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Boeing is latest company to suffer from Russian sanctions

Boeing problems are piling up. Credit: Getty

May 6, 2024 - 1:00pm

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

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

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

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

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

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

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

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

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


Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics

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Aidan Twomey
Aidan Twomey
12 days ago

Oh no, I can’t buy any gallium, whatever will I do? Mr Pilkington has jumped the shark in this one, creating ever bigger bogeymen to call us to let bad regimes do whatever they want in return for whatever little prosperity gallium gives us.

Jeff Cunningham
Jeff Cunningham
12 days ago
Reply to  Aidan Twomey

You apparently have no idea all the devices you possess which would not work without the presence of minute amounts of gallium in them. It’s one of the basic doping elements in high-speed semiconductor materials that many chips in your phone and computers rely upon. Do some research.

Aidan Twomey
Aidan Twomey
12 days ago

None of my books have gallium in them, actually. As for my devices, I couldn’t give a fig if I never got another one, ever.
There’s more to life than semiconductors, do some research.

Jeff Cunningham
Jeff Cunningham
12 days ago
Reply to  Aidan Twomey

Tell that to your hospital or doctor’s office or internet connection next time you order a book off Amazon. You may not be able to see past your doorstep but for the rest of the world to keep you alive, gallium is one of those things that has become somewhat important.

Aidan Twomey
Aidan Twomey
12 days ago

Meh. I think you rather over-estimate my doctor’s office. Maybe you are not familiar with the NHS and its track record of keeping people alive?
Gallium schmallium. I go to the library, I get books. Devices are nice and all that, but hardly enough to make me panic and realise that Mr Xi should just do whatever he thinks best.

Peter B
Peter B
11 days ago

The IEEE is a pretty authoritative source (by and for professional electronics engineers):
https://spectrum.ieee.org/gallium-and-germanium
No shortage of gallium or germanium yet.
And there are plenty of other sources of these elements. Just as for rare earth metals. The West has been lazy and careless in allowing this supply bottleneck to happen. This is a great opportunity to correct that.
This whole piece is yet more scaremongering BS.

B Emery
B Emery
11 days ago
Reply to  Peter B

There isn’t a shortage yet. That is quite beside the point. The reaction to the initial export controls was pretty flat:
‘While the initial market reaction to the restrictions on gallium and germanium was moot, China’s action on graphite poses a significant risk to the stability of electric vehicle supply chains and highlights the fragility of dependence on critical materials from China.3 This article explores developments surrounding the announcement of restrictions, as well as the role of gallium, germanium and graphite in U.S. supply chains, and potential implications of China’s export restrictions’
But in the longer term there are expected to be implications, how severe those implications are depends on whether the us can ramp up it’s own production and how tight the Chinese decide to make their export controls:
Sectors affected:
‘Over the medium term, the export controls on gallium and germanium could affect a number of sectors including telecommunications and power electronics, given the importance of these materials for a broad array of microchips and devices integral to 4G, 5G and other wireless networks, as well as for inverters, converters and other power regulators and control equipment for renewable energy and energy storage systems’
Disruption dependent on how tight the controls get and on us production increase:
‘Depending on their implementation, these recent measures have the potential to disrupt global supply chains, hamstring critical industries, and encumber electrification and decarbonization efforts. Moreover, China has the ability to expand restrictions beyond those in place or announced currently, most notably in the domain of rare earth materials. While we believe this is unlikely, it nevertheless poses a major threat and the ramifications of such a development would be severe…..
. U.S. domestic production of germanium, gallium and graphite is likely to increase over the medium to longer-term, given this is a policy priority and government incentives are in place to encourage growth; however, because of the amount of time and capital needed to bring new capacity online, a short-term supply deficit may emerge’

https://www.fticonsulting.com/insights/articles/chinas-export-controls-critical-minerals-gallium-germanium-graphite

Peter B
Peter B
11 days ago
Reply to  B Emery

Of course the US can ramp up.
None of this stuff is difficult.
We had germanium transistors in the 1950s to 1970s before silicon took over. The US wasn’t sourcing its germanium from China back then.
It’s a solved – and solvable – problem.
I’ve lived electronics for decades. I remember germanium transistors. The idea that any of this is difficult or prohibitively expensive is just ridiculous. Clueless commentators banging on about stuff they don’t understand. Textbook Dunning-Kruger.

B Emery
B Emery
11 days ago
Reply to  Peter B

One day I’ll understand what ‘text book dunning – kruger’ means.
Nobody is saying it is difficult or necessarily prohibitively expensive, but that depends on a lot of things.
US can ramp up but at what speed and how tight the market gets while it does so is the question.
We already have inflation and supply chains in disarray from covid, ukraine and now the Israel/ gaza conflict, do you really think messing about with trade any more at the moment is a good idea?
Did you miss the part in the article that says if China tightens its various export controls on rare earth’s it could be a ‘major threat’?

Peter B
Peter B
11 days ago
Reply to  B Emery

Dunning-Kruger effect – when people have learned just enough to think themselves experts and over-estimate their understanding. If they keep studying and learning and improve their understanding, they find that their confidence in their own judgement actually drops as they start to appreciate just how much they don’t know.
Mr. Pilkington knows just enough to see there might be a problem, but not enough to understand how serious (or not) it might be. And apparently not enough to realise he doesn’t understand this.
This effect is astonishingly common once you’re aware of it. I’m sure it’s present in some of my UnHerd comments !
This is precisely why politicians and media commentators who aren’t scientists are able to claim that “the science is decided” when the real scientists know that today’s science is merely the best explanation of the facts we have today and might change in the future.
Yes, the rare earth stuff matters more. But read the history and you’ll find that the US used to have a lock on rare earth production. Until they decided that being “clean and green” was more important and that they’d far rather outsource the dirty work to China who would also do it cheaper.
They’d done the same with semiconductor chip manufacturing going to Taiwan.
Now you and I might imagine that they’d run the cost-benefit analysis over this and factored in the cost of defending Taiwan from the CPP when this happened 20-30 years ago. Which is what you should do if you put all your chips on Taiwan. But it’s not clear they actually did !
Churchill put it best when he said that the Americans would finally do the right thing – but only after they’d exhausted all the other possibilities.
They’re finally doing the right thing.

B Emery
B Emery
11 days ago
Reply to  Peter B

Thank you for explaining that I haven’t really come across that before, apart from on here and apart from hearing the phrase ‘the more you see the less you know’, which I like.

‘This effect is astonishingly common once you’re aware of it. I’m sure it’s present in some of my UnHerd comments !’
In mine too 🙂

‘Now you and I might imagine that they’d run the cost-benefit analysis over this and factored in the cost of defending Taiwan from the CPP when this happened 20-30 years ago.’
Didn’t they do maths back then either? Do you think they are getting better at it yet?

Well I hope they are doing the right thing, I’m unsure as to their ability to ramp up production sufficiently. It sounds like nobody has the answer as to how that will go yet though to be fair. I live in hope that this time they have their maths correct.

Peter B
Peter B
11 days ago
Reply to  B Emery

When the US actually put their mind to it they can do stuff incredibly fast and well (as in the Space Race and the Liberty ships in WWII). [Obviously they can also screw things up incredibly fast too !]. The UK can do this too. But we’re all badly out of practice.
I’d say that the Chinese are far more practiced and far less distracted by other stuff (like ESG, DEI and all the sort of overhead). But ultimately less capable.
The West is free to indulge in laziness and luxury beliefs. Not really an option in China today. Our productivity would rocket in a real crisis if we cleared the decks of all this junk. I’m told exactly this happened in the MoD and naval dockyards during the Falklands War.

isabel wilkinson
isabel wilkinson
10 days ago
Reply to  Aidan Twomey

ıĝyÄ„tģ⁷8Ä„Ä”9

Rob N
Rob N
12 days ago

Article like this is enough to make one wonder if our elite are not just stupid but rather proactively destroying their own countries.

Julian Farrows
Julian Farrows
12 days ago
Reply to  Rob N

They are. It’s called ‘managed decline.’

Alex Lekas
Alex Lekas
12 days ago

The sanctions seem to have harmed everyone except Russia. There was a statement from the IMF recently that the Russian economy would grow at a greater pace than most European nations. That may well apply to the US, too, given how much economic news here is clouded in smoke and word games.

Samir Iker
Samir Iker
12 days ago
Reply to  Alex Lekas

I think behind the scenes, the sanctions have hurt the higher end, tech driven segments of the Russian economy.

What the West seem to have not anticipate, is the importance of lower tech, basic industries and agriculture – both in a war economy and in helping an economy under heavy sanctions – and that Russia is far stronger in these than superficial GDP calculations might hint at.

Martin M
Martin M
12 days ago
Reply to  Alex Lekas

My suggestion for harming Russia’s economy is to provide Ukraine with enough long range missiles to hit all of Russia’s oil production facilities. Russia can’t sell oil it can’t pump.

David L
David L
11 days ago
Reply to  Alex Lekas

Unlike the west, Russia and China don’t base every decision policy decision on sanctimony.

Jeremy Bray
Jeremy Bray
12 days ago

Do we elect our smartest and most well informed and far sighted people to high office or even have such people in the higher ranks of our civil service? Demonstrably not. Certainly few politicians come across as having much intelligence or common sense. How can we attract better politicians? How do we improve our civil service?

Martin M
Martin M
12 days ago

If the senior management of Boeing thought it was a good idea to buy parts from Russia, then they are clearly retarded.

Peter B
Peter B
11 days ago
Reply to  Martin M

All possible doubt about the incompetence of Boeing’s senior management was removed about a decade ago.
You can’t extrapolate a general case from Boeing’s incompetence. Indeed, anyone who does is arguably just as retarded as the Boeing leaders.
If the author had made a case that all airplane manufacturers were affected, then there might be something here.
Typical lazy “journalism”.

Martin M
Martin M
11 days ago
Reply to  Peter B

I appreciate the position is different with China, but why would the West buy anything at all from Russia? I mean, even buying gas from it proved problematic. Luckily the supply pipeline had the misfortune to explode.

John Galt Was Correct
John Galt Was Correct
11 days ago
Reply to  Martin M

You know absolutely nothing about the manufacturing of aircraft or their components. Zero.

Peter B
Peter B
11 days ago

You actually know nothing about what he knows.
Your comment simply reveals your own prejudices and ignorance.
If you had any sense, you’d follow Dennis Thatcher’s advice on when to keep silent.

Chipoko
Chipoko
11 days ago

Why launch a personal attack against Martin M? I don’t ‘get’ this at all.

Don Charles
Don Charles
9 days ago
Reply to  Chipoko

Martin and Chipoko you are both a local nationalist and isolationist who thinks the world should revolve around their narrow idea of the world. Globalization and economic interdependerrence and cooperation couple with rule based international intergovernmental organizations has been the bedrock of international relationships upon which American, European, and world peace and prosperity in the aftermath of ww2 toas built.

Dismantling now because self delusion, ego, pride, over confident, nationalistic tendencies, promotion of war, sanctions, xenophobic policies etc will send us back to the pre 1914s era of war, poverty, disease and people like you will be the first to flee.

I can tell You Martin knows nothing about economics, international relations and it’s seem to me your knowledge of the world is based on conspiracy theories and listening and reading mainstream news. Where ever the media drive which are mostly false you follow.

If you have real knowledge your view of the world will change and this view have is already affecting you due to the inflation and if allow to flourish you will lose your job and be out in streets protesting. Learn one thing:

In this world, we need each other no one country can exist on it own without some form of dependency on each others.

Martin M
Martin M
9 days ago
Reply to  Don Charles

I take on board everything you say about international relations, but Russia is a pariah state, and rightly so. They have been for the last 100 years, and I’m pretty certain they will be for the next 100 years.

Martin M
Martin M
11 days ago

So, is it your point that nobody else in the world can supply these “heat exchangers”? That doesn’t seem plausible. If somebody else can supply them, wouldn’t you ALWAYS buy from that other party in preference to Russia?

B Emery
B Emery
11 days ago
Reply to  Martin M

Are you sure that just wasn’t the cheapest place to buy them from? Which, as a business decision would actually be a good decision, not a retarded one.
If you remember western intelligence apparently didn’t see this russian invasion business coming, so they would have had no need to change supplier at the time because people weren’t expecting it.

Peter B
Peter B
11 days ago
Reply to  B Emery

Correction – US and UK intelligence *did* call the Ukraine invasion. You’ve got this totally wrong.

B Emery
B Emery
11 days ago
Reply to  Peter B

Fair enough. Worded better, some people in western governments didn’t believe the invasion would happen, they had intelligence that there were troops on the border, but apparently our intelligence services found it hard to convince people that russia would actually invade:
“Tony Blinken phoned me and told me, ‘Well, it is going to happen this weekend’,” Borrell recalled in a speech months later. “And certainly, two days later, at 5 o’clock in the morning, they started bombing Kyiv. We did not believe that this was going to happen.

“We did not believe that the war was coming,” he said.Many believed Russia would not invade. Wrong.
“This is about intentions,” Freedman said. “No one was questioning the intelligence of what the Russians had around the borders. The question is whether it would be used. The difficulty there is you’re trying to assess someone’s choices, the decisions that may not have been made’ yet.https://www.google.com/amp/s/www.rferl.org/amp/russia-ukraine-invasion-predictions-wrong-intelligence/32275740.html

Point being that most businesses were not ready for it.

Martin M
Martin M
11 days ago
Reply to  B Emery

Whether Russia intended to invade Ukraine at that particular point in time is neither here nor there. Russia is a country that invades other countries regularly enough, and will no doubt continue to do so. Buying vital aircraft components from it makes no sense. It is poor management of sovereign risk.

Martin M
Martin M
11 days ago
Reply to  B Emery

Even if the Russian ones were the cheapest, the “low cost over all other considerations” supply model doesn’t seem sensible when one is talking about commercial airliners. Still, things do tend to fall off Boeing airliners, so you may have a point. In any event, in the modern world of “just in time” supply, buying from a country run by a warmongering tyrant doesn’t make a lot of sense to me.

B Emery
B Emery
10 days ago
Reply to  Martin M

Fair point on the parts falling off. I’m not sure I’d fancy flying over the Atlantic in a plane made from the cheapest parts either to be fair.

Peter B
Peter B
11 days ago

I’m quite sure heat exchangers can be sourced from multiple countries and companies.
If Boeing is incompetent enough (and there’s plenty of evidence that it is at the moment) not to have an alternative supplier for a sub-component from Russia 2 years after Russia invaded Ukraine, frankly they don’t deserve to survive.
So tell me – does Airbus have the same issue ?
How about this:
“It is still unclear what impact this is having on Western industry”
Because it’s having very little. Gallium and germanium are not the most critical elements required for making ICs (silicon chips). Nor is there any actual evidence of this causing problems.
I doubt Mr. Pilkington actually has much idea about heat exchangers, silicon chips, or any engineering and manufacturing at all.
Just more of the usual scaremongering garbage from this author.
Perhaps he should stick to writing about things he actually knows about and understands. Whatever that might be !