021, the United States, Japan, India, and Australia launched a “joint initiative to map capacity, identify vulnerabilities, and bolster supply-chain security for semiconductors and their vital components” as part of their Quad alliance. Quad leaders also convened in May 2022, though the meeting largely centered on security issues. It is unclear how these EU and Quad semiconductor supply chain efforts will progress, but each comes with different economic and national security implications. + +Another evolving initiative is the Indo-Pacific Economic Framework for Prosperity (IPEF). All of the Quad countries have indicated their intent to participate in the IPEF, though they have not yet announced which specific pillar negotiations they will join. While details of the framework remain elusive, the IPEF launch in May 2022 confirmed that the framework will consist of four primary policy pillars: (1) trade; (2) supply chain resiliency; (3) infrastructure, clean energy, and decarbonization; and (4) tax and anti-corruption. The United States Department of Commerce will lead supply chain resiliency, infrastructure and decarbonization, and tax and anti-corruption. The Office of the United States Trade Representative (USTR) will head the fair and resilient trade component. It is likely that the Commerce Department will leverage the supply chain resiliency pillar to collaborate more closely with Indo-Pacific partners on semiconductor supply chains, including early warning systems for shortages and information sharing on how to avert future supply chain crunches. That Australia and Japan are likely participants in the USTR’s trade pillar provides the United States with a forum for governments to redouble efforts toward strengthening semiconductor GVCs and cooperation, though Indian participation in the trade pillar remains highly unlikely. Export controls will not be one of the topics covered in the IPEF. + +Given the evolving security relationship between the United States, the Quad, and the European Union, this paper focuses on both Quad and EU countries and the possibilities for friend-shoring in both. It assesses how the EU and U.S. governments can collaborate to avoid duplicative policies that fail to enhance the overall resiliency of transatlantic semiconductor supply chains. In addition to analyzing opportunities for closer cooperation across governments, this paper also evaluates policies the U.S. government should pursue to support the private sector and ensure the long-term competitiveness of the U.S. semiconductor industry. The paper also looks at another emerging security partnership among the Quad countries to assess their viability in terms of semiconductor friend-shoring. This project looks at the current landscape of semiconductor research and development (R&D), fabrication, and packaging capacity in these case study countries; evaluates export control regimes in each country; and assesses which countries are best positioned to partner with the United States to build more resilient semiconductor supply chains based on economic and national security considerations. + +This paper finds that, given the inherent and increasing complexity of global semiconductor supply chains, self-sufficiency in semiconductor production is probably unattainable and, in any event, would be counterproductive in the short term and would contravene long-term geostrategic interests that depend on continued innovation and competitiveness. China’s persistent pursuit of intellectual property theft and subsidization of domestic production underscores how important it is for the United States to engage more closely with like-minded allies to bolster the security of analog and next-generation chips. What emerges is the need for an affirmative agenda for semiconductor supply chains among allies. Key recommendations emerged from interviews conducted for this research, including the need to + +- identify policy goals that would help bolster semiconductor supply chain resiliency; + +- promulgate consistent, predictable policies, particularly related to trade; + +- avoid blanket export controls that risk dampening investment in allied semiconductor industries; and + +- consider the creation of a new mini-export control regime that could function similarly to the Wassenaar Arrangement. + +Using these key themes, this paper assesses specific case study countries to evaluate how governments can better support the semiconductor industry. + + +### Global Semiconductor Value Chain + +The global semiconductor value chain is dominated by the United States, Taiwan, South Korea, Japan, Europe, and China. The semiconductor GVC consists of three main stages: R&D (chip design), fabrication (chip production), and advanced testing and packaging (back-end manufacturing). R&D and chip design require substantial funding and human capital input; consequently, the industry has one of the highest R&D margins across all industries. Semiconductor companies spend more than 18 percent of their revenue on R&D. Fabrication (fab) involves the production of chips, a deeply technical and precise six-step process. Front-end manufacturing requires significant capital expenditures. For example, a standard semiconductor fab requires roughly $5 billion of investment, while an advanced fab can cost over $20 billion. + +![image1](https://i.imgur.com/cTSXGPp.png) +_▲ Semiconductor Value Chain_ + +The fabless foundry model allows firms to specialize in one primary aspect of the semiconductor GVC and to outsource manufacturing. For example, chips might be designed in Silicon Valley, manufactured in East Asia with Dutch machine tools, and then packaged in Malaysia. U.S.-based Qualcomm specializes in the design of semiconductors and does not have production facilities, while companies like Global Foundries specialize in manufacturing and do not do their own design. Meanwhile, companies such as Amkor specialize in assembly, testing, and packaging (ATP), also known as back-end manufacturing. + +![image2](https://i.imgur.com/YfzLZXL.png) +_▲ A large web of global trade flows supports the geographic specialization in the semiconductor value chain_ + +Back-end manufacturing is typically handled by outsourced semiconductor assembly and test (OSAT) companies. Taiwanese companies maintain 53 percent of the back-end market share, though the United States International Trade Commission finds there is a “notable concentration” of ATP service providers in Malaysia, Indonesia, Thailand, and Vietnam. In 2019, Taiwan maintained 53 percent of the OSAT market, and a single Taiwanese firm, ASE Group, maintained 26 percent of the global back-end market. The largest OSAT firm in the United States is Amkor Technologies, which accounted for 13 percent of the market in 2019. While ATP services account for only 10 percent of a chip’s value, they are the important last step in the production process. On the other hand, the integrated device model (IDM) represents the vertical integration of semiconductor GVCs. Few firms follow the IDM. However, IDM sales reached $257.4 billion, while fabless chip sales reached $127.9 billion, underscoring the profitability derived from the efficiency of vertical integration models. Examples of these vertically integrated firms include Intel, Samsung, and Texas Instruments. + +![image3](https://i.imgur.com/XkKM9Zb.png) +_▲ Technology complexity and need for scale have led to emergence of business models focused on a specific layer of the value chain_ + + +### Semiconductor Policy in the United States + +While semiconductor GVCs are distributed around the world, diversification of GVCs helps keep costs down and reduces the likelihood of a major disruption. One month into office (in February 2021), President Biden signed an Executive Order on America’s Supply Chains. The order mandated that relevant agencies undertake a comprehensive review U.S. supply chain security in the following key areas: semiconductor manufacturing and advanced packaging, batteries, critical minerals and materials, and pharmaceuticals. With respect to semiconductors, the 100-Day Review found that while the United States remains a leader in design, lack of production capacity and continued reliance on foreign manufacturers continue to restrain industry growth. + +The Commerce Department, which oversaw the review of semiconductor supply chains, found in its one-year review that chip shortages were particularly acute in certain types of semiconductors. These include legacy logic chips, such as those used in medical devices and automobiles, analog chips used in power management and image sensors, and optoelectronic chips used in sensors and switches. These categories of chips are relatively large in nanometer size, meaning increasing supply is relatively easier to achieve than with other, more advanced chips. + +A combination of factors in the United States, such as high labor costs and insufficient government-supported R&D, has led to a decrease in the U.S. share of semiconductor manufacturing capabilities, from 37 percent in 1990 to 12 percent in 2019. In light of ongoing disruptions to semiconductor supply chains and a decreasing U.S. market share, the Biden administration has deemed this a national security priority. As directed by the February 2021 executive order, the Commerce Department released its 100-day critical supply chain report the following June, providing a comprehensive overview of risks, vulnerabilities, and opportunities to strengthen and secure U.S. semiconductor supply chains. Also in June 2021, the United States Senate passed the United States Innovation and Competition Act (USICA), followed by the House version — the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength Act of 2022 (the America COMPETES Act). These bills, currently in conference, both contain the Creating Helpful Incentives to Produce Semiconductors for America Act (the CHIPS for America Act), which would provide substantial investments to boost domestic semiconductor production — to the tune of over $52 billion. In the backdrop of geostrategic competition with China, the Biden administration’s approach to semiconductor investment represents a desire to scale up U.S. industry and maintain a competitive edge for U.S. semiconductor manufacturing. + +The CHIPS for America Act would allocate $39 billion to the Commerce Department’s semiconductor incentive program, providing up to $3 billion per firm for the construction of new fabs. It would allocate roughly $11 billion for R&D. Additionally, the act would create a new Multilateral Semiconductors Security Fund to promote the development of a secure semiconductor supply chain. The act would also establish new supply chain programs within the Commerce Department. CSIS outlines additional contours of the CHIPS for America Act in [this piece](https://www.csis.org/blogs/perspectives-innovation/chips-america-act-why-it-necessary-and-what-it-does). + +According to the act, U.S. government spending on semiconductors would complement existing industry efforts to bolster the resiliency and security of semiconductor supply chains. As of 2020, the United States accounted for the largest portion of the semiconductor market share, at 47 percent, equaling $207.9 billion in sales. Major private players are making sizable investments in the domestic semiconductor industry, including to increase domestic production capacity. In 2022, Intel announced it would invest $20 billion in building two Ohio factories. Taiwan Semiconductor Manufacturing Company (TSMC) concluded a deal to spend $12 billion in Arizona to develop a new plant. Texas Instruments plans to invest $3.5 billion annually for chip manufacturing in the United States through 2025. + +#### INVESTMENT SCREENING, EXPORT CONTROLS, AND TRADE INITIATIVES + +Trade policy is an important part of facilitating the development of a resilient semiconductor industry. Trade policies can be tools that enhance innovation and growth, while at the same time restraining the ability of adversaries to develop cutting-edge technologies. The task for policymakers is to ensure that policies to promote industry growth do not conflict with ones to protect national security. Trade policy can play an important role in helping domestic industry “run faster” against competition, but excessive technology controls in the name of national security can have the unintended effect of denying U.S. high-tech companies the revenue they need to innovate and grow. + +The United States has a robust policy tool kit for building more resilient semiconductor supply chains while advancing national security measures. In 2018, Congress passed legislation that enhanced government capabilities to review both foreign investments and domestic outflows. The Export Control Reform Act of 2018 (ECRA) provides the president with the authority to establish new export controls on “emerging” and “foundational” technology — though ECRA did not explicitly define either of those terms, leading to significant uncertainty throughout the private sector. The designation of semiconductors as foundational could result in wide-ranging license requirements for standard chips used in everyday items. However, the Bureau of Industry and Security recently announced in a proposed rule that it was no longer going to distinguish between emerging and foundational designations. Designating semiconductors as foundational could potentially dampen U.S. private-sector profits, thereby restraining the industry’s ability to invest in next-generation R&D. + +> Trade policy can play an important role in helping domestic industry “run faster” against competition, but excessive technology controls in the name of national security can have the unintended effect of denying U.S. high-tech companies the revenue they need to innovate and grow. + +Another trade tool the United States has implemented administratively is the FDPR. The FDPR is an extraterritorial application of U.S. law that permits the government to curb foreign-produced exports containing U.S. equipment or technology, including design, to those on the Entity List. Following the Russian invasion of Ukraine in February 2022, the Biden administration announced it would apply the rule to Russia. The FDPR imposes new license requirements on exports to Russia and applies a policy of denial to license applications for exports or reexports to Russia or for transfers within the country. Overall, the application of the rule significantly restricts Russia’s ability to acquire critical goods like microelectronics, telecommunications items, and aircraft components. Key to compliance is whether foreign trading partners, such as China, will adhere to secondary sanctions — such as the FDPR — that will affect the production, thereby restricting foreign availability of covered products. The European Union and Japan have adopted restrictive measures similar to those of the United States. South Korea has agreed to comply with Western sanctions but has indicated it will not implement its own. In February 2022, Taiwan announced it would also join Western sanctions, and in April 2022, Taiwan initiated its own export curbs on products to Russia, adding 57 products to a new export control list. Nevertheless, it is uncertain whether other trading partners — namely, China and India — will comply with Western export controls, thereby restricting the outflow of semiconductors made with U.S. inputs or design. Furthermore, it remains to be seen whether Western agreement on Russia sanctions will extend beyond the Ukraine conflict — for example, in the event of a Chinese invasion of Taiwan. + +Another policy tool that could affect collaboration on semiconductor supply chains between the United States and foreign partners is a new outbound investment-screening tool that has been proposed by Senators Casey (D-PA) and Cornyn (R-TX). The Senators’ bill would establish an interagency process to review outbound investment in areas of “national critical capabilities” to entities “of concern.” A similar proposal exists in the House’s America COMPETES Act as well. Proponents of outbound investment screening argue that the outflow of U.S. investment to China bolsters Chinese critical industries, threatening U.S. national security interests. Although critics of the proposal argue it would duplicate the Department of the Treasury’s remit to screen investments, proponents believe this could be a useful mechanism for ensuring that U.S. funds are not used to enhance technological capabilities of foreign adversaries, including bolstering advanced semiconductor manufacturing. + +Trade and investment policy affects where firms decide to locate and plays a key role in determining which countries can acquire sensitive technologies, and in turn, which types of sensitive technologies are permitted to leave those countries. For trade policy to succeed in achieving desired geopolitical outcomes, it needs to be based on determined end goals and on a calculation of how best to achieve those goals. Part of this consideration requires governments and firms to take into account foreign availability of equivalent products. If most, but not all, countries converge to reduce the export of sensitive chips to adversaries, it remains likely that the adversarial countries will be able to acquire chips from nonparticipating third countries. It is therefore crucial for the United States to work in concert with like-minded countries as it decides whether to encourage or require restrictions on technologies such as semiconductors. Building secure semiconductor GVCs thus requires multilateral cooperation among governments of foreign semiconductor producers, whether specializing in R&D, production, or back-end packaging. It is also incumbent on companies to be familiar with policy developments in this area and make location and investment decisions consistent with them. + +> For trade policy to succeed in achieving desired geopolitical outcomes, it needs to be based on determined end goals and on a calculation of how best to achieve those goals. + +#### MULTILATERAL INITIATIVES + +In addition to U.S. policies that affect the trade and security of semiconductors, there are multilateral trade arrangements that create governance structures for chips and other dual-use goods. The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies is a multilateral export control regime formally established in the Netherlands in 1996. Currently, 42 states participate in this regime, which aims to promote transparency and responsibility in transfers of arms and dual-use goods and technologies, including semiconductors. All Quad countries are members of the Wassenaar Arrangement. There are significant limitations to the Wassenaar Arrangement — namely, the slow pace of its decisionmaking and its role to advise and notify, rather than constrain, trade. Furthermore, Russia’s membership in the arrangement is a factor that makes it difficult for the framework to function effectively. + +With executive branch efforts to build more resilient and secure semiconductor supply chains, along with proposed legislation that would provide historic amounts of semiconductor funding, the U.S. government has made the production of chips a top priority that intersects with both economic and national security strategic objectives. As the United States builds the foundation for the next generation of its technological sovereignty, it is confronted with the inherently global nature of semiconductor GVCs and must reconcile the need to promote U.S. industry while protecting national security interests. R&D often occurs in the United States and in Taiwan, while the Netherlands is a key exporter of the machine tools to produce chips. Packaging, meanwhile, occurs primarily in East Asian countries. Recognizing that total onshoring is neither feasible nor desirable, it is important to evaluate which countries could help the United States build more secure semiconductor supply chains. + + +### Semiconductor Policy in EU Member States + +Coinciding with the United States’ review of its critical semiconductor supply chains, the European Union has also had a reckoning with its own dependency on foreign producers in critical areas and has reassessed how to enhance its technological sovereignty. In 1990, Europe produced nearly 35 percent of semiconductors globally, but that number has dropped to roughly 9 percent as of 2020. In general, the European Union lags in the final step of the semiconductor value chain — back-end manufacturing — which involves the assembly, testing, and packaging of chips. Globally, only 5 percent of that capability is located in Europe. Even if an increased number of semiconductor wafers are made in Europe, they would still be sent elsewhere, such as China, for packaging. + +In September 2021, the European Union announced a legislative package parallel to that of the United States — the European Chips Act — which it formally introduced in February 2022. The European Chips Act intends to reinforce European commitment to significant investments in semiconductors through R&D, fabrication, production, and support to small and medium-sized enterprises (SMEs). The act consists of three main policy pillars: (1) the “Chips for Europe Initiative,” which supports capacity building through increased investment; (2) “security of supply” through the creation of first-of-a-kind advanced facilities; and (3) preparedness and monitoring to avert supply chain crunches. + +The act will also work to build stronger supply chains with the United States and with Japan. Given the semiconductor shortage of the past two years, the European Commission intends to strengthen European R&D leadership, improve upon its capacity to innovate in design and manufacturing, and significantly increase its production capacity by 2030. The act also bolsters the Alliance on Processors and Semiconductor Technologies, which seeks to identify gaps in microchip production by reinforcing the European electronics design ecosystem and increasing manufacturing capacity, including testing and advanced packaging. These efforts complement the European Union’s Digital Decade strategy, which establishes an agenda for European digital transformation by 2030. + +European investment in semiconductor production has raised questions about subsidies — known as “state aid” in the European Union — particularly related to Important Projects of Common European Interest (IPCEIs). IPCEIs are cross-border initiatives led by member states that can contribute to EU strategies. Since this constitutes state aid, these initiatives must seek approval from the commission. In November 2021, the European Commission adopted revised state aid rules for these projects, which establish criteria for the commission to assess “member state support to cross-border IPCEIs that overcome market failures and enable breakthrough innovation in key sectors and technologies and infrastructure investments, with positive spillover effects for the EU economy at large.” + +These revised guidelines state that IPCEIs must meet the following criteria: (1) involve at least four member states, (2) be designed in a transparent and inclusive manner, (3) facilitate SME participation, and (4) align their objectives with current EU priorities, such as the green transition. The guidelines also include safeguards to ensure that the aid is proportional and prevents any undue market distortions. These subsidies would generally fall under the ambit of the Agreement on Subsidies and Countervailing Measures under World Trade Organization rules. If the effects of such subsidies are determined to be injurious, they can be countervailed by other countries, which could have the net effect of restricting semiconductor trade and driving up costs. There are six requirements for IPCEIs and none of the requirements prohibit the inclusion of non-European companies in such projects. Thus, nominally, a U.S. company could benefit from IPCEI funds. Only four IPCEIs have ever been notified and assessed by the commission. Two were infrastructure projects that did not include non-European companies. The other two IPCEIs involved strategic value chains and did include non-European companies. Murata (in Japan) and Cortec (in the United States) took part in the microelectronic IPCEI, and Endurance Technologies (in India) participated in the battery IPCEI. However, the vast majority of companies that participated in these two IPCEIs were still European. + +Overall, the existence of IPCEIs presents companies with added benefits when partnering with the European Union on semiconductor supply chains. First, IPCEIs offer additional funding revenues. Second, they leverage the European Union’s integrated single market, which makes it relatively easier to build a semiconductor ecosystem, with parts of the supply chain split among countries to leverage the capabilities of specific member states. Although IPCEIs are projects led and funded by the government, multinational private firms are not restricted from obtaining that funding. + +The next section of this paper evaluates which EU member states are best positioned for increased semiconductor collaboration with the United States. While some degree of redundancy in semiconductor supply chains can help increase overall resiliency, the transatlantic alliance should attempt to avoid duplicative spending on chips where possible. The member states assessed below possess existing semiconductor infrastructure and are poised to expand domestic capabilities. + +> While some degree of redundancy in semiconductor supply chains can help increase overall resiliency, the transatlantic alliance should attempt to avoid duplicative spending on chips where possible. + +#### BELGIUM + +Belgium’s central location between Europe’s major economic powers makes it a natural crossroads for the semiconductor industry and European diplomacy. Most economic activity is concentrated in Flanders, the Dutch-speaking northern region of Belgium, where many Belgian high-technology and services firms are based. + +__R&D Capacity:__ Belgium is a top player in the global semiconductor R&D supply chain. Belgium ranks fifth on the European Innovation Scoreboard. Flanders is home to five research universities and four strategic research centers. Specific to semiconductor R&D, Belgium had the fifth-highest accumulated number of paper contributions to semiconductor research between 1995 and 2020. + +The crown jewel of Belgium’s semiconductor R&D industry is the Interuniversity Microelectronics Center (Imec) in Leuven, one of the world’s top semiconductor R&D institutes. Imec boasts 12,000 square meters of cleanroom and lab capacity and a workforce of over 5,000 researchers from 95 countries across its facilities. Imec’s $3 billion experimental pilot line is one of its top attractions, allowing researchers to develop limited quantities of leading-edge chips two or three generations ahead of current leading-edge manufacturing with a new 2D graphene-based process. Imec often refers to itself as “the Switzerland of semiconductors” to highlight its corporate and geopolitical neutrality. Although the Belgian government funds 16 percent of its $773 million budget, no single firm or state has a controlling stake. As a result, Imec holds a unique place as a convener in the global semiconductor industry and a nexus of basic and applied research. + +The Biden administration has taken note of Imec’s industry centrality, noting its geopolitical importance in its supply chain 100-day review. Under the European Chips Act, Imec would receive over €1 billion ($1.1 billion) in public funding to create new test line facilities to speed the transition from the R&D of leading-edge chip technology to its commercialization. The United States Department of Commerce and the National Institute of Standards and Technology have also identified Imec as a potential partner for overlapping with or complementing U.S. efforts to build a stronger domestic semiconductor industry. + +__Fab Capacity:__ Belgium is home to only one fab, U.S.-based Onsemi’s Oudenaarde manufacturing facility. The 40,000 square foot fab produces six-inch wafers at the 350–2000nm level for mostly automotive and industrial application, but no leading-edge chips. In February 2022, Belgian firm BelGaN Group BV acquired the Oudenaarde manufacturing facility. + +__Benefits and Risks:__ Belgium’s central location and role in the European Union, along with its robust R&D ecosystem and transportation linkages to major European markets, make the country an attractive location for semiconductor investment. However, the United States International Trade Administration warns that Belgium’s shortage of STEM labor limits the country’s R&D and high-tech manufacturing potential. Compared to other case study countries in this report, Belgium has the lowest percentage of tertiary graduates from STEM programs, roughly equal to only 17 percent of total graduates, according to data from the European Commission. In Belgium, 72 percent of young adults enroll in a bachelor’s program or equivalent by the age of 25, the highest rate among member countries of the Organization for Economic Cooperation and Development (OECD). Nevertheless, only 0.8 percent of working-age Belgians have a doctoral degree, which ranks below the OECD average. While Belgium’s streamlined policies for high-skill immigration partially offset this relative shortcoming, the country’s more limited number of STEM graduates is a factor that could affect its ability to compete against other countries with a larger talent pool. + +#### THE NETHERLANDS + +The Netherlands is a semiconductor powerhouse, one of the few countries in the world with a fully integrated vertical semiconductor supply chain. This includes applied research, chip design, chip architecture, chip production, and system integration and applications. The Dutch have also effectively dominated the machine tool portion of the semiconductor supply chain in Europe. Businesses in the Netherlands generate the highest average sales in the semiconductor industry, accounting for €4.4 billion ($4.8 billion) annually. The four companies that predominantly make up the industry are ASM International, ASML, BE Semiconductor Industries (Besi), and NXP Semiconductors (NXP). The Netherlands is also home to several companies that provide equipment to the semiconductor manufacturing industry. For instance, ASML is the largest supplier of photolithography systems for the semiconductor industry worldwide and is also involved in the production of 5 nm chip technology. + +__R&D Capacity:__ ASML is the world’s largest supplier of lithography equipment, which is integral in transferring circuit patterns onto wafers. ASML’s sales reached $6.5 billion in 2020, and it is the sole supplier of extreme ultraviolet (EUV) lithography machines, which it unveiled in 2019. EUV machines use extreme ultraviolet wavelengths to print the most intricate layers of chips, creating advanced and highly complex semiconductors to achieve “big things on a tiny scale.” ASML’s control of EUV has led some competitors to claim that ASML maintains monopolistic control over the lithography industry. While ASML largely controls the lithography machine side of the supply chain, Intel, Samsung, and TSMC also produce high-grade chips. ASML’s position as the sole provider of EUV machines makes them an ideal partner for companies like Intel and TSMC. In a 2012 deal, Intel acquired a 15 percent ownership stake in ASML. + +__Fab Capacity:__ The Netherlands is also home to ASM International (ASMi), which was founded in 1968. ASM pioneered technologies such as lithography, deposition, ion implant and single-wafer epitaxy. ASMi also holds a 25 percent stake in ASM Pacific Technology (ASMPT), which was founded in Hong Kong in 1975 and, at the time, was the most productive vertical furnace in the semiconductor industry. Vertical furnaces are key to productivity because they allow a stack of wafers to be loaded into a furnace for simultaneous processing. ASMi’s subsidiary, ASMPT, focuses mostly on assembly and packaging. ASMi was involved throughout the chip-making process, from unprocessed silicon wafers to packaged chips. Recently, they have made breakthroughs in atomic layer deposition and plasma-enhanced atomic layer deposition, developing the concept from R&D through production. Their primary focus today is on front-end wafer processing. + +Besides, another prominent Dutch semiconductor company, is engaged in the development, manufacturing, marketing, sales, and service of semiconductor assembly equipment. It operates seven facilities in Asia and Europe for production and development. Besi is involved in the development and supply of die attach equipment, packaging equipment, plating equipment, and service equipment. R&D is spread across Europe, North America, and Asia, while manufacturing occurs largely in Singapore, South Korea, and the Netherlands. + +__Benefits and Risks:__ The Netherlands is an attractive partner for closer U.S. collaboration for several reasons. In the 2021 International Institute for Management Development (IMD) World Competitiveness Ranking, the Netherlands ranked fourth overall, surpassed by Switzerland, Sweden, and Denmark. The Netherlands placed second for overall economic performance, fourth for business efficiency, and seventh for infrastructure. The country also scored well on international trade, international investment, and technology infrastructure. The most recent edition of the World Economic Forum’s Global Competitiveness Index, in 2019, also ranked the Netherlands as the most competitive country in Europe. + +The Netherlands also excels in education. Dutch expenditures on higher education are 30 percent higher than the OECD average and its expenditures on R&D are the sixth highest in the OECD. Furthermore, the Netherlands has a comparatively internationalized higher education system, meaning it succeeds in attracting foreign talent to complement its domestic workforce. Among doctoral students, 43 percent are international, the majority of which come from other European countries. + +Other attractive features of the Netherlands are its geographic location and its top-tier infrastructure. Its location affords the country easy access to other European capitals and to an extensive international trade network that facilitates cross-channel flows to the United Kingdom and transatlantic flows to its North American partners. The Port of Rotterdam, Europe’s largest port, is a key facilitator of the country’s robust international trade profile. + +The Netherlands has also recently acquiesced to U.S. demands for cooperation on export control issues. In 2018, the Dutch government provided ASML with an export license to send advanced lithography equipment to China, thereby enabling China to produce its own chips. The Trump administration, fearful about Chinese acquisition of these advanced machine tools, sought to outright ban the transfer of lithography equipment from the Netherlands to China. Pressure from the Trump administration ultimately prevailed, and the Netherlands reversed the license. While transatlantic cooperation ultimately prevailed in this case, Dutch cooperation on export controls was reluctant and only followed significant pressure from the U.S. government. + +NXP, in particular, has had to placate both U.S. and Chinese regulatory authorities in recent years. In 2015, the United States Federal Trade Commission required that NXP divest its radio-frequency power amplifier before it approved NXP’s acquisition of Freescale, a U.S. semiconductor company. NXP acquiesced and sold the unit to a Chinese state-owned investment management firm. After the merger with Freescale, NXP further divested and sold its standard products business to the same Chinese firm in 2016. Finally, in 2018, Qualcomm attempted to acquire NXP, and NXP sold its stake in a Chinese chip-design joint venture in an attempt to appease Chinese regulatory authorities, who ultimately failed to approve the Qualcomm-NXP merger. These actions suggest that NXP and the Dutch have worked to placate Chinese authorities and have sought to play the middle ground in order to maintain access to both the Chinese and U.S. markets. Overall, the ASML and NXP cases underscore that the Netherlands will continue to contend with not only political pressure from the U.S. government, but also the continued attractiveness of the Chinese market. + +While the Netherlands and the European Union have demonstrated a willingness to comply with the extraterritorial application of U.S. export controls, the case with ASML demonstrates the importance of allied collaboration regarding long-term geopolitical goals, since restricting which countries can access advanced manufacturing tools can help or hinder their bid for technological superiority. Overall, given the Netherlands’ abundance of water, highly trained workforce, and closer cooperation with the U.S. government on export controls, it continues to remain one of the best options for U.S. foreign collaboration on semiconductor GVCs. + +#### FRANCE + +France is the second-largest economy in the European Union and maintains a significant presence in the European semiconductor industry, with centers for R&D, manufacturing, and packaging. In 2019, France exported €1.05 billion ($1.15 billion) in semiconductor devices, primarily to Singapore, Germany, China, and the Netherlands. The French semiconductor industry will receive not only support from the EU initiatives on semiconductors, but also funding from the France 2030 initiative. As part of the €30 billion ($30.7 billion) France 2030 investment initiative, France is committing nearly €6 billion ($6.5 billion) to the semiconductor industry, focusing primarily on the physical and electronics components to double the country’s electronics production by 2030. This investment will go toward the creation of smaller chips, with the goal of reasserting France as a “leader in the field.” + +__R&D Capacity:__ CEA-Leti is a government research center based in Grenoble and a major player in the international nanoelectronics sector. It has partnerships with various companies such as III-V Lab, Intel, Mapper, Soitec, and STMicroelectronics (ST) on a range of issues regarding the development and research of semiconductor technologies. The first-stage resources from the European Chips Act will go to major European research institutions. ST has an office in Tours that also works on R&D, engineering, processes, applications, and other business operations. + +__Fab Capacity:__ STMicroelectronics is the preeminent semiconductor vendor in France. The company operates two wafer fabs and the largest R&D center and produces up to 16 nm chips, providing notable production capacity. Its location in Grenoble has over 10,000 staff, and a manufacturing facility for automotive-grade chips in Rousset has over 4,000 staff. The company has a strong presence in automotive integrated circuits. ST is a key supplier to the German automotive industry. Besides fab capacity, France does have some back-end manufacturing capabilities. In 2017, UnitySC opened its operations in Grenoble, where it has approximately 10,000 square feet in cleanroom space and carries out its packaging operations. + +__Benefits and Risks:__ France benefits from robust macroeconomic stability and a well-developed financial system. Moreover, it is regarded as a prominent innovation hub. The 2021 IMD World Competitiveness Ranking places it at 29th overall; it is surpassed by its neighbors, the Netherlands and Germany. Regardless, it is the seventh-largest economy in the world in terms of GDP and eighth in total exports. France boasts the highest rate of public support for R&D among OECD countries. It is the top destination for international investment in Europe. Its well-educated population and renowned universities help generate a talented, well-equipped workforce. + +Mainland France is close to the United Kingdom, Belgium, the Netherlands, and Germany. With its well-established infrastructure links, it is a key player in continental trade. Paris’s Charles de Gaulle Airport processes the second-highest amount of airfreight in Europe, second only to the Frankfurt Airport. France is one of Europe’s only silicon metal producers. Its overseas territories, stretching from French Polynesia to French Guiana, hold substantial amounts of mineral wealth. France stands to benefit from bauxite refining in French Guiana, which is crucial to extracting gallium. In addition, yet-untapped mineral reserves on the ocean floor of its maritime possessions in the Indo-Pacific would allow France to present itself as an alternative to China in supplying rare-earth minerals. + +While France, along with Belgium and Germany, already has robust R&D infrastructure for next-generation semiconductors, it is creating plans to accelerate production. However, the United States Department of Commerce notes that France’s regulations and government bureaucracy can sometimes restrain the French market. + +#### ITALY + +Italy has the third-largest economy in the European Union, with several large manufacturing sites for a diverse set of semiconductor components. In Italy, the automotive industry accounts for 6 percent of the GDP and employs 300,000 people, meaning the effects of semiconductor supply chain crunches are particularly pronounced for the country. + +__R&D Capacity:__ In June 2021, STMicroelectronics (ST) announced an agreement with the technological university, Politecnico di Milano, to create a research center on advanced materials for sensors. ST hopes to enable researchers and university faculty to collaborate on microelectromechanical systems technology and attract new academic talent. The company signed an agreement with the University of Catania in late 2021 to create a framework for enhanced education and research activities in power electronics. Italy is also the headquarters of Technoprobe, which has three research centers and 2,200 employees worldwide. Technoprobe specializes in testing solutions for chips, as well as the design, development, and production of probe cards. These allow for the testing of chips before they are individually packaged. + +__Fab Capacity:__ Italy is the second home of multinational STMicroelectronics, which has over 9,000 employees in the country. ST focuses on sensory and power technologies, automotive products, embedded processing solutions, and a broad range of segments. In reaction to high demand, ST plans to double its investments in 2022 to up to $3.6 billion. In Milan, ST has facilities with several fabrication lines, including a 300 mm fab. The company’s Catania in Sicily site hosts two 200 mm fabrication facilities. In March 2022, the European Investment Bank announced it would provide ST a loan of €600 million ($628.7 million), which the firm will use for R&D and pilot production lines for advanced semiconductors. ST will use this investment primarily at two existing facilities in Italy and one in France. Following the announcement of this funding, French minister for the Economy, Finance, and Recovery Bruno Le Maire underscored that the primary goal of the funding is to accelerate French and Italian production of semiconductors, adding that “it is only by mastering this technology, that we will be able to safeguard the European Union’s strategic independence.” + +Another significant player in the Italian semiconductor industry is Lfoundry, which runs an advanced 200 mm manufacturing fabrication site and proprietary technologies at 150 nm and 110 nm nodes. Lfoundry provides complementary metal-oxide semiconductor (CMOS) image sensors, or CIS, through CIS processes to 90 nm and backside illumination technology. In 2016, Lfoundry was acquired by Chinese Semiconductor Manufacturing International Corporation. PVA Italy is also a player, specializing in wafer plasma treatment systems and in crystal production plants for the photovoltaic industry and the semiconductor industry. NXP Italy in Milan manufactures devices for the automotive, industrial, and consumer and transaction/access segments. + +Intel has been planning to expand into Italy with a facility for assembly, testing, and packaging, which would complement Intel investments in France and Germany. The Italian government has encouraged Intel to invest in the country. Turin and Catania are potential sites that Intel has considered for expansion. + +__Benefits and Risks:__ In some ways, Italy may not be an ideal partner for closer engagement on semiconductors with the United States. Among the identified potential European partners, Italy ranked last in both economic performance and government efficiency according to the 2021 IMD World Competitiveness Ranking, as well as in the World Economic Forum’s competitiveness ranking. As a percentage of GDP, Italy also spends less on R&D than Belgium, the Netherlands, Germany, and France. Additionally, Italy has a less educated workforce than most of the European Union, with the second-lowest percentage of a tertiary-educated population among EU countries. Italy’s political system is also relatively unstable compared to other western European nations, with coalition governments that are often short-lived. + +Prime Minister Mario Draghi has taken steps to protect Italy’s domestic semiconductor industry from Chinese competition. In April 2021, Draghi blocked a Chinese company from taking over an Italian semiconductor firm. This decision blocked Chinese company Shenzhen Investment Holdings from acquiring a 70 percent stake in Milan-based LPE. LPE produces components for power electronics applications. Draghi cited the ongoing semiconductor shortage as leading to slowdowns in the Italian automotive sector and said that semiconductors had thus become “a strategic sector” for the country. An actual or attempted Chinese acquisition of domestic industries is not inherently problematic, but the decision to allow a foreign takeover of a domestic business that is deemed to have strategic importance from both an economic and security perspective can change a government’s calculation of risk. + +Italy also has a complicated relationship with China, which affects its reliability as a partner in this strategic space. In 2019, Italy signed a memorandum of understanding supporting China’s Belt and Road Initiative, against the warnings of European and U.S. leaders. Since the Draghi government took over in 2021, Italy has begun to reverse course and has reemphasized transatlantic relations while distancing itself from China. The Draghi government has vetoed bids by Chinese companies to acquire Italian firms on three different occasions, including once in the semiconductor industry as discussed above. Nonetheless, the back-and-forth nature of Italy’s relationship with China causes concern when identifying potential long-term strategic partners. + +However, there are benefits to partnering with Italy. A major benefit to closer collaboration with the country is the recent Intel investment. As mentioned above, the project intends primarily to build a large, state-of-the-art packaging facility, which has historically been the weak point in the European semiconductor supply chain. Thus, Italy may have to be included in any strategic planning out of necessity. + +Draghi has been behind new momentum in Italy for European semiconductor production, saying in October 2021 that “governments need to fully commit to a European Union plan to increase the bloc’s share of global semiconductor production to 20 percent by 2030.” In March 2022, Draghi announced that Italy would spend €4 billion ($4.4 billion) to develop its domestic semiconductor industry. The Italian government has approved a new fund to allocate €150 million ($157.1 million) in 2022 and €500 million ($523.7 million) annually until 2030. The government is also in talks with Intel to nearshore part of its semiconductor supply chain to the country. It is estimated that Italian incentives for Intel, including favorable terms and public financing, will be worth €8 billion ($9 billion) over the next decade. + +#### GERMANY + +In 2020, Germany exported $6.5 billion in semiconductor devices, making it the fourth-largest exporter in the world. On the other hand, Germany is also the fourth-largest importer of semiconductor devices. Imports of semiconductors reached €5.7 billion ($6.3 billion) in 2019. In total, Germany accounts for €10.8 billion ($11.8 billion) of Europe’s €33 billion ($36 billion) semiconductor market. Germany is key to semiconductor production due to its production of gases, specialty chemicals, and other consumables that play direct roles in fabrication and facility-cleaning materials. For example, Merck KGaA in Darmstadt produces specialty gases that are critical to chip production. Germany, like the rest of Europe, is challenged by the final step of the semiconductor value chain, back-end manufacturing. Germany’s use of semiconductors is concentrated in consumer goods, such as automobiles and other high-end manufactured household goods. These include digital devices like cameras and household appliances such as dishwashers, which use standard rather than cutting-edge chips. + +__R&D Capacity:__ Intel has recently agreed to invest nearly €80 billion ($88 billion) in semiconductor production in the European Union, of which €17 billion ($18.6 billion) is slated for Germany, where the company plans to build a “leading-edge semiconductor fab mega-site.” Companies such as Infineon, Carl Zeiss, and Zollner all have R&D operations in Germany. In 2020, Carl Zeiss employed approximately 1,300 people in R&D roles across Germany. The Fraunhofer Group for Microelectronics and the Leibniz Association are major players in international microelectronic R&D. Between the two groups, they have the largest cooperation for microelectronic R&D in Europe, over 2,000 research staff, and 12,000 square meters of cleanroom space. + +__Fab Capacity:__ Bosch has also been a major manufacturer of German semiconductor chips, including application-specific integrated circuits and power conductors. In December 2021, Bosch started large-scale production of silicon carbide semiconductors in its Reutlingen factory, where Bosch will manufacture the chips on 200 mm wafers to achieve “important economies of scale.” This facility will enable Bosch to meet growing demand for chips used in both internet of things (IoT) and mobility applications. This new factory follows Bosch’s 2021 expansion in Dresden. The semiconductor facility in Dresden is Bosch’s first aIoT (AI with the internet of things), providing specialized chips for the automotive sector. Despite the expansion in semiconductor building capacity, it will likely not be sufficient to address supply chain issues in Europe, particularly amid sustained demand. Infineon is by far the largest semiconductor company in Germany. Originally part of Siemens, it spun off in 1999 and is now an independent company with revenues of over €11 billion ($13.2 billion) in 2021. Lantiq, a spin-off from Infineon Technologies, was a key supplier of broadband access and home networks technology, but it was acquired by Intel in 2015. + +__Benefits and Risks:__ Germany is an attractive partner for U.S. collaboration given its robust economy and stable political position in the European Union. Germany is the fourth-largest economy in the world and accounted for nearly a quarter of the EU GDP in 2020. Furthermore, Germany is an important global exporter, the third-largest after China and the United States. The United States imports many German goods and Germany is the United States’ largest European trading partner. Germany is also the sixth-largest market for U.S. exports. According to the World Economic Forum’s Global Competitiveness Index, in 2019, Germany ranked seventh in global competitiveness. Germany is advanced in research and innovation and has a pro-business climate. Germany has many established supply chain linkages and the policy to enforce due diligence. Furthermore, Germany has a strong industrial base, including its global leadership in the automotive industry. + +Germany maintains a stable domestic government and historically has been one of the most politically influential countries in the European Union. The previous chancellor, Angela Merkel, established a leading role in the European Union for many years, but it is yet to be seen if the new chancellor, Olaf Scholz, will take on a similar role. Although it remains unclear as to what extent the new chancellor will continue Merkel’s foreign policy approach to China or whether he will join Brussels in taking a harder line against Beijing, Germany’s stable government makes it an attractive partner for continued U.S. partnership on semiconductors. + +Germany is aiming to phase out coal and nuclear energy in favor of renewable sources. While this energy transition is desirable for the future, it could cause an increase in energy prices in the short term, affecting economic competitiveness. + +Microelectronics was deemed an IPCEI by Article 107(3)(b) of the Treaty on the Functioning of the European Union. The article allowed five EU member states, including Germany, to allocate state aid to projects in microelectronics. This provided Germany with €1 billion ($1.01 billion) in funding for microelectronic industries. In December 2021, Germany formally notified the European Commission of a new IPCEI through which Germany will support transnational cooperation on microelectronics, such as semiconductors. With the new IPCEI for Microelectronics and Communication Technologies underway, Germany will benefit from €4.5 billion ($4.9 billion) in state aid and total investments of €15 billion ($16.5 billion). This is in addition to forthcoming funds from the European Chips Act, which will further enhance member state production capabilities. Other initiatives include Germany’s Microelectronics Framework Program, launched by the German Federal Ministry of Education and Research last year, which emphasizes the importance of trustworthiness and sustainability in the supply chain. In addition, the EUREKA Clusters Program supports important research, development, and innovation topics with national authorities. + +#### THE EUROPEAN UNION + +Overall, the European Union is an attractive partner for closer collaboration with the United States on securing semiconductor GVCs. A particularly appealing and unique factor to investing in the European Union is its single market, which facilitates the free movement of goods, services, capital, and people. This makes it relatively easy for companies to invest across member states and to capitalize on local incentives and favorable business conditions. That Intel has deployed investments in France for R&D, Germany for production, and Italy for back-end manufacturing underscores the appeal of cooperating with the bloc on semiconductor GVCs. Furthermore, funding made available through both Brussels and member state governments helps increase the cohesion and resilience of semiconductor GVCs throughout the bloc. Other benefits the European Union offers in terms of supply chain resilience include geographic proximity to the United States and an existing close security relationship, including deepening cooperation on trade policies such as export controls. + +When it comes to transatlantic cooperation regarding China — a strategic adversary to both parties, as well as a large and consistent customer — the relationship becomes more complicated. Overall, the European Union has taken a more moderate approach to China, seeking to increase market access for EU firms, while simultaneously adopting new trade defense and investment-screening tools, such as the EU anti-coercion instrument, intended to stem Chinese influence throughout Europe. Large European economies have an interest in maintaining positive relationships with Beijing due to its large consumer base, which maintains high demand for Germany’s automobile industry, for example. In 2020, one in three German cars were sold in China. It remains to be seen whether China will continue to comply with international sanctions against Russia or whether a decision not to comply would force Brussels closer to Washington, D.C., in its approach to China. + +Like the United States, the European Union has recently made significant changes to its export control and foreign investment policy. In September 2021, the European Union announced its new Export Control Regulation, which tightens control of dual-use items, strengthens critical supply chains, and protects human rights. It also seeks to enhance cohesion among member states regarding export control policy, including by providing capacity-building and training services for licensing and enforcement programs. + +Outside of the Wassenaar Arrangement, the TTC has bolstered EU-U.S. collaboration on export controls following the Russian invasion of Ukraine. The TTC has provided diplomats with clear communication channels through which to consult on urgent trade and security matters, including semiconductor supply chains. In the European Union, export controls have historically been a competency of member states, which vary by country. For example, Belgium delegates export licensing responsibility to its three regional states, adding complexity to an export control regime closely intertwined with — though distinct from — the European Commission. The joint statement released following the May 2022 ministerial lays out the transatlantic plan to cooperate more closely on semiconductor R&D, including increasing transparency on subsidies and developing an early warning system for semiconductor supply chain disruptions. + +The Group of Seven (G7), currently under German leadership, has also proven adroit at navigating security and supply chain issues. The G7 responded swiftly to Russia’s invasion of Ukraine, revoking Russia’s most favored nation status and initiating sweeping sanctions on key Russian officials and business elites. Given the near impossibility of expelling Russia from the Wassenaar Arrangement and the improbability of Russia removing itself, multilateral cooperation on export controls is likely to occur through other frameworks, such as the G7, the TTC, and smaller plurilateral agreements. There is growing discussion about the need to capitalize on current momentum behind the international response to Russia by creating a new plurilateral arrangement for advanced technologies among allied countries. Possible participants include specific EU member states (such as France, Germany, and the Netherlands), Japan, South Korea, and potentially Taiwan. Such an architecture could either complement the Wassenaar Arrangement or potentially replace it. + +> There is growing discussion about the need to capitalize on current momentum behind the international response to Russia by creating a new plurilateral arrangement for advanced technologies among allied countries. + + +### Quad Cooperation + +#### INDIA + +India, slated to become the world’s most populous nation, is a major growth market for the semiconductor industry. In 2020, semiconductor consumption in India was worth 1.1 trillion rupees ($13.87 billion), significantly less than the €44 billion ($47.8 billion) consumed in Europe in 2020. However, consumption of semiconductors in India is expected to grow to $80–90 billion by 2030. Despite a large population and growing manufacturing base, India imports nearly 100 percent of its commercial semiconductor products. Most large multinational semiconductor companies such as Intel, Samsung, TSMC, NXP, Broadcom, and Micron have offices in India. + +__R&D Capacity:__ India has thus far specialized in the R&D and design phases of the semiconductor supply chain. A deep bench of highly skilled information technology and engineering workers, coupled with world-renowned public institutes of technology, enables India to specialize in R&D. This has led to several important public and private semiconductor R&D facilities in India. Since 2006, the Indian government has supported two Centers of Excellence in Nanoelectronics (CENs) at the Indian Institute of Science (IISc) in Bangalore and at the Indian Institute of Technology Bombay (IITB) in Mumbai. IISc’s CEN hosts over 150 researchers across 14,000 square feet of cleanroom space, with the capacity to conduct leading-edge R&D at the 10 nm level. IITB’s CEN hosts a nanofabrication facility that has limited fab capabilities for two-inch, four-inch, and eight-inch silicon wafers, though only for R&D purposes. In the private sector, several major semiconductor companies, such as Micron, Intel, Samsung, Texas Instruments, and Huawei, have R&D facilities in Bangalore, “India’s Silicon Valley.” For both Intel and Samsung, their facilities in Bangalore represent their largest R&D operations outside of their home countries. + +According to the Indian Ministry of Electronics and Information Technology, over 500,000 Indian engineers are involved in designing 2,000 chips each year. This is the largest number of leading-edge chip designers outside of the United States. In India, most design output comes from very large-scale integration and electronic design automation (EDA). However, the United States continues to dominate by far in EDA scale and efficiency. + +__Fab Capacity:__ Despite its relatively strong R&D capabilities, India lags in semiconductor fabrication. India attempted to incentivize private fab construction in the late 2000s and 2010s, but it currently has only two fabs: the Society for Integrated Circuit Technology and Applied Research (SITAR) in Bengaluru and the Semi-Conductor Laboratory (SCL) outside of Chandigarh. SITAR can produce six-inch wafers, but not advanced nodes. SCL can fabricate 180 nm six-inch and eight-inch wafers. However, both facilities are government-run and primarily produce semiconductor products for defense and space uses, not for the Indian commercial market, though they do have onsite packaging and testing capacity. As a result, India produces no legacy or next-generation chips for export or domestic consumption, instead relying on imports of many of the products it researches and designs. + +__Benefits and Risks:__ The Indian government has taken several initiatives since December 2021 under its Semicon India Program, with an outlay of $10 billion to increase production of semiconductors. These include (a) a scheme for setting up semiconductor fabs, with financial support subject to fulfillment of certain conditions, infrastructure support, and a designation of a nodal agency for faster regulatory approvals; (b) a scheme for setting up display fabs, with similar fiscal and infrastructure support, and establishment of the nodal agency; (c) a scheme for setting up compound semiconductors and semiconductor assembly, testing, marking, and packaging, with a percentage of capital expenditure fiscally supported by the government on fulfillment of relevant criteria; and (d) the Design Linked Incentive Scheme composed of chip design infrastructure support, product design linked incentive, and deployment linked incentive. Through these incentives, the government is also looking to increase foreign investment in the sector. In February 2022, the government confirmed that it received applications from three companies for semiconductor fabs, two companies for display fabs, four companies for compound semiconductors and assembly, and three companies for design. + +Unfortunately, systemic issues continue to restrain enthusiasm for closer collaboration with India. Ongoing water shortages, power outages, and transportation disincentivize new investment, particularly the construction of new production facilities. Furthermore, India has historically been reluctant to join the Western sanctions and export control regimes, aside from the Wassenaar Arrangement. Following the Russian invasion of Ukraine, India opted against joining the Western sanctions effort and abstained from a vote at the United Nations to condemn Russia’s invasion, making India an outlier among the major powers. India’s decision to maintain a middle line in global relations with China and Russia dilutes its attractiveness as a trusted partner for friend-shoring secure semiconductor supply chains. + +#### JAPAN + +Japan is the world’s fourth-largest market for semiconductor manufacturing and equipment sales. The United States Department of Commerce estimates that Japan’s semiconductor industry will grow to over $47 billion in 2022 after having grown more than 19 percent in 2021. In terms of global monthly wafer capacity, Japan accounts for roughly 15.8 percent of global supply. The effects of the ongoing semiconductor shortage have been particularly acute in Japan’s automobile sector. In October 2021, for example, domestic automobile sales declined 31.3 percent due to the chip shortage. + +Although Japan still has the most semiconductor factories in the world, these factories largely lag behind other more high-tech factories abroad and, thus, do not produce the type of cutting-edge semiconductor chips that are needed around the world. Japan’s strength lies in its deep industrial expertise in semiconductor materials. For instance, in 2019, Sony semiconductors became a top global supplier through the production of camera image sensors. Other examples include Lasertech Corp., the world’s sole manufacturer of equipment that tests stencils for the most advanced chip designs. + +While Japan specializes in power semiconductors and NAND flash memory chips, it lags behind other Asian competitors — namely, South Korea and Taiwan — when it comes to the manufacture of next-generation, highly specialized chips. Furthermore, despite being home to 84 chip factories, Japan imports 64 percent of its chips, making it reliant on foreign producers and vulnerable to semiconductor supply chain disruptions. + +One reason for this reliance is Japan’s failure to embrace a horizontal production model of chips that gained favor in the early 2000s. The Japanese model instead focused on vertical integration, whereby companies like Toshiba, Fujitsu, and Hitachi produced chips solely for their own products. This model ultimately lost out to companies like TSMC, which focuses on producing chips for a wide range of uses and companies. Other reasons for the decline in Japanese chip making include the industry’s delay in embracing digitalization and a lack of public investment. + +__R&D Capacity:__ Although Japanese R&D expenditure remains relatively high at roughly 3 percent of the GDP, it continues to lag behind competitors when it comes to industrial innovation. In May 2021, TSMC announced it would open an R&D facility in Japan to develop cutting-edge semiconductor technology. The cost of the new project is anticipated to be roughly $338 million, of which the Japanese government will subsidize about half. + +__Fab Capacity:__ The 1980s were marked by lithography asymmetry between the United States and Japan, though Japan became dominant as the country’s indigenous semiconductor market expanded. Japanese manufacturing is not as strong as it was in the 1980s and 1990s. Statistics from Japan’s Ministry of Economy, Trade, and Industry (METI) show that the Japanese share of the world’s semiconductor market shrank from 50 percent in 1990 to 10 percent today. One factor that affected Japan’s domestic semiconductor market was the entry into the U.S.-Japan Semiconductor Agreement in 1986. The agreement called for antidumping guarantees, along with a 20 percent market share provision meant to open the Japanese market to foreign producers over a five-year time frame. + +Another factor that restrained Japanese growth of the indigenous semiconductor industry is that Japanese companies invested in dynamic random access memory (DRAM), rather than advanced logic chips. Intense competition from Korean firms in DRAM memory led Japanese companies to double down on DRAM-related skills and accelerate production of DRAM memory chips, moving the Japanese market further away from a focus on computing power. Around the time this decision was made, U.S. markets shifted their focus to computing power rather than memory. Advanced computation capabilities have national security implications, including applications in quantum computing efforts and military advancements, meaning that investments in advanced computing — rather than memory chips — can facilitate increased strategic independence over time and reduce reliance on foreign producers for critical technologies. + +__Benefits and Risks:__ In June 2021, METI announced the creation of its “Strategy for Semiconductors and the Digital Industry.” A core goal of the new strategy is to maintain Japan’s modest 10 percent of the global market share of semiconductors by 2030. Maintaining that 10 percent market share will cost an estimated $38 billion. In recognizing the weaknesses in its semiconductor supply chain, the government is working to help companies enhance production of chips, large-capacity batteries, and other key materials through subsidy programs. In addition to the public funding boost for Japan’s semiconductor industry, TSMC has announced it will spend $7 billion to open a new production facility in southern Japan, expected to be completed in 2024. + +In May 2022, the United States and Japan held the first ministerial meeting of the Japan-U.S. Commercial and Industrial Partnership, at which the parties agreed to develop “Basic Principles on Semiconductor Cooperation” to be coordinated by the United States Department of Commerce and METI. At the leadership summit of the two heads of state in late May, the parties announced efforts “to cooperate on diversifying semiconductor production capacity, increasing transparency, coordinating emergency response on shortages, and strengthening semiconductor R&D and workforce development.” The United States and Japan are also working toward creating a working group to facilitate joint research into state-of-the-art semiconductors. They also agreed to establish a “Work Plan on Export Control Cooperation.” These joint initiatives seek to enhance semiconductor supply chain resiliency while limiting the proliferation of sensitive dual-use technologies. + +#### AUSTRALIA + +Aside from producing some chips used in Wi-Fi and the Mars Rover, Australia is largely a consumer of chips and lacks the direction and commercial will to reenter the strategic semiconductor sector. + +__R&D Capacity:__ Australia does have potential strengths based on its history and market dynamics. It has world-class design capability in radio frequency, millimeter wave, photonics, and radar. Australia is also fortunate to have abundant and underdeveloped silica deposits, a critical compound for wafers. Its history of successful mineral exploration and extraction could accelerate the development of domestic silica mines. Alternatively, Australia’s robust materials science, academic, and R&D capabilities are also well positioned to explore silica substitutes. + +__Fab Capacity:__ Australian companies involved in the semiconductor industry are small and scattered, and have different technological requirements for semiconductor development. Some of the biggest challenges involved in growing the industry are deciding where to build a foundry and figuring out how to grow the ecosystem. A manufacturing plant will not automatically turn the switch on for the industry. There are currently no large Australian companies whose core business activity is participation in the semiconductor design, development, and production value chain. + +__Benefits and Risks:__ There are several downside risks for large Australian semiconductor producers. Risks include a lack of historical experience in the sector and a lack of incentives for capital investors, which lack the impetus to launch the typical 5–10-year investment cycle needed to establish the industry. Australian investors are also reluctant to accelerate investments due to the regional competition from Taiwan, as well as a crowded global market. + +#### THE QUADRILATERAL SECURITY DIALOGUE + +When Quad countries convened in person for the first time in September 2021, the joint statement highlighted that the partners are working together to map semiconductor supply chains. The parties affirmed “positive commitment to resilient, diverse, and secure supply chains of critical technologies, recognizing the importance of government support measures and policies that are transparent and market-oriented.” Joint efforts to build more resilient supply chains and combat nonmarket economic practices represent an enhanced level of coordination against China. Australia and Japan have joined efforts to restrict trade with Russia, but India’s reluctance to join the coordinated response weakens the Quad’s general position vis-à-vis Europe when it comes to friend-shoring semiconductor supply chains. Overall, it remains to be seen which tangible results will materialize from Quad partnerships. + + +### Recommendations and Conclusion + +Semiconductor GVCs are inherently complex in nature, meaning there are distinct limitations to what the United States can accomplish unilaterally. Onshoring of semiconductor supply chains is not feasible in the short term. In the long term, onshoring would raise prices, reduce efficiency, and dampen long-term U.S. competitiveness. Thus emerges the need for an affirmative agenda for semiconductor supply chains among allies. + +One fundamental recommendation from interviews conducted for this research project centered around the need to identify tangible goals that will enable governments and the private sector to bolster semiconductor supply chain resiliency. Another recommendation that emerged from this research is the need for the U.S. government to promulgate consistent, predictable policies — particularly related to trade — including collaborating to create a new Information Technology Agreement (ITA) to reduce tariffs on additional ICT goods. Overall, interviewees stressed that the government should avoid blanket export controls that risk dampening investment in allied semiconductor industries and should consider the creation of a new mini-export control regime that could function similarly to the Wassenaar Arrangement. These findings, coupled with an evaluation of the benefits and drawbacks of working with specific countries, make closer cooperation particularly enticing with Belgium, Germany, Japan, and the Netherlands. + +First, the United States, in concert with close allies, must identify the goals it seeks to achieve by bolstering efforts to friend-shore supply chains, while simultaneously seeking to dampen the ability of foreign adversaries to gain a competitive edge over next-generation chips. Allied countries need to determine whether their policies are primarily motivated by pandemic-induced supply chain crunches or whether these policies constitute an inherently negative agenda that is reactionary to adversaries’ technological advancements. Once allies have an affirmative agenda, it will fall on countries to collaborate on smart, targeted investments that bolster innovation. These investments should seek to mitigate “small batch” problems that restrain the ability of startups to obtain prototypes of new semiconductors. These policies should also seek to avoid a subsidy war in which multi-government spending results in significant overcapacity. + +In addition to leading efforts in building an affirmative semiconductor supply chain agenda, the United States should work with close allies to promulgate consistent, predictable policies. These include increased certainty about the application of tariffs that affect the semiconductor industry. For example, the USTR finding that Vietnam’s currency manipulation was actionable under Section 301, coupled with labor shortages and Covid-19 regulations, created an environment that led to Samsung relocating some of its production to Indonesia and India. Such a move was costly for the company and an option only available to large firms with adequate agility. + +The United States should also work with allies to create a new ITA with the goal of reducing tariffs on additional ICT goods. Technology changes quickly in this sector, and the first two ITA iterations do not cover newly developed products and technologies. A new ITA would represent a step forward in continuing liberalization throughout the ICT sector. + +Promulgating consistent trade policy with allies is also crucial. Moreover, the United States should avoid blanket export controls that risk dampening investment in allied semiconductor industries, as well as restraining the ability of U.S. firms to invest in next-generation R&D efforts. If the United States chooses to pursue a more integrated approach to semiconductor supply chains with the European Union and Japan, this decision is likely to have a fundamental impact on existing international export control architecture, potentially leading to the creation of a new framework. The United States should therefore also more seriously consider the creation of a mini-regime, which could function more similarly to the Wassenaar Arrangement. A new mini-regime could also enhance information sharing among allies and increase transparency related to government spending on semiconductors. + +It is very unlikely that even a highly coordinated mini-regime will prevent China from obtaining critical semiconductor technology in the long run. However, an effective regime can delay that inevitability and buy time for like-minded countries to invest in and create the next generation of semiconductors, increasing tech sector independence and resiliency. Furthermore, a new mini-regime could capitalize on current momentum among a group of 38 countries to coordinate and codify new technology controls. + +Given plans in the European Union to fortify and expand its semiconductor capabilities, the United States should work with Brussels in the TTC to institutionalize closer collaboration. The parties should work together to implement frameworks that would facilitate surge capacity for production, including an assistance agreement to ramp up production in cases of supply chain disruptions. While redundancy in production can be helpful in certain instances — for example to ensure an adequate supply of chips used in automobiles — with limited financial resources, the parties should seek to avoid duplicative efforts on next-generation R&D. Overall, increased semiconductor cooperation presents the United States and the European Union with a unique opportunity to build a positive agenda that cements its leadership in critical technologies. + +While the United States has long maintained export controls in the semiconductors sector, particularly on chip manufacturing equipment, the Russian invasion of Ukraine and deteriorating relations with China have made national security a much more important part of the trade policy debate. The result is that companies are forced to rethink how they make location decisions. Supply chain management historically has centered around price, quality, and delivery. Now, in this sector in particular, governments have effectively added security and compliance with government policies and regulations as an important additional variable that affects companies’ supply chain location strategies. In an already complex industry operating in an environment of growing geopolitical tensions, cooperation with allies becomes even more important for the private sector and governments alike. + +> While the United States has long maintained export controls in the semiconductors sector, particularly on chip manufacturing equipment, the Russian invasion of Ukraine and deteriorating relations with China have made national security a much more important part of the trade policy debate. + +For both the United States and foreign partners, governments need to identify — and then implement policy based on — where they want to lead and where they can afford to follow. Thus emerges an inherent need to develop an affirmative strategy that identifies end goals and leverages multilateral frameworks as an avenue for achieving those goals. Creating a stronghold over chokepoints throughout semiconductor GVCs affects consumer markets and national security capabilities, thus amounting to geopolitical power. + +Based on an assessment of what EU and Quad countries are currently producing, as well as their alignment with U.S. export control policy, the best candidates for friend-shoring U.S. semiconductor supply chains are EU member states and Japan. Within the European Union, the best candidates from a supply chain security perspective, both in terms of national security considerations and overall supply chain resiliency, are Belgium, Germany, and the Netherlands. Each has an educated population, a relatively open immigration system that can attract foreign talent, and an existing close relationship with the United States on issues of national security. + +> For both the United States and foreign partners, governments need to identify — and then implement policy based on — where they want to lead and where they can afford to follow. + +Overall, disruptions throughout the semiconductor GVC are likely to persist, making it a more urgent matter for governments and the private sector to minimize ongoing disruptions. The Russian invasion of Ukraine could prolong these trade disturbances and could also usher in a more fractured global trading system in which China and Russia become closer and liberal democracies band together, leaving countries like India awkwardly in the middle. Mounting tension between authoritarian and democratic states, coupled with an injection of social policy into trade agendas, is likely to reshuffle semiconductor GVCs, particularly as the United States reconsiders what qualifies countries to maintain trusted trading partner status. + +--- + +__William A. Reinsch__ holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. + +__Emily Benson__ is a fellow with the Scholl Chair in International Business at CSIS. + +__Aidan Arasasingham__ is a program coordinator and research assistant with the Economics Program at CSIS. The Scholl Chair thanks interns Elizabeth Duncan, Sparsha Janardhan, and Grant Reynolds for their valuable research. diff --git a/_collections/_hkers/2022-08-16-road-to-war.md b/_collections/_hkers/2022-08-16-road-to-war.md new file mode 100644 index 00000000..50bb9160 --- /dev/null +++ b/_collections/_hkers/2022-08-16-road-to-war.md @@ -0,0 +1,434 @@ +--- +layout: post +title : Road To War +author: Shane Harris, et al. +date : 2022-08-16 12:00:00 +0800 +image : https://i.imgur.com/bpNCPQX.png +#image_caption: +description: "Road to war: U.S. struggled to convince allies, and Zelensky, of risk of invasion" +excerpt_separator: +--- + +_On a sunny October morning, the nation’s top intelligence, military and diplomatic leaders filed into the Oval Office for an urgent meeting with President Biden. They arrived bearing a highly classified intelligence analysis, compiled from newly obtained satellite images, intercepted communications and human sources, that amounted to Russian President Vladimir Putin’s war plans for a full-scale invasion of Ukraine._ + + + +For months, Biden administration officials had watched warily as Putin massed tens of thousands of troops and lined up tanks and missiles along Ukraine’s borders. As summer waned, Jake Sullivan, the national security adviser, had focused on the increasing volume of intelligence related to Russia and Ukraine. He had set up the Oval Office meeting after his own thinking had gone from uncertainty about Russia’s intentions, to concern he was being too skeptical about the prospects of military action, to alarm. + +The session was one of several meetings that officials had about Ukraine that autumn — sometimes gathering in smaller groups — but was notable for the detailed intelligence picture that was presented. Biden and Vice President Harris took their places in armchairs before the fireplace, while Secretary of State Antony Blinken, Defense Secretary Lloyd Austin and Gen. Mark A. Milley, chairman of the Joint Chiefs of Staff, joined the directors of national intelligence and the CIA on sofas around the coffee table. + +Tasked by Sullivan with putting together a comprehensive overview of Russia’s intentions, they told Biden that the intelligence on Putin’s operational plans, added to ongoing deployments along the border with Ukraine, showed that all the pieces were now in place for a massive assault. + +The U.S. intelligence community had penetrated multiple points of Russia’s political leadership, spying apparatus and military, from senior levels to the front lines, according to U.S. officials. + +Much more radical than Moscow’s 2014 annexation of Crimea and instigation of a separatist movement in eastern Ukraine, Putin’s war plans envisioned a takeover of most of the country. + +Using mounted maps on easels in front of the Resolute Desk, Milley showed Russian troop positions and the Ukrainian terrain they intended to conquer. It was a plan of staggering audacity, one that could pose a direct threat to NATO’s eastern flank, or even destroy the post-World War II security architecture of Europe. + +As he absorbed the briefing, Biden, who had taken office promising to keep the country out of new wars, was determined that Putin must either be deterred or confronted, and that the United States must not act alone. Yet NATO was far from unified on how to deal with Moscow, and U.S. credibility was weak. After a disastrous occupation of Iraq, the chaos that followed the U.S. withdrawal from Afghanistan, and four years of President Donald Trump seeking to undermine the alliance, it was far from certain that Biden could effectively lead a Western response to an expansionist Russia. + +Ukraine was a troubled former Soviet republic with a history of corruption, and the U.S. and allied answer to earlier Russian aggression there had been uncertain and divided. When the invasion came, the Ukrainians would need significant new weaponry to defend themselves. Too little could guarantee a Russian victory. But too much might provoke a direct NATO conflict with nuclear-armed Russia. + +This account, in previously unreported detail, shines new light on the uphill climb to restore U.S. credibility, the attempt to balance secrecy around intelligence with the need to persuade others of its truth, and the challenge of determining how the world’s most powerful military alliance would help a less-than-perfect democracy on Russia’s border defy an attack without NATO firing a shot. + +The first in a series of articles examining the road to war and the military campaign in Ukraine, it is drawn from in-depth interviews with more than three dozen senior U.S., Ukrainian, European and NATO officials about a global crisis whose end is yet to be determined. Some spoke on the condition of anonymity to discuss sensitive intelligence and internal deliberations. + +The Kremlin did not respond to repeated requests for comment. + +As Milley laid out the array of forces on that October morning, he and the others summed up Putin’s intentions. “We assess that they plan to conduct a significant strategic attack on Ukraine from multiple directions simultaneously,” Milley told the president. “Their version of ‘shock and awe.’ ” + +According to the intelligence, the Russians would come from the north, on either side of Kyiv. One force would move east of the capital through the Ukrainian city of Chernihiv, while the other would flank Kyiv on the west, pushing southward from Belarus through a natural gap between the “exclusion zone” at the abandoned Chernobyl nuclear plant and surrounding marshland. The attack would happen in the winter so that the hard earth would make the terrain easily passable for tanks. Forming a pincer around the capital, Russian troops planned to seize Kyiv in three to four days. The Spetsnaz, their special forces, would find and remove President Volodymyr Zelensky, killing him if necessary, and install a Kremlin-friendly puppet government. + +Separately, Russian forces would come from the east and drive through central Ukraine to the Dnieper River, while troops from Crimea took over the southeastern coast. Those actions could take several weeks, the Russian plans predicted. + +![image1](https://i.imgur.com/FIZPjQM.jpg) +_▲ __Control areas as of July 22.__ Sources: Institute for the Study of War, AEI’s Critical Threats Project, Post reporting_ + +After pausing to regroup and rearm, they would next push westward, toward a north-south line stretching from Moldova to western Belarus, leaving a rump Ukrainian state in the west — an area that in Putin’s calculus was populated by irredeemable neo-Nazi Russophobes. + +The United States had obtained “extraordinary detail” about the Kremlin’s secret plans for a war it continued to deny it intended, Director of National Intelligence Avril Haines later explained. They included not only the positioning of troops and weaponry and operational strategy, but also fine points such as Putin’s “unusual and sharp increases in funding for military contingency operations and for building up reserve forces even as other pressing needs, such as pandemic response, were under-resourced,” she said. This was no mere exercise in intimidation, unlike a large-scale Russian deployment in April, when Putin’s forces had menaced Ukraine’s borders but never attacked. + +Some in the White House found it hard to wrap their minds around the scale of the Russian leader’s ambitions. + +“It did not seem like the kind of thing that a rational country would undertake,” one participant in the meeting later said of the planned occupation of most of a country of 232,000 square miles and nearly 45 million people. Parts of Ukraine were deeply anti-Russian, raising the specter of an insurgency even if Putin toppled the government in Kyiv. And yet the intelligence showed that more and more troops were arriving and settling in for a full campaign. Munitions, food and crucial supplies were being deposited at Russian encampments. + +Biden pressed his advisers. Did they really think that this time Putin was likely to strike? + +Yes, they affirmed. This is real. Although the administration would publicly insist over the next several months that it did not believe Putin had made a final decision, the only thing his team couldn’t tell the president that autumn day was exactly when the Russian president would pull the trigger. + +CIA Director William J. Burns, who had served as U.S. ambassador to Moscow and had had the most direct interactions with Putin of anyone in the Biden administration, described the Russian leader to the others as fixated on Ukraine. Control over the country was synonymous with Putin’s concept of Russian identity and authority. The precision of the war planning, coupled with Putin’s conviction that Ukraine should be reabsorbed by the motherland, left him with no doubts that Putin was prepared to invade. + +“I believed he was quite serious,” Burns said months later, recalling the briefing. + + +### II + +The intelligence had underscored the promise of Putin’s own words. Three months earlier, in July, he had published a 7,000-word essay, “On the Historical Unity Between Russians and Ukrainians,” suffused with grievance and dubious assertions. Russians and Ukrainians, he argued, were “one people” — an idea rooted in Putin’s claims about “blood ties” — and Moscow had been “robbed” of its own territory by a scheming West. + +“I am confident that true sovereignty of Ukraine is possible only in partnership with Russia,” Putin wrote. + +Just weeks before the essay appeared, Biden and Putin had held a June 16 summit that both declared was “constructive.” At that point, Ukraine was a concern, but one that White House officials felt could be dealt with. As the White House delegation left the meeting, held in Geneva, a senior Biden aide would later recall, “we didn’t get on the plane and come home and think the world was on the cusp of a major war in Europe.” + +But Putin’s subsequent publication “caught our attention in a big way,” Sullivan later said. “We began to look at what’s going on here, what’s his end game? How hard is he going to push?” As a precaution, on Aug. 27, Biden authorized that $60 million in largely defensive weapons be drawn from U.S. inventories and sent to Ukraine. + +By late summer, as they pieced together the intelligence from the border and from Moscow, analysts who had spent their careers studying Putin were increasingly convinced the Russian leader — himself a former intelligence officer — saw a window of opportunity closing. Ukrainians had already twice risen up to demand a democratic future, free from corruption and Moscow’s interference, during the 2004-2005 Orange Revolution, and the 2013-2014 Maidan protests that preceded Russia’s annexation of Crimea. + +While not a member of NATO or the European Union, Ukraine was now moving steadily into the Western political, economic and cultural orbit. That drift fed Putin’s broader resentment about Russia’s loss of empire. + +In a grim actuarial assessment, the analysts concluded that Putin, who was about to turn 69, understood that he was running out of time to cement his legacy as one of Russia’s great leaders — the one who had restored Russian preeminence on the Eurasian continent. + +The analysts said Putin calculated that any Western response to an attempt to reclaim Ukraine by force would be big on outrage but limited in actual punishment. The Russian leader, they said, believed that the Biden administration was chastened by the humiliating U.S. withdrawal from Afghanistan and wanted to avoid new wars. The United States and Europe were still struggling through the coronavirus pandemic. German Chancellor Angela Merkel, the de facto European leader, was leaving office and handing power to an untested successor. French President Emmanuel Macron was facing a reelection battle against a resurgent right wing, and Britain was suffering from a post-Brexit economic downturn. Large parts of the continent depended on Russian oil and natural gas, which Putin thought he could use as a wedge to split the Western alliance. He had built up hundreds of billions of dollars in cash reserves and was confident the Russian economy could weather the inevitable sanctions, as it had in the past. + +Presented with the new intelligence and analysis at the October briefing, Biden “basically had two reactions,” Sullivan said. First, to try to deter Putin, they “needed to send somebody to Moscow to sit with the Russians at a senior level and tell them: ‘If you do this, these will be the consequences.’ ” + +Second, they needed to brief allies on the U.S. intelligence and bring them on board with what the administration believed should be a unified and severe posture of threatened sanctions against Russia, reinforcement and expansion of NATO defenses, and assistance for Ukraine. + +Burns was dispatched to Moscow and Haines to NATO headquarters in Brussels. + +Months later, Milley still carried in his briefcase note cards encapsulating the U.S. interests and strategic objectives discussed at the October briefing. He could recite them off the top of his head. + +Problem: “How do you underwrite and enforce the rules-based international order” against a country with extraordinary nuclear capability, “without going to World War III?” + +No. 1: “Don’t have a kinetic conflict between the U.S. military and NATO with Russia.” No. 2: “Contain war inside the geographical boundaries of Ukraine.” No. 3: “Strengthen and maintain NATO unity.” No. 4: “Empower Ukraine and give them the means to fight.” + +Biden’s advisers were confident Ukraine would put up a fight. The United States, Britain and other NATO members had spent years training and equipping the Ukrainian military, which was more professional and better organized than before Russia’s assault on Crimea and the eastern region of Donbas seven years earlier. But the training had focused nearly as much on how to mount internal resistance after a Russian occupation as on how to prevent it in the first place. The weapons they had supplied were primarily small-bore and defensive so that they wouldn’t be seen as a Western provocation. + +The administration also had grave concerns about Ukraine’s young president, a former television comic who had come into office on a huge wave of popular support and desire for fundamental change but had lost public standing in part because he failed to make good on a promise to make peace with Russia. Zelensky, 44, appeared to be no match for the ruthless Putin. + +Math was not in Ukraine’s favor. Russia had more troops, more tanks, more artillery, more fighter jets and guided missiles, and had demonstrated in previous conflicts its willingness to pummel its weaker adversaries into submission, with no regard for the loss of civilian lives. + +Kyiv might not fall as quickly as the Russians expected, the Americans concluded, but it would fall. + + +### III + +On Nov. 2, Burns was escorted into the Kremlin office of Yuri Ushakov, Putin’s foreign policy adviser and a former ambassador to the United States. Ushakov’s boss was on the other end of a phone line and spoke to Burns from the resort city of Sochi, where he had retreated during another wave of coronavirus infections in Moscow. + +The Russian leader recited his usual complaints about NATO expansion, the threat to Russian security, and illegitimate leadership in Ukraine. + +“He was very dismissive of President Zelensky as a political leader,” Burns recalled. + +Practiced at listening to Putin’s tirades from his years in Moscow, Burns delivered his own forceful message: The United States knows what you’re up to, and if you invade Ukraine, you will pay a huge price. He said he was leaving a letter from Biden, affirming the punishing consequences of any Russian attack on Ukraine. + +Putin “was very matter-of-fact,” Burns said. He didn’t deny the intelligence that pointed toward a Russian invasion of Ukraine. + +The CIA director also met with another of Putin’s advisers, Nikolai Patrushev, an ex-KGB officer, from Putin’s hometown of St. Petersburg, who ran Russia’s Security Council. + +Patrushev had thought Burns flew to Moscow to discuss the next meeting between Putin and Biden and seemed surprised that the CIA chief had come bearing a warning about Ukraine. + +He almost exactly echoed Putin’s grievances about history and NATO in his discussions with Burns. There seemed to be no room for meaningful engagement, and it left the CIA director to wonder if Putin and his tight circle of aides had formed their own echo chamber. Putin had not made an irreversible decision to go to war, but his views on Ukraine had hardened, his appetite for risk had grown, and the Russian leader believed his moment of opportunity would soon pass. + +“My level of concern has gone up, not down,” the spy chief reported back to Biden. + + +### IV + +As Burns was speaking with Putin, Blinken was sitting down with Zelensky, in Glasgow, Scotland, on the sidelines of an international summit on climate change. He laid out the intelligence picture and described the Russian storm that was heading Ukraine’s way. + +“It was just the two of us, two feet from each other,” Blinken recalled. It was a “difficult conversation.” + +Blinken had met before with the Ukrainian president and thought he knew him well enough to speak candidly, although it seemed surreal to be “telling someone you believe their country is going to be invaded.” + +He found Zelensky “serious, deliberate, stoic,” a combination of belief and disbelief. He said he would brief his senior teams. But the Ukrainians had “seen a number of Russian feints in the past,” Blinken knew, and Zelensky was clearly worried about economic collapse if his country panicked. + +Blinken’s presentation, and Zelensky’s skepticism, set a pattern that would be repeated both privately and in public over the next several months. The Ukrainians could not afford to reject U.S. intelligence wholesale. But from their perspective, the information was speculative. + +Zelensky heard the U.S. warnings, he later recalled, but said the Americans weren’t offering the kinds of weapons Ukraine needed to defend itself. + +“You can say a million times, ‘Listen, there may be an invasion.’ Okay, there may be an invasion — will you give us planes?” Zelensky said. “Will you give us air defenses? ‘Well, you’re not a member of NATO.’ Oh, okay, then what are we talking about?” + +The Americans offered little specific intelligence to support their warnings “until the last four or five days before the invasion began,” according to Dmytro Kuleba, Zelensky’s foreign minister. + +Less than two weeks after the Glasgow meeting, when Kuleba and Andriy Yermak, Zelensky’s chief of staff, visited the State Department in Washington, a senior U.S. official greeted them with a cup of coffee and a smile. “Guys, dig the trenches!” the official began. + +“When we smiled back,” Kuleba recalled, the official said, “ ‘I’m serious. Start digging trenches. … You will be attacked. A large-scale attack, and you have to prepare for it.’ We asked for details; there were none.” + +If the Americans became frustrated at Ukraine’s skepticism about Russia’s plans, the Ukrainians were no less disconcerted at the increasingly public U.S. warnings that an invasion was coming. + +“We had to strike a balance between realistically assessing the risks and preparing the country for the worst … and keeping the country running economically and financially,” Kuleba said. “Every comment coming from the United States about the unavoidability of war was immediately reflected in the [Ukrainian] currency exchange rate.” + +A number of U.S. officials have disputed Ukrainian recollections, saying they provided the Kyiv government with specific intelligence early on and throughout the lead-up to the invasion. + +Yet when it came to Ukraine, U.S. intelligence was hardly an open book. Official guidance prohibited the spy agencies from sharing tactical information that Ukraine could use to launch offensive attacks on Russian troop locations in Crimea or against Kremlin-backed separatists in the east. + +Ukraine’s own intelligence apparatus was also shot through with Russian moles, and U.S. officials were leery of sensitive information ending up in Moscow’s hands. After the war began, the Biden administration changed its policy and shared information on Russian troop movements throughout Ukraine, on the grounds that the country was now defending itself from an invasion. + + +### V + +At a side meeting during the Group of 20 conference in Rome at the end of October, Biden shared some of the new intelligence and conclusions with America’s closest allies — the leaders of Britain, France and Germany. + +In mid-November, Haines used a previously scheduled trip to Brussels to brief a wider circle of allies: NATO’s North Atlantic Council, the principal decision-making body of the 30-member alliance. Speaking in a large auditorium, she limited her remarks to what the intelligence community believed the evidence showed, and didn’t offer policy recommendations. + +“A number of members raised questions and were skeptical of the idea that President Putin was seriously preparing for the possibility of a large-scale invasion,” Haines recalled. + +French and German officials couldn’t understand why Putin would try to invade and occupy a large country with just the 80,000 to 90,000 troops believed to be massed on the border. Satellite imagery also showed the troops moving back and forth from the frontier. Others posited that the Russians were performing an exercise, as the Kremlin itself insisted, or playing a shell game designed to conceal a purpose short of invasion. + +Most were doubtful, and noted that Zelensky seemed to think Russia would never attack with the ambition and force the Americans were forecasting. Didn’t Ukraine understand Russia’s intentions best? + +Only the British and the Baltic states were fully on board. At one point, an official from London stood up and gestured toward Haines. “She’s right,” the official said. + +But Paris and Berlin remembered emphatic U.S. claims about intelligence on Iraq. The shadow of that deeply flawed analysis hung over all the discussions before the invasion. Some also felt that Washington, just months earlier, had vastly overestimated the resilience of Afghanistan’s government as the U.S. military was withdrawing. The government had collapsed as soon as the Taliban entered Kabul. + +“American intelligence is not considered to be a naturally reliable source,” said François Heisbourg, a security expert and longtime adviser to French officials. “It was considered to be prone to political manipulation.” + +The Europeans began to settle into camps that would change little for several months. + +“I think there were basically three flavors,” a senior administration official said. To many in Western Europe, what the Russians were doing was “all coercive diplomacy, [Putin] was just building up to see what he could get. He’s not going to invade … it’s crazy.” + +Many of NATO’s newer members in eastern and southeastern Europe thought Putin “may do something, but it would be limited in scope,” the official said, “ … another bite at the [Ukrainian] apple,” similar to what happened in 2014. + +But Britain and the Baltic states, which were always nervous about Russian intentions, believed a full-scale invasion was coming. + +When skeptical member states asked for more intelligence, the Americans provided some, but held back from sharing it all. + +Historically, the United States rarely revealed its most sensitive intelligence to an organization as diverse as NATO, primarily for fear that secrets could leak. While the Americans and their British partners did share a significant amount of information, they withheld the raw intercepts or nature of the human sources that were essential to determining Putin’s plans. That especially frustrated French and German officials, who had long suspected that Washington and London sometimes hid the basis of their intelligence to make it seem more definitive than it really was. + +Some of the alliance countries provided their own findings, Haines said. The United States also created new mechanisms for sharing information in real time with their foreign partners in Brussels. Austin, Blinken and Milley were on the phone to their counterparts, sharing, listening, cajoling. + +Over time, one senior European official at NATO recalled, “the intelligence was narrated repeatedly, consistently, clearly, credibly, in a lot of detail with a very good script and supporting evidence. I don’t remember one key moment where the lightbulb went off” in the months-long effort to convince the allies, the official said. Ultimately, “it was the volume of the lights in the room.” + + +### VI + +Macron and Merkel had been dealing with Putin for years and found it hard to believe he was so irrational as to launch a calamitous war. In the weeks after Biden’s Geneva meeting, they had tried to arrange an E.U.-Russia summit, only to be shot down by skeptical members of the bloc who saw it as a dangerous concession to Russia’s aggressive posture. + +Months later, despite the new U.S. intelligence, the French and Germans insisted there was a chance for diplomacy. The Americans and the British had little hope that any diplomatic effort would pay off, but were prepared to keep the door open — if the Europeans gave something in return. + +“A big part of our focus,” recalled Sullivan, “was basically to say to them, ‘Look, we’ll take the diplomatic track and treat it [as] serious … if you will take the planning for [military] force posture and sanctions seriously.’ ” + +Each side was convinced it was right but was willing to proceed as if it might be wrong. + +Over the next several months, the Americans strove to show the Western Europeans and others that they were still willing to search for a peaceful resolution, even though in the back of their minds, they were convinced that any Russian efforts at negotiation were a charade. “It basically worked,” Sullivan said of the administration strategy. + +On Dec. 7, Putin and Biden spoke on a video call. Putin claimed that the eastward expansion of the Western alliance was a major factor in his decision to send troops to Ukraine’s border. Russia was simply protecting its own interests and territorial integrity, he argued. + +Biden responded that Ukraine was unlikely to join NATO any time soon, and that the United States and Russia could come to agreements on other concerns Russia had about the placement of U.S. weapons systems in Europe. In theory, there was room to compromise. + +For a while, as Blinken headed the U.S. diplomatic effort with repeated visits to NATO capitals and alliance headquarters in Brussels, the Ukrainians continued their contacts with European governments that still seemed far less convinced of Putin’s intentions than the Americans were. + +Kuleba and others in the government believed there would be a war, the Ukrainian foreign minister later said. But until the eve of the invasion, “I could not believe that we would face a war of such scale. The only country in the world that was persistently telling us” with such certainty “that there would be missile strikes was the United States of America. … Every other country was not sharing this analysis and [instead was] saying, yes, war is possible, but it will be rather a localized conflict in the east of Ukraine.” + +“Put yourself in our shoes,” Kuleba said. “You have, on the one hand, the U.S. telling you something completely unimaginable, and everyone else blinking an eye to you and saying this is not what we think is going to happen.” + +In fact, the British and some Baltic officials believed a full invasion was probable. But Kuleba was far from alone in his skepticism. His president shared it, according to Zelensky’s aides and other officials who briefed him. + +“We took all of the information that our Western partners were giving us seriously,” recalled Yermak, Zelensky’s chief of staff. “But let’s be honest: Imagine if all of this panic that so many people were pushing had taken place. Creating panic is a method of the Russians. … Imagine if this panic had started three or four months beforehand. What would’ve happened to the economy? Would we have been able to hold on for five months like we have?” + + +### VII + +In early January, Deputy Secretary of State Wendy Sherman led a diplomatic delegation to Geneva and met with Sergei Ryabkov, her Russian counterpart, whom she knew well. He reiterated Moscow’s position on Ukraine, formally offered in mid-December in two proposed treaties — that NATO must end its expansion plans and halt any activity in countries that had joined the alliance after 1997, which included Poland, Romania, Bulgaria and the Baltic states. + +Rejecting the proposal to close NATO’s doors and reduce the status of existing members, the administration instead offered talks and trust-building measures in a number of security areas, including the deployment of troops and the placement of weapons on NATO’s eastern flank along the border with Russia. The offer was conditioned on de-escalation of the military threat to Ukraine. Ryabkov told Sherman that Russia was disappointed in the American attitude. + +The White House had envisioned Sherman’s meeting with Ryabkov as “a chance to test whether the Russians were serious about the substance of the concerns … and if there was a way forward for any kind of diplomacy,” said Emily Horne, then the spokesperson for the National Security Council. “I think it became pretty clear, pretty quickly that [the Russians] were performing diplomacy, not actually undertaking diplomacy. They weren’t even doing it with much seriousness.” + +“All the Western allies wanted to convey that there was an alternative path involving dialogue and respect for Russia as a great power,” said a senior British government official involved in negotiations. “What became increasingly clear was that Russia was not interested in those.” + +As the United States pursued the diplomatic track, it also positioned forces to defend NATO, all of them visible to Moscow and to Europeans and demonstrating American willingness to put skin in the game. While Biden repeatedly said there would be no U.S. troops in Ukraine, the Pentagon increased pre-positioned weapons stocks in Poland and moved a helicopter battalion there from Greece. Paratroops from the 173rd Airborne were deployed to the Baltic states. More troops were sent from Italy to eastern Romania, and others went to Hungary and Bulgaria. + +Over the next several months, the U.S. military presence in Europe increased from 74,000 to 100,000 troops. Four airborne fighter squadrons became 12, and the number of surface combatant ships in the region increased from five to 26. Combat air patrols and surveillance were flying 24/7 missions over the alliance’s eastern flank, with visibility deep inside Ukraine. + +“We were saying, ‘Look, we’re taking diplomacy seriously, but we’re so worried about this that we’re actually moving men and material,’ ” Sullivan recalled. + +With National Security Agency authorization, the United States established a direct communication line from the Ukrainian military to U.S. European Command. The highly secure system would keep the Americans in direct contact with their Ukrainian counterparts as events unfolded. + +The administration was also sending arms to Ukraine. In December, Biden authorized an additional $200 million in weapons to be drawn from U.S. inventories — even as the Kyiv government, many in Congress and some within the administration itself argued that if the United States really believed a full-scale invasion was coming, it was not enough. + +But every step in the administration campaign was premised on avoiding direct U.S. involvement in a military clash. The overriding White House concern about provocation influenced each decision about how much assistance and what kind of weapons to give the Ukrainians to defend themselves. + +“I make no apologies for the fact that one of our objectives here is to avoid direct conflict with Russia,” Sullivan said of the prewar period. + +The Russians were going to do what they did regardless of what the allies did, a senior official involved in the decisions said, and the administration found “incredible” the notion, as some later argued in hindsight, that “if only we would have given” the Ukrainians more arms, “none of this would have happened.” + +Determining whether Russia would interpret a military exercise or a weapons shipment as provocative or escalatory was “more art than science,” the official said. “There’s not a clear and easy mathematical formula. … There has always been a balance between what is required to effectively defend, and what is going to be seen by Russia as the United States essentially underwriting the killing of huge numbers of Russians.” + +Ukrainian officials have expressed unending gratitude to the United States for what it has provided since the start of the war. “No other country in the world did more for Ukraine to get the necessary weapons than the United States since 24 February. No other country in the world,” Kuleba said recently. But from the beginning, he said, he and other Ukrainian officials have believed that the “non-provocation” strategy was the wrong one. + +“Where did it take us to?” Kuleba said. “I think this war — with thousands killed and wounded, territories lost, part of the economy destroyed ... is the best answer to those who still advocate the non-provocation of Russia.” + + +### VIII + +As part of its ongoing campaign to convince the world of what was coming — and dissuade the Russians — the White House decided toward the end of 2021 to challenge its own reluctance, and that of the intelligence agencies, to make some of their most sensitive information public. + +U.S. intelligence had picked up on “false flag” operations planned by the Russians, in which they would stage attacks on their own forces as if they had come from Ukraine. Publicly exposing those plans might deny Putin the opportunity to concoct a pretext for invasion, administration officials reasoned. + +As a first step, the White House decided to reveal the scale of the troop buildup that continued on Ukraine’s borders. In early December, the administration released satellite photos, as well a map created by U.S. analysts showing Russian troop positions and an intelligence community analysis of Russian planning. + +The analysis said the Russians planned “extensive movement” of 100 battalion tactical groups, involving up to 175,000 troops, along with armor, artillery and equipment. The picture that administration officials had been developing for weeks in secret was now seen around the world. + +In anticipation of more selective disclosures of intelligence, Sullivan set up a regular process at the White House in which a team would determine whether a particular piece of information, if made public, could thwart Russian plans or propaganda. If the answer was yes, it would then be submitted to the intelligence community for recommendations on whether and how to release it. + +In late January, the British government publicly accused Russia of plotting to install a puppet regime in Kyiv. The allegation, based on U.S. and British intelligence, was revealed in a highly unusual press statement by Foreign Secretary Liz Truss, late in the evening in London but just in time for the Sunday morning papers. + +And in early February, the Biden administration disclosed that Moscow was considering filming a fake Ukrainian attack against Russian territory or Russian-speaking people — the false flag that intelligence had detected. The propaganda film would be heavy on spectacle, officials said, with graphic scenes of explosions, accompanied by corpses posed as victims and mourners pretending to grieve for the dead. + +“I had watched Putin falsely set the narrative too many times,” another U.S. official said. Now, “you could see him planning quite specifically in [eastern Ukraine] false flags. It was quite precise.” + +The intelligence disclosures themselves had an air of theatricality. The initial revelation of satellite pictures could be corroborated by commercial footage, though the analysis was unique to the intelligence community. But whether the public believed the subsequent disclosures depended on the government’s credibility. And Biden administration officials knew they faced a public, at home and abroad, that could be deeply skeptical of “intelligence,” following the Iraq War and the Taliban takeover in Afghanistan. + +Broadly speaking, the U.S. public information campaign worked. World attention focused on the Russian troop buildup. The idea that Putin would falsify the reasons for his invasion seemed plausible, perhaps because in 2014 he had denied entirely that his troops were in Crimea, an assertion that led to descriptions of “little green men” in military uniforms without insignia occupying part of Ukraine. + +Given how skeptical some allies remained about the intelligence, the most powerful effect of disclosing it was to shape Russian behavior and deprive Putin of the power to use misinformation, U.S. officials said. + + +### IX + +On Jan. 12, Burns met in Kyiv with Zelensky and delivered a candid assessment. The intelligence picture had only become clearer that Russia intended to make a lightning strike on Kyiv and decapitate the central government. The United States had also discovered a key piece of battlefield planning: Russia would try to land its forces first at the airport in Hostomel, a suburb of the capital, where the runways could accommodate massive Russian transports carrying troops and weapons. The assault on Kyiv would begin there. + +At one point in their conversation, Zelensky asked if he or his family were personally in danger. Burns said Zelensky needed to take his personal security seriously. + +The risks to the president were growing. Intelligence at the time indicated that Russian assassination teams might already be in Kyiv, waiting to be activated. + +But Zelensky resisted calls to relocate his government and was adamant that he not panic the public. Down that path, he thought, lay defeat. + +“You can’t simply say to me, ‘Listen, you should start to prepare people now and tell them they need to put away money, they need to store up food,’ ” Zelensky recalled. “If we had communicated that — and that is what some people wanted, who I will not name — then I would have been losing $7 billion a month since last October, and at the moment when the Russians did attack, they would have taken us in three days. ... Generally, our inner sense was right: If we sow chaos among people before the invasion, the Russians will devour us. Because during chaos, people flee the country.” + +For Zelensky, the decision to keep people in the country, where they could fight to defend their homes, was the key to repelling any invasion. + +“As cynical as it may sound, those are the people who stopped everything,” he said. + +Ukrainian officials remained irritated that the Americans weren’t sharing more about their intelligence sources. “The information that we received was, I would call it, a statement of facts without a disclosure of the origins of those facts or of the background behind those facts,” Kuleba recalled. + +But Western intelligence wasn’t alone in thinking Zelensky should prepare for a full-scale invasion. Some of Ukraine’s own intelligence officials, while still skeptical that Putin would strike, were planning for the worst. Kyrylo Budanov, Ukraine’s military intelligence chief, said he moved the archives out of his headquarters three months in advance of the war and prepared reserves of fuel and ammunition. + +The American warnings were repeated on Jan. 19 when Blinken made a brief visit to Kyiv for a face-to-face meeting with Zelensky and Kuleba. To the secretary’s dismay, Zelensky continued to argue that any public call for mobilization would bring panic, as well as capital flight that would push Ukraine’s already teetering economy over the edge. + +While Blinken stressed, as he had in previous conversations, the importance of keeping Zelensky and his government safe and intact, he was one of several senior U.S. officials who rebuffed reports that the administration had urged them to evacuate the capital. “What we said to Ukraine were two things,” Blinken later recalled. “We will support you whatever you want to do. We recommend you look … at how you can ensure continuity of government operations depending on what happens.” That could mean hunkering down in Kyiv, relocating to western Ukraine or moving the government to neighboring Poland. + +Zelensky told Blinken he was staying. + +He had begun to suspect that some Western officials wanted him to flee so that Russia could install a puppet government that would come to a negotiated settlement with NATO powers. “The Western partners wanted to — I’m sure someone was really worried about what would happen to me and my family,” Zelensky said. “But someone probably wanted to just end things faster. I think the majority of people who called me — well, almost everyone — did not have faith that Ukraine can stand up to this and persevere.” + +Similarly, warning Ukrainians to prepare for war as some partners wanted him to, he said, would have weakened the country economically and made it easier for the Russians to capture. “Let people discuss in the future whether it was right or not right,” the Ukrainian leader recalled, “but I definitely know and intuitively — we discussed this every day at the National Security and Defense Council, et cetera — I had the feeling that [the Russians] wanted to prepare us for a soft surrender of the country. And that’s scary.” + + +### X + +In a news conference on Jan. 19, Biden said he thought Russia would invade. Putin had come too far to pull back. “He has to do something,” the president said. + +Biden promised that the West would answer Russia’s attack. “Our allies and partners are ready to impose severe costs and significant harm on Russia and the Russian economy,” he said, predicting that if Putin ordered an invasion, it would prove a “disaster” for Russia. + +It was one of Biden’s most forceful warnings to that point. But the president also muddied the waters, suggesting that a “minor incursion” by Russian forces, as opposed to a full-scale invasion, might not prompt the severe response that he and allies had threatened. + +“It’s one thing if it’s a minor incursion, and then we end up having to fight about what to do and not do, et cetera,” Biden said, signaling that NATO was not unified in its opposition to any Russian use of force. “If there’s something where there’s Russian forces crossing the border, killing Ukrainian fighters, et cetera, I think that changes everything,” Biden said when, later in the news conference, a reporter asked him to clarify what he meant by a “minor incursion.” + +“But it depends on what he [Putin] does, actually, what extent we’re going to be able to get total unity on the NATO front.” + +Biden’s comments revealed the cracks in his own administration’s planning, as well as in NATO. Blinken was in Kyiv, vowing that the United States would support Ukraine, in every way short of committing its own forces, if the country was attacked. But privately, administration officials had been contemplating for weeks how they would respond to a “hybrid” attack, in which Russia might launch damaging cyber-strikes on Ukraine and a limited assault on the eastern part of the country. + +Zelensky and his aides, who still weren’t convinced Putin would go to war, replied to Biden’s comments about a “minor incursion” with a caustic tweet. + +“We want to remind the great powers that there are no minor incursions and small nations. Just as there are no minor casualties and little grief from the loss of loved ones. I say this as the President of a great power.” + +Biden clarified the next day that if “any assembled Russian units move across the Ukrainian border, that is an invasion” for which Putin will pay. But White House officials quietly fumed that while the administration was trying to rally support for Ukraine, Zelensky was more interested in poking the president in the eye over an awkward comment. + +“It was frustrating,” said a former White House official. “We were taking steps that were attempting to help him, and there was a feeling that he was protecting his own political brand by either being in denial or projecting confidence because that’s what was important to him at the time.” + +An aide to Zelensky who helped craft the tweet said it was meant to rebut Biden, but also to be light and humorous, a way to defuse the burgeoning tension. Zelensky’s inner circle worried that Washington’s predictions that war was around the corner would have unintended consequences. + +As Biden was clarifying, Zelensky’s team tried to assuage Washington with a conciliatory message. + +“Thank you @POTUS for the unprecedented [U.S.] diplomatic and military assistance for [Ukraine],” Zelensky tweeted, with emoji of the U.S. and Ukrainian flags. + + +### XI + +Jan. 21 was a cold, bleak day in Geneva, with gusty winds whipping the surface of the usually placid lake that shares the Swiss city’s name. As Blinken and his aides sat across from their Russian counterparts at a table set up in the ballroom of a shoreline luxury hotel, the secretary offered the whitecaps as a metaphor. Perhaps, Blinken told Russian Foreign Minister Sergei Lavrov, they could calm the turbulent waters between their two countries. + +They exchanged tense niceties and covered other issues — a spat about the size and activities of their embassies in each other’s capital, the Iran nuclear deal — before turning to Ukraine. Blinken again laid out U.S. positions. If Putin had legitimate security concerns, the United States and its allies were ready to talk about them. But once an invasion of Ukraine began, Western sanctions would be fast and merciless, isolating Russia and crippling its economy, and the alliance would provide Ukraine with massive military assistance. If one Russian soldier or missile touched one inch of NATO territory, the United States would defend its allies. + +Blinken found Lavrov’s responses strident and unyielding. After an hour and a half of fruitless back-and-forth, it seemed there was little more to say. But as their aides began to file out of the ballroom, Blinken held back and asked the Russian minister to speak with him alone. The two men entered a small, adjacent conference room and shut the door as the U.S. and Russian teams stood uncomfortably together outside. + +During Lavrov’s nearly 18 years as Russia’s foreign minister, a succession of American diplomats had found him blunt and doctrinaire, but occasionally frank and realistic about relations between their two countries. After again going over the Ukraine situation, Blinken stopped and asked, “Sergei, tell me what it is you’re really trying to do?” Was this all really about the security concerns Russia had raised again and again — about NATO’s “encroachment” toward Russia and a perceived military threat? Or was it about Putin’s almost theological belief that Ukraine was and always had been an integral part of Mother Russia? + +Without answering, Lavrov opened the door and walked away, his staff trailing behind. + +It was the last time top national security officials of Russia and the United States would meet in person before the invasion. + +Biden spoke with Putin once more by telephone. On Feb. 12, the White House said, he told the Russian president that “while the United States remains prepared to engage in diplomacy, in full coordination with our allies and partners, we are equally prepared for other scenarios.” + + +### XII + +A day earlier, British Defense Minister Ben Wallace had flown to Moscow to meet with his Russian counterpart, Sergei Shoigu, a longtime Kremlin survivor who helped sculpt Putin’s tough-guy persona. + +Wallace wanted to ask one more time if there was room for negotiation on Putin’s demands about NATO expansion and alliance activities in Eastern Europe. The Russians, he said, showed no interest in engaging. + +Wallace warned Shoigu that Russia would face fierce resistance if it invaded Ukraine. “I know the Ukrainians — I visited Ukraine five times — and they will fight.” + +“My mother’s Ukrainian,” Wallace said Shoigu replied, implying that he knew the people better. “It’s all part of our same country.” + +Wallace then raised the prospect of sanctions. Shoigu responded: “ ‘We can suffer like no one else.’ And I said, ‘I don’t want anyone to suffer.’ ” + +Shoigu aired a long and by now familiar list of complaints and said Russia couldn’t tolerate Ukraine’s Western trajectory. “It was in some respects incomprehensible,” said a British official who attended the meeting. “Everyone wanted to keep negotiations going — we were throwing off-ramps, but they weren’t taking them.” + +As the British officials were about to leave, Shoigu spoke directly to Wallace. “He looked me in the eye and said, ‘We have no plans to invade Ukraine’ ” Wallace recalled. “That shows you how much of a lie it was.” + +A week later, on Feb. 18, Biden called the leaders of several NATO allies and told them the latest U.S. analysis. Biden told reporters in the Roosevelt Room at the White House later that day, “As of this moment, I’m convinced he’s made the decision” to invade. “We have reason to believe that.” + +The French, however, continued to seek a way out of the crisis. + +On Feb. 20, Macron called Putin and asked him to agree to a meeting in Geneva with Biden. The conversation led the French president to believe that Putin was finally willing to seek a settlement. + +“It’s a proposal that merits to be taken into account,” Putin said, according to a recording of the conversation aired months later in a France TV documentary, “A President, Europe and War.” + +Macron pressed the Russian leader. “But can we say, today, at the end of this conversation, that we agree in principle? I would like a clear answer from you on that score. I understand your resistance to setting a date. But are you ready to move forward and say, today, ‘I would like a [face-to-face] meeting with the Americans, then expanded to the Europeans’? Or not?” + +Putin didn’t commit and appeared to have more-pressing matters at hand. “To be perfectly frank with you, I wanted to go [play] ice hockey, because right now I’m at the gym. But before starting my workout, let me assure you, I will first call my advisers.” + +“Je vous remercie, Monsieur le President,” Putin concluded, thanking him in French. + +Macron is heard laughing in delight as he hangs up. The French president and his advisers thought they had a breakthrough. Macron’s diplomatic adviser, Emmanuel Bonne, even danced. + +But the following day, in a televised address, Putin officially recognized two separatist Ukrainian provinces in Donbas, including territory controlled by Kyiv, as independent states. It was a stark sign that Putin — his French-language pleasantries aside — intended to dismember Ukraine. + + +### XIII + +As Britain and France made last-ditch efforts at diplomacy, world leaders gathered in Munich for an annual security conference. Zelensky attended, prompting concerns among some U.S. officials that his absence might give Russia the perfect moment to strike. Others wondered if the Ukrainian leader believed Russia would attack and had used the opportunity to leave the country before the bombs started falling. + +In a speech, Zelensky reminded the audience that his country was already at war with Russia, with Ukrainian troops fighting against the eastern separatists since 2014. + +“To really help Ukraine, it is not necessary to constantly talk only about the dates of a probable invasion,” Zelensky said. Instead, the European Union and NATO should welcome Ukraine into their organizations. + +Some European officials were still unconvinced that an attack was coming. One told a reporter, “We have no clear evidence ourselves that Putin has made up his mind, and we have not seen anything that would suggest otherwise.” + +“It felt otherworldly,” the British official said. In sideline conversations, U.S. and British officials were convinced of an imminent invasion, but “that just wasn’t the mood in the hall.” + +Some in London began to doubt themselves, the British official said. “People were saying [we] got it wrong on Afghanistan. We returned and scrubbed the [Ukraine] intelligence again.” + +They came up with the same conclusion — Russia would invade. But despite the U.S. diplomatic and intelligence-sharing campaign, it remained a difficult sell. + +“If you discover the plans of somebody to attack a country and the plans appear to be completely bonkers, the chances are that you are going to react rationally and consider that it’s so bonkers, it’s not going to happen,” said Heisbourg, the French security expert. + +“The Europeans overrated their understanding of Putin,” he said. “The Americans, I assume … rather than try to put themselves in Putin’s head, decided they were going to act on the basis of the data and not worry about whether it makes any sense or not.” + +There had been many reasons to be mystified. U.S. intelligence showed that the Kremlin’s war plans were not making their way down to the battlefield commanders who would have to carry them out. Officers didn’t know their orders. Troops were showing up at the border not understanding they were heading into war. Some U.S. government analysts were bewildered by the lack of communication within the Russian military. Things were so screwy, the analysts thought, Russia’s plans might actually fail. But that remained a distinctly minority view. + +For Kuleba, the turning point came in the days after the Feb. 18-20 Munich conference, when he traveled again to Washington. “These were the days I received more-specific information,” he recalled. At a specific airport A in Russia, they told him, five transport planes were already on full alert, ready to take paratroops at any given moment and fly them in the direction of a specific airport B in Ukraine. + +“That was where you see the sequence of events and the logic of what is happening,” he said. + +Western intelligence officials, looking back at what turned out to be the shambolic Russian attack on Kyiv, acknowledge that they overestimated the effectiveness of the Russian military. + +“We assumed they would invade a country the way we would have invaded a country,” one British official said. + + +### XIV + +Early in the evening of Feb. 23, the White House received an urgent intelligence flash. There was “high probability” that the invasion had begun. Troops were on the move, and the Russians had fired missiles on targets in Ukraine. The president’s top advisers assembled; some met in the Situation Room while others joined on a secure line. + +Sullivan spoke with Yermak, Zelensky’s chief of staff. There was “an extremely high level of agitation” in Kyiv, said a person familiar with the call. “They were not spinning out of control. Just extremely emotional, but in a way you’d expect.” + +Yermak told Sullivan to hold on — he wanted to bring Zelensky to the phone to speak directly with Biden. Sullivan connected the call to the Treaty Room, part of the second-floor White House residence used as a study, and got the president on the line. + +Zelensky implored Biden to immediately contact as many other world leaders and diplomats as possible. He should tell them to speak out publicly and to call Putin directly and tell him to “turn this off.” + +“Zelensky was alarmed,” the person recalled. He asked Biden to “ ‘get us all the intelligence you possibly can now. We will fight, we will defend, we can hold, but we need your help.’ ” + +--- + +__Harris__ reported from Washington and London; __DeYoung__ from Washington, Brussels, and Joint Base Ramstein and Stuttgart in Germany; __Khurshudyan__ from Kyiv; __Parker__ from Washington; and __Sly__ from London. __Paul Sonne__ and __Olivier Knox__ in Washington, __Souad Mekhennet__ in Berlin, __Rick Noack__ in Paris and __Serhiy Morgunov__ in Kyiv contributed to this report. diff --git a/_collections/_hkers/2022-08-18-transform-european-defense.md b/_collections/_hkers/2022-08-18-transform-european-defense.md new file mode 100644 index 00000000..a0dbcc28 --- /dev/null +++ b/_collections/_hkers/2022-08-18-transform-european-defense.md @@ -0,0 +1,137 @@ +--- +layout: post +title : Transform European Defense +author: Max Bergmann, et al. +date : 2022-08-18 12:00:00 +0800 +image : https://i.imgur.com/At6smIk.jpg +#image_caption: +description: +excerpt_separator: +--- + +_Russia’s war of aggression against Ukraine has been a wake-up call for Europe, which has taken decisive steps to assist Ukraine and shore up European security and defense. Yet this moment could be short-lived if not followed by a sustained, collective effort to transform and rationalize European defense._ _Without this, additional European defense spending may be wasted and the continent will continue to rely on the United States for its defense. European nations should fully leverage the European Union, the North Atlantic Treaty Organization (NATO), and other multilateral formats to overcome fragmentation and avoid a piecemeal approach to defense. By doing so, they can invest together in modern capabilities, build a strong, resilient, and open industrial base, and think creatively to pool and share forces. Importantly, the United States has a crucial role in providing both practical and political support to achieve this shared goal of a stronger and more capable European defense._ + + +### Introduction + +Russia’s brutal war of aggression in Ukraine has mobilized European nations to think more seriously about security and defense. In addition to sending an impressive surge of military equipment to Ukraine and making commitments at the Madrid summit to reinforce the North Atlantic Treaty Organization’s (NATO) eastern flank with troops and materiel, the European Union also took new steps in its evolution as a credible defense actor. Perhaps most critically, European nations have also announced substantial increases to their defense budgets. A burst of political will — ignited by the invasion and fanned by its brutality — has fueled this response. + +These developments are significant, but it would be premature to assume they mark the beginning of a new era. A true paradigm shift will require a sustained and focused effort to lock in the commitments that have already been made, ensure efficient implementation of those commitments, and build the institutional structure necessary to keep European defense moving in the desired direction. + + +### A Transformational Moment? + +After the Cold War, European nations largely permitted their militaries to atrophy. The focus of military activity shifted from hypothetical conflict against a peer adversary to expeditionary operations focused on crisis management, counterinsurgency, and counterterrorism. With the exception of the Balkans, these operations were also primarily out of area; the possibility of major war on the European continent appeared low. + +This began to change after the original Russian invasion of Ukraine in 2014. Russia’s act of aggression catalyzed NATO’s European allies to commit at the Wales summit to meet the alliance’s target of spending 2 percent of GDP on defense. After decades of low-end operations, some European countries began the painful process of reconstituting their militaries for high-intensity warfare. On land, this has included a focus on rebuilding the readiness and aptitude of heavy, combat-capable brigades. At sea, it has included investments in principal surface combatants, submarines, amphibious vessels, and long-range strike, among other areas. + +After February 24, 2022, the argument for robust investment in the capabilities required for modern collective defense went from sensible to irrefutable. A Russian attack on a NATO member is no longer unthinkable. Indeed, NATO’s new strategic concept says as much: “We cannot discount the possibility of an attack against Allies’ sovereignty and territorial integrity.” + +As European security has become more perilous, U.S. attention has increasingly been pulled toward Asia. Despite Russia’s invasion of Ukraine, the U.S. Department of Defense has continued to prioritize China, which the unclassified summary of the forthcoming National Defense Strategy calls “our most consequential strategic competitor and the pacing challenge.” In other words, the U.S. pivot to the Indo-Pacific may have been paused or lessened in degree by events in Europe, but it has not been canceled. The need for the United States to provide precious military assets to defend Europe against Russia, support U.S. allies in Asia, and maintain other global commitments, such as in the Middle East, may put tremendous strain on the United States. Washington will therefore need more from Europe. + +Europe seems on its way to stepping up to this challenge. There has been strong political will in Europe to take bolder steps, which has manifested in robust EU sanctions on Russia and support for Ukraine, including lethal and non-lethal aid and working to take in refugees — an area the European Union has found difficult in the past. The European Union’s recently released A Strategic Compass for Security and Defense signals a higher level of ambition for the bloc on foreign and security policy. In NATO, Europeans will contribute to troop reinforcements on the eastern flank, and two new European nations with highly capable militaries, Finland and Sweden, will join the strategic alliance. Most pertinently, the majority of European countries — from economic powerhouse Germany to tiny Luxembourg and neutral Ireland — have announced they will increase their defense budgets, opening the door to a potential future where Europe can theoretically afford to field the majority of the military capabilities necessary for its own self-defense. + +> The need for the United States to provide precious military assets to defend Europe against Russia, support U.S. allies in Asia, and maintain other global commitments, such as in the Middle East, may put tremendous strain on the United States. Washington will therefore need more from Europe. + + +### Sustaining Momentum + +However, the opportunity for bold action on European defense will not remain forever. Europe has many other policy priorities: post-Covid economic recovery, migration, climate change and the energy transition, and tackling inflation, to name a few. Furthermore, although NATO has seen promising further rises in defense spending since 2014, many of the announcements made since February 24 have yet to be realized. In the short run, turning those announcements into budgetary commitments is how Europe can retain forward momentum. In the long run, while these new developments are encouraging, Europeans will still face many challenges to sustain that momentum. + +Decades of declining defense budgets have led to a dramatic downsizing of European armed forces and generated major capability gaps. Competing national defense industries and diverging operational needs have also resulted in a deeply fragmented defense landscape where cooperative solutions are an exception, not the rule. Finally, endless debates on the need for, or the danger of, more European strategic autonomy have slowed down European ambitions and are still vivid today in the context of the war in Ukraine. Having a clear understanding of these limitations is critical as Europeans think about the future of their defense. + +#### Decades of Underinvestment + +Recent decisions in Europe to boost defense budgets represent good news but come after decades of budgetary cuts and anemic defense investment that has resulted in a major and lasting depreciation of European armed forces, especially compared to the Cold War period. Even though European partners started to increase their defense budgets again in 2015 (see Graph 1), primarily in reaction to Russia’s invasion of Ukraine, they had dug themselves an incredibly deep hole. + +![image1](https://i.imgur.com/l6rnoAz.jpg) +▲ ___Graph 1: NATO Europe and Canada - defence expenditure.__ Source: “[Defence Expenditures of NATO Countries (2014-2022)](https://www.nato.int/cps/en/natohq/news_197050.htm),” NATO, June 27, 2022._ + +Over the last two decades, European militaries have lost 35 percent of their capabilities. To take the example of European navies, European countries had almost 200 large surface combatants and 129 submarines in 1990, but only 116 and 66, respectively, in 2021. Europe’s combat power at sea is considered to be about half of what it was during the height of the Cold War. Although often justified as favoring high-tech quality over quantity, reduced operational “mass” remains concerning. For example, the war in Ukraine suggests platforms remain vulnerable in high-intensity warfare. Russia itself might attest to this: according to the Ukrainian Armed Forces, the Russian military may have lost 1,500 tanks, 3,600 armored vehicles, 750 artillery pieces, and 210 aircraft between the beginning of the invasion and the end of June. + +Declining military investments have also led to major capability gaps. As witnessed with military engagements in Afghanistan, Iraq, Libya, and the Sahel, European armed forces are still relying on U.S. support for critical enablers such as air-to-air refueling, strategic airlift, and reconnaissance and intelligence capacities. The chaotic withdrawal from Afghanistan was a sobering demonstration of these limitations, as European states were incapable of evacuating their own citizens and allies without logistical support from Washington. + +The war in Ukraine offers another example of such constraints: European states have struggled to supply Ukraine with needed heavy weaponry. So far, the United States has provided most of the military assistance to Ukraine, demonstrated most recently by the adoption of a massive $40 billion support package. While Europeans have stepped up militarily, restricted stocks of equipment and ammunition are limiting their support, especially as they also have to maintain national militaries. + +#### A Fragmented Defense Landscape + +It is not simply that European countries are spending too little on defense, but also that they are doing so in a piecemeal way. In fact, overall European military spending is not that low. In 2020, for example, Europe collectively spent $378 billion on defense (roughly half of total U.S. defense spending). Yet, different strategic cultures and competing defense industries have led European governments to prioritize national solutions at the expense of collective projects. As recently underlined by the European Defense Agency, EU countries conducted only 11 percent of their total equipment procurement in a European framework in 2020. This share is well below the 25 percent share reached in 2011 and far short of the commitment member states made in 2017 to reach 35 percent. + +This lack of joint procurement has resulted in a fragmented defense landscape. European armed forces suffer major redundancies, with 29 different types of destroyers, 17 types of main battle tanks, and 20 types of fighter planes, as compared to four, one, and six, respectively, for the United States. Some European countries have managed to develop joint platforms in the past, such as the A400M military transport aircraft, the Eurofighter combat aircraft, and the Tiger attack helicopter. But even these collaborative programs have not necessarily led to a rationalization of European capabilities. For instance, because of diverging operational requirements, the Tiger helicopter has been developed in four different models. + +The war in Ukraine has revealed another limitation of the European defense industrial base: the attrition of its military industrial capacity. Decades of declining defense budgets have led European countries to sacrifice scale for efficiency. As a result, they have struggled to respond to Ukraine’s needs due to limited stockpiles and slow production capacities. European defense industries are also facing vulnerable supply chains, showcased by the Covid-19 pandemic, with a growing dependence on critical raw materials from international sources, including China, for certain sectors, as NATO secretary general Jens Stoltenberg cautioned at the Madrid summit. + +> This lack of joint procurement has resulted in a fragmented defense landscape. European armed forces suffer major redundancies, with 29 different types of destroyers, 17 types of main battle tanks, and 20 types of fighter planes, as compared to four, one, and six, respectively, for the United States. + +#### No Clear Political Consensus + +There are major political obstacles to rationalizing European defense. What should amount to a largely practical and pragmatic effort often descends into an ideological squabble over “strategic autonomy” or national sovereignty. Bureaucratic turf wars erupt between ministries of defense, NATO, and the European Union over roles and responsibilities. National defense industries also each have their privileged place within national capitals and push for their interests, which are often at odds with creating a more integrated European defense landscape. + +The United States can also play an obstructive role. Many European countries are reliant on U.S. security guarantees, giving the United States tremendous influence over the direction of European security. The United States is often a vocal opponent of European defense industrial initiatives focused on integration, as they benefit European companies to the detriment of the U.S. defense industry. Moreover, the United States has opposed EU defense efforts, fearing that NATO, and therefore the United States, would lose its pride of place in the European security architecture. This has led to a recitation by many in the United States that there should be “no duplication” of NATO by the European Union. Yet concerns over “duplication” can be treated so broadly as to risk erasing any role for the European Union in defense when it in fact can play a crucial role in fostering integration, mobilizing resources, and coordinating investments. + +There are also clear strategic differences within Europe. European ambitions on security and defense have often been hampered by political debates surrounding notions of European “strategic autonomy” or “sovereignty.” These often passionate discussions reveal that European states disagree on the urgency for Europe to become capable of defending itself alone. There is a looming prospect of a future U.S. administration returning to an “America First” policy that relegates European security and multilateral institutions such as NATO. Paradoxically, the leadership position assumed by the United States since the beginning of the war in Ukraine has weakened the movement toward more European autonomy. + +These disputes have resulted in a Europe which still relies too much on Washington to ensure its security and defense. In a recent study called the European Sovereignty Index, the European Council on Foreign Relations underlines that “the state of European security and defense sovereignty leaves much to be desired, especially in countries seeing U.S. security guarantees as their “main form of life insurance.” + + +### A Blueprint for the Next Decade + +These challenges to transforming European defense can be overcome. The level of ambition laid out in recent strategic documents, such as the European Union’s “Strategic Compass” and NATO’s new strategic concept, provides the requisite conceptual foundation. Practically speaking, this begins with following through on the defense spending pledges already made, but long-term success will require an ambitious vision to rationalize European defense, streamline its many national and intergovernmental processes, eliminate redundancies, and maximize efficiency. If Europe fails to do so, it will not get full value for its investments. Charting a few key lines of effort is a useful place to start. + +#### Toward Joint Planning in Europe + +There are two levels of defense planning in Europe: national and multinational. At the national level, countries regularly produce defense strategies, which set out their national priorities for defense investment. At the multinational level, the two main efforts are NATO’s defense planning process (NDPP) and the European Union’s capability development process, which involves several institutions but is led by the European Defence Agency (EDA). Both identify military capability gaps and develop procurement plans to fill them. While there is some degree of synchronization between them — “ensuring the coherence and complementarity of each other’s defence planning processes” has been a goal of EU-NATO cooperation since at least 2016 — it has not been sufficient to prevent the fragmentation and duplication discussed above. + +A new approach that better aligns these processes and emphasizes joint development of capabilities is needed, especially for those most relevant for collective defense. The EDA is currently reviewing its Capability Development Plan, which was last updated in 2018. Promisingly, it will reportedly emphasize high-intensity warfighting scenarios and include guidance on working with NATO. This is notable, as the next NDPP cycle will likely begin next year now that the political guidance from the new strategic concept has been set. This moment of simultaneous review represents an opportunity. Although existing EU-NATO formats already endeavor to “ensure the coherence of output” between the two processes by exchanging information, coordination could be more proactive, perhaps even creating mechanisms for jointly identifying potential projects, in conversation with national ministries and defense industries. + +#### Strengthening Europe’s Defense Industrial Base + +To sustain an ambitious investment strategy, Europe needs to take a more strategic approach to its defense industrial base. The challenges in sustaining military assistance to Ukraine have shown why European force planning should drive the development of its industrial base, for example, to ensure sufficient stockpiles of weapons and spare parts. This should also include ramping up limited defense manufacturing capacities. In the short term, Europeans could mobilize their civilian industry to help support the defense sector; France aims to do so by emulating the U.S. Defense Priorities and Allocations System Program. In the medium term, the European Union should invest in advanced manufacturing, from robotics to nanotechnologies to advanced materials technologies. In the longer term, they should also encourage industrial alliances or even integration to rationalize production capacity, as France and the United Kingdom have pursued in the missile sector. + +European states also need to strengthen supply chain resilience. First, they should seek to diversify their supply of raw materials and components by collectively identifying alternative suppliers or substitutions. Second, the European Union should invest in domestic production of critical components, starting with semiconductors. In February 2022, the European Commission announced the European Chips Act, which aims to substantially increase chip production. Finally, the European Union should consider joint purchasing for the most critical raw materials to help create collective strategic reserves, which it already does for gas. Facing similar challenges, the United States and European Union should deepen their coordination on supply chain resilience using recent transatlantic working groups such as the U.S.-EU Trade and Technology Council and the U.S.-EU dialogue on security and defense. + +> The challenges in sustaining military assistance to Ukraine have shown why European force planning should drive the development of its industrial base, for example, to ensure sufficient stockpiles of weapons and spare parts. + +Transatlantic coordination is also required to build the strong and sustainable defense and technology industrial base needed to underpin the long-term strategic advantage of NATO and the European Union. There are several fissures in transatlantic defense industrial policy that have the potential to, as one recent CEPS study puts it, “sorely undermine transatlantic unity.” These include Europe’s tendency to excessively buy non-European equipment, the controversial issue of non-EU third-party participation in joint EU capability initiatives, and export, technology, and intellectual property controls on both sides of the Atlantic that risk creating competing, rather than complementary, industrial bases. These potential pitfalls need to be addressed if the Euro-Atlantic community is to maintain the open, thriving ecosystem of technology and innovation it needs to stay competitive. + +#### Catalyzing Joint Development and Procurement + +While many European countries have decided to raise defense spending in response to Russia’s war against Ukraine, there are concerns that this will not translate into coordinated and coherent investments. This is where the European Union has an instrumental role to play in encouraging its members to jointly develop and procure defense capabilities. Fortunately, EU countries have already created promising tools to foster such a collaborative approach, such as the Permanent Structured Cooperation and the European Defense Fund, which has been allocated €8 billion ($8.3 billion) for 2021 to 2027. The European Commission has also recently announced an even more innovative program of €500 million ($507 million) to incentivize EU members to pursue joint procurement. + +EU countries should not only fully leverage these tools but also expand their financial scope given the huge needs going forward. The €8 billion defense fund and the €500 million joint procurement program are a good start but are clearly insufficient to answer the immense investment needs. Furthermore, the joint procurement program still needs to get off the ground. Following the model of the €750 billion ($760.5 billion) Next Generation EU recovery plan, the European Commission could borrow on capital markets to either support collaborative investments or pursue joint procurements on behalf of member states. NATO’s common funding and new innovation fund could also contribute these much-needed investments. Increasing NATO’s common funding was discussed in the leadup to the Madrid summit but had limited follow-through in the strategic concept. + +These coordinated investments should focus on high-end capabilities, building on existing projects such as a 15-nation effort to develop a new ground-based air defense system by 2028, the French-German-Spanish next-generation fighter program, and the Italian-led project to develop a new armored fighting vehicle. + +#### Thinking Creatively to Pool and Share Forces + +Another potential avenue for rationalizing European defense is via initiatives that pool and share national forces under a multinational command. A few examples can already be found in Europe. One of the oldest is the Benelux naval integration, under which the Belgian and Dutch navies operate under the commander of the Royal Netherlands Navy, who receives the title of Admiral Benelux. Another example is the European Air Transport Command (EATC), a program under which seven Western European countries pool military air mobility assets for air transport and air-to-air refueling under a single joint command. The new Franco-German tactical air transport squadron will fly missions for the EATC. Countries benefit from these arrangements in situations where their individual capacities are insufficient to meet some threshold for reliable operational success. These initiatives also increase interoperability through joint training and exercising. + +Such efforts may seem niche and technical, but in fact represent a symbolic concession in a core area of national sovereignty. In these cases, as when they commit troops to NATO operations, nations decide if the security benefits outweigh any political costs. It should be noted that this concept is not new: the European Union has championed “pooling and sharing” since 2012, while NATO has focused on “Smart Defence” to achieve “greater security, for less money, by working together with more flexibility.” Both initiatives have had mixed results. Nonetheless, European countries should make a concerted effort, perhaps led by defense planners at the NATO or EU level, to explore new initiatives along these lines. Any new arrangements could constitute a new tool in NATO’s tool kit. In order to make this happen, European governments may have to make the strategic case to their own citizens that a trade-off in terms of sovereignty is worth the associated cost savings and the likely increase of overall European security. + + +### A Push from Washington? + +If European defense is to be rationalized along some of these lines, the United States will need to play a critical role. For years, the United States has led a cadre of European nations that are critical or at least skeptical of EU ambitions to increase its capacity as a defense actor. The main fear has been the “Three Ds” of “decoupling, duplication, and discrimination.” Essentially, the United States and others are worried that unfettered EU defense and security initiatives could siphon resources and attention away from NATO. This fear of decoupling and duplication still manifests in many major documents, such as the most recent progress report on EU-NATO cooperation or the new NATO strategic concept. The fear of discrimination is present in debates about divergence in the transatlantic industrial base and the alleged exclusion of third parties from joint capability and procurement initiatives. It is time to rethink some of these assumptions. + +Most would agree that it is in the U.S. interest for Europe to be able to defend itself to the greatest degree possible without a large U.S. military commitment. As the late Madeline Albright wrote: “Our interest is clear: we want a Europe that can act. We want a Europe with modern, flexible military forces that are capable of putting out fires in Europe’s backyard and working with us through the alliance to defend our common interests. European efforts to do more for Europe’s own defence make it easier, not harder, for us to remain engaged.” America’s recipe for getting this done was to focus on “enhancing the practical capabilities Europe brings to our alliance.” + +Yet this focus on the practical over the political led to a paradox in European defense: progress on practical capabilities could only go so far in the absence of political support for their development and use. The capability gaps, fragmentation, and inefficiencies in European defense are as much due to political imperatives — to avoid the “Three Ds” — as they are down to insufficient investment, modernization, and institutional initiatives. + +It is therefore time for the Biden administration, and future administrations, to find a new recipe for transforming European defense to achieve Albright’s goal of “a Europe that can act.” Several questions can serve as a starting point. First, how can the United States help Europe generate the practical capabilities and political support it needs to defend itself? This could be done through several avenues including NATO, the European Union, and mini- and bilateral frameworks, but it must be coordinated and consistent. Second, how can a balance be struck between the risk of duplication versus the risk of fragmentation and capability gaps? Third, what is the role of the European Union in stepping up as an engine of joint procurement for the most vital and expensive systems and high-end capabilities? + + +### A Stronger, More Capable European Defense + +The United States spent the last decade urging European states to spend 2 percent of their GDP on defense. Now that European partners are spending more, the United States should become the most forceful advocate for transforming European defense. The United States’ role as the key guarantor of European security puts it in a privileged position. This is especially true for the most vulnerable NATO allies on the eastern flank, all of whom are also EU members and therefore in a position to block or water down EU initiatives. It follows that Washington’s support for EU defense proposals can play a major role in determining their fate. After years of urging European allies to spend more on defense, a new diplomatic initiative is needed that does not waste the urgency that Russia’s war in Ukraine created. + +Washington should encourage European countries to leverage the European Union, NATO, and other, flexible formats to rationalize the fragmented defense and industrial landscape by investing together in modern capabilities, building a strong and resilient industrial base, and thinking creatively to pool and share forces. To make this happen, the United States must provide practical and political support, including through encouraging the European Union’s ambitions and assuring eastern allies that those ambitions do not reduce U.S. commitment to their defense through NATO — which, it should be noted, the European Union’s own strategic compass still recognizes as the “foundation of collective defence for its [EU] members.” When combined with some of the initiatives proposed above, this active support from the United States could kickstart a new era of European defense and achieve the shared goal of “a stronger and more capable European defense, that contributes positively to transatlantic and global security.” + +--- + +__Max Bergmann__ is the director of the Europe Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. + +__Pierre Morcos__ is a visiting fellow with the CSIS Europe, Russia, and Eurasia Program. + +__Colin Wall__ is a research associate with the CSIS Europe, Russia, and Eurasia Program. + +__Sean Monaghan__ is a visiting fellow with the CSIS Europe, Russia, and Eurasia Program.