Because of that complexity, the corporate minimum tax has faced substantial skepticism. It is less efficient than simply eliminating deductions or raising the corporate tax rate and could open the door for companies to find new ways to make their income appear lower to reduce their tax bills.

Similar versions of the idea have been floated by Mr. Biden during his presidential campaign and by Senator Elizabeth Warren, Democrat of Massachusetts. They have been promoted as a way to restore fairness to a tax system that has allowed major corporations to dramatically lower their tax bills through deductions and other accounting measures.

According to an early estimate from the nonpartisan Joint Committee on Taxation, the tax would most likely apply to about 150 companies annually, and the bulk of them would be manufacturers. That spurred an outcry from manufacturing companies and Republicans, who have been opposed to any policies that scale back the tax cuts that they enacted five years ago.

Although many Democrats acknowledge that the corporate minimum tax was not their first choice of tax hikes, they have embraced it as a political winner. Senator Ron Wyden of Oregon, the chairman of the Senate Finance Committee, shared Joint Committee on Taxation data on Thursday indicating that in 2019, about 100 to 125 corporations reported financial statement income greater than $1 billion, yet their effective tax rates were lower than 5 percent. The average income reported on financial statements to shareholders was nearly $9 billion, but they paid an average effective tax rate of just 1.1 percent.

“Companies are paying rock-bottom rates while reporting record profits to their shareholders,” Mr. Wyden said.

told the Senate Finance Committee last year. “This behavioral response poses serious risks for financial accounting and the capital markets.”

Other opponents of the new tax have expressed concerns that it would give more control over the U.S. tax base to the Financial Accounting Standards Board, an independent organization that sets accounting rules.

“The potential politicization of the F.A.S.B. will likely lead to lower-quality financial accounting standards and lower-quality financial accounting earnings,” Ms. Hanlon and Jeffrey L. Hoopes, a University of North Carolina professor, wrote in a letter to members of Congress last year that was signed by more than 260 accounting academics.

the chief economist of the manufacturing association. “Arizona’s manufacturing voters are clearly saying that this tax will hurt our economy.”

Ms. Sinema has expressed opposition to increasing tax rates and had reservations about a proposal to scale back the special tax treatment that hedge fund managers and private equity executives receive for “carried interest.” Democrats scrapped the proposal at her urging.

When an earlier version of a corporate minimum tax was proposed last October, Ms. Sinema issued an approving statement.

“This proposal represents a common sense step toward ensuring that highly profitable corporations — which sometimes can avoid the current corporate tax rate — pay a reasonable minimum corporate tax on their profits, just as everyday Arizonans and Arizona small businesses do,” she said. In announcing that she would back an amended version of the climate and tax bill on Thursday, Ms. Sinema noted that it would “protect advanced manufacturing.”

That won plaudits from business groups on Friday.

“Taxing capital expenditures — investments in new buildings, factories, equipment, etc. — is one of the most economically destructive ways you can raise taxes,” Neil Bradley, chief policy officer of the U.S. Chamber of Commerce, said in a statement. He added, “While we look forward to reviewing the new proposed bill, Senator Sinema deserves credit for recognizing this and fighting for changes.”

Emily Cochrane contributed reporting.

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Biden Administration’s Bid to Cap Russia Oil Prices Faces Resistance

WASHINGTON — The Biden administration’s push to form an international buyers’ cartel to cap the price of Russian oil is facing resistance amid private sector concerns that it cannot be reliably enforced, posing a challenge for the U.S.-led effort to drain President Vladimir V. Putin’s war chest and stabilize global energy prices.

The price cap has been a top priority of Treasury Secretary Janet L. Yellen, who has been trying to head off another spike in global oil costs at the end of the year. The Biden administration fears that the combination of a European Union embargo on Russian oil imports and a ban on the insurance and financing of Russian oil shipments will send prices soaring by taking millions of barrels of that oil off the market.

But the untested concept has drawn skepticism from energy experts and, in particular, the maritime insurance sector, which facilitates global oil shipments and is key to making the proposal work. Under the plan, it would be legal for them to grant insurance for oil cargo only if it was being sold at or below a certain price.

Mike Salthouse, global claims director at The North of England P&I Association Limited, a leading global marine insurer. “If you have sophisticated state actors wanting to deceive people, it’s very easy to do.”

He added: “We’ve said it won’t work. We’ve explained to everybody why.”

That has not deterred Ms. Yellen and her top aides, who have been crisscrossing the globe to make their case with international counterparts, banks and insurers that an oil price cap can — and must — work at a moment of rapid inflation and the risk of recession.

“At a time of global anxiety over high prices, a price cap on Russian oil is one of the most powerful tools we have to address inflation by preventing future spikes in energy costs,” Ms. Yellen said in July.

The Biden administration is trying to mitigate fallout from sanctions adopted by the European Union in June, which would ban imports of Russian oil and the financing and insuring of Russian oil exports by year’s end. Britain was expected to enact a similar ban but has not yet done so.

not solve the world’s oil supply problems. European officials, who have been skeptical, continue to say they are analyzing its viability.

restricted natural gas flows to parts of Europe in retaliation for sanctions, would curb oil exports because of their importance to its economy.

senior fellow at the Atlantic Council who works in the financial services industry, said of Russia’s cooperation with a price cap. “If that were the case, he wouldn’t have invaded Ukraine in the first place.”

But proponents believe that if the European Union bans insurance transactions, an oil price cap may be the best chance to mitigate the economic fallout.

John E. Smith, former director of the foreign assets control unit, said the key was ensuring that financial services firms and maritime insurers were not responsible for vetting every oil transaction, as well as providing guidance on complying with the sanctions.

“The question is will enough jurisdictions agree on the details to move this forward,” said Mr. Smith, who is now co-head of Morrison & Foerster’s national security practice. “If they do, it could be a win for everyone but Russia.”

Matina Stevis-Gridneff contributed reporting from Brussels.

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U.S. to sell additional 20 million barrels of oil from strategic reserve

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An oil storage tank and crude oil pipeline equipment is seen during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson

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WASHINGTON, July 26 (Reuters) – The Biden administration on Tuesday said it will sell an additional 20 million barrels of oil from the Strategic Petroleum Reserve as part of a previous plan to tap the facility to calm oil prices boosted by Russia’s invasion of Ukraine and as demand recovers from the pandemic.

The administration said in late March it would release a record 1 million barrels of per day of oil for six months from the SPR, held in hollowed-out salt caverns on the coasts of Louisiana and Texas.

The United States has already sold 125 million barrels from the reserve with nearly 70 million barrels already delivered to purchasers, a senior administration official told reporters.

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The SPR releases have been a “supply lifeline” to oil and refining companies as the industry continues to get oil production back online after declines during the peak of the COVID-19 pandemic, the official said.

The U.S. Energy Information Administration, the statistics arm of the Energy Department, said this month that U.S. oil output will rise to more than 11.9 million barrels per day (bpd) in 2022 and to nearly 12.8 million bpd in 2023, from about 11.2 million bpd in 2021. That compares with a record near 12.3 million bpd in 2019.

The United States will take bids in autumn to begin the process of buying back 60 million barrels of crude for reserve, a first step in replenishing the stockpile after the 180 million barrel release, the Department of Energy said in May. read more

The department will soon propose a rule to help put oil back into the SPR, where levels have sunk to 475.5 million barrels, the lowest since June 1985, by allowing it to enter forward contracts to purchase oil in future years at fixed, preset prices.

“What it means in practice is that producers would have more certainty about future demand for their product, and that would encourage investment in production today,” a senior U.S. official told reporters.

Oil purchases to replenish the SPR will not be competing with demand for oil in the near term as they will likely take place after fiscal year 2023, an official told reporters.

A U.S. Treasury Department analysis showed that the SPR releases, along with coordinated releases from international partners, have reduced gasoline prices at the pump by as much as 40 cents per gallon, compared to what they otherwise would have been.

International oil prices fell on Tuesday on the SPR sale and on consumer concerns about inflation and interest rates. Brent crude futures settled at $104.40 a barrel, down 75 cents.

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Reporting by Timothy Gardner, Doina Chiacu and Jeff Mason; Editing by Paul Simao, Andrea Ricci and Marguerita Choy

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U.S. issues sanctions related to Iran oil

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Model of petrol pump is seen in front of U.S. and Iran flag colors in this illustration taken March 25, 2022. REUTERS/Dado Ruvic/Illustration

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WASHINGTON, July 6 (Reuters) – The U.S. Treasury Department on Wednesday issued fresh sanctions related to Iranian oil, the department’s website showed.

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Reporting by Kanishka Singh in Washington; Editing by Doina Chiacu

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Russia slides towards default as payment deadline expires

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The clock on Spasskaya tower showing the time at noon, is pictured next to Moscow?s Kremlin, and St. Basil?s Cathedral, March 31, 2020. REUTERS/Maxim Shemetov

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  • Grace period runs out on $100 mln interest payment due May 27
  • Some Taiwanese bondholders did not received payment on Monday – sources
  • Russia says it has funds to pay, sanctions are to blame
  • Lapsed U.S. waiver, EU sanctions on NSD scupper Russia payments
  • CDS committee already declared ‘credit event’ occurred

LONDON, June 27 (Reuters) – Russia looked set for its first sovereign default in decades as some bondholders said they had not received overdue interest on Monday following the expiry of a key payment deadline a day earlier.

Russia has struggled to keep up payments on $40 billion of outstanding bonds since its invasion of Ukraine on Feb. 24, as sweeping sanctions have effectively cut the country off from the global financial system and rendered its assets untouchable to many investors.

The Kremlin has repeatedly said there are no grounds for Russia to default but it is unable to send money to bondholders because of sanctions, accusing the West of trying to drive it into an artificial default.

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Russia’s efforts to avoid what would be its first major default on international bonds since the Bolshevik revolution more than a century ago hit a insurmountable roadblock in late May when the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) effectively blocked Moscow from making payments.

“Since March we thought that a Russian default is probably inevitable, and the question was just when,” Dennis Hranitzky, head of sovereign litigation at law firm Quinn Emanuel, told Reuters. “OFAC has intervened to answer that question for us, and the default is now upon us.”

While a formal default would be largely symbolic given Russia cannot borrow internationally at the moment and doesn’t need to thanks to plentiful oil and gas export revenues, the stigma would probably raise its borrowing costs in future.

The payments in question are $100 million in interest on two bonds, one denominated in U.S. dollars and another in euros , Russia was due to pay on May 27. The payments had a grace period of 30 days, which expired on Sunday.

Russia’s finance ministry said it made the payments to its onshore National Settlement Depository (NSD) in euros and dollars, adding it has fulfilled obligations.

Some Taiwanese holders of the bonds had not received payments on Monday, sources told Reuters. read more

For many bondholders, not receiving the money owed in time into their accounts constitutes a default.

With no exact deadline specified in the prospectus, lawyers say Russia might have until the end of the following business day to pay the bondholders.

SMALL PRINT

The legal situation surrounding the bonds looks complex.

Russia’s bonds have been issued with an unusual variety of terms, and an increasing level of ambiguities for those sold more recently, when Moscow was already facing sanctions over its annexation of Crimea in 2014 and a poisoning incident in Britain in 2018.

Rodrigo Olivares-Caminal, chair in banking and finance law at Queen Mary University in London, said clarity was needed on what constituted a discharge for Russia on its obligation, or the difference between receiving and recovering payments.

“All these issues are subject to interpretation by a court of law, but Russia has not waived any of its sovereign immunity and has not submitted to the jurisdiction of any court in any of the two prospectuses,” Olivares-Caminal told Reuters.

In some ways, Russia is in default already.

A committee on derivatives has ruled a “credit event” had occurred on some of its securities, which triggered a payout on some of Russia’s credit default swaps – instruments used by investors to insure exposure to debt against default. This was triggered by Russia failing to make a $1.9 million payment in accrued interest on a payment that had been due in early April. read more

Until the Ukraine invasion, a sovereign default had seemed unthinkable, with Russia being rated investment grade up to shortly before that point. A default would also be unusual as Moscow has the funds to service its debt.

The OFAC had issued a temporary waiver, known as a general licence 9A, in early March to allow Moscow to keep paying investors. It let it expire on May 25 as Washington tightened sanctions on Russia, effectively cutting off payments to U.S. investors and entities.

The lapsed OFAC licence is not the only obstacle Russia faces as in early June the European Union imposed sanctions on the NSD, Russia’s appointed agent for its Eurobonds. read more

Moscow has scrambled in recent days to find ways of dealing with upcoming payments and avoid a default.

President Vladimir Putin signed a decree last Wednesday to launch temporary procedures and give the government 10 days to choose banks to handle payments under a new scheme, suggesting Russia will consider its debt obligations fulfilled when it pays bondholders in roubles.

“Russia saying it’s complying with obligations under the terms of the bond is not the whole story,” Zia Ullah, partner and head of corporate crime and investigations at law firm Eversheds Sutherland told Reuters.

“If you as an investor are not satisfied, for instance, if you know the money is stuck in an escrow account, which effectively would be the practical impact of what Russia is saying, the answer would be, until you discharge the obligation, you have not satisfied the conditions of the bond.”

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Reporting by Karin Strohecker; Additional reporting by Emily Chan in Taipeh and Sujata Rao in London; Editing by David Holmes, Emelia Sithole-Matarise & Simon Cameron-Moore

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China’s holdings of U.S. Treasuries skid to 12-year low; Japan also cuts holdings

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U.S. and Chinese flags are seen in front of a U.S. dollar banknote featuring American founding father Benjamin Franklin and a China’s yuan banknote featuring late Chinese chairman Mao Zedong in this illustration picture taken May 20, 2019. REUTERS/Jason Lee/Illustration/File Photo

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NEW YORK, June 15 (Reuters) – China’s holdings of U.S Treasuries tumbled in April to their lowest since May 2010, data showed on Wednesday, with Chinese investors likely cutting losses as Treasury prices fell after Federal Reserve officials signaled sizable rate hikes to temper soaring inflation.

Chinese holdings dropped to $1.003 trillion in April, down $36.2 billion from $1.039 trillion the previous month, according to U.S. Treasury Department figures. China’s stock of Treasuries in May 2010 was $843.7 billion, data showed.

The reduction in Treasury holdings may also have been aimed at diversifying China’s foreign exchange holdings, analysts said.

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The Chinese sales contributed to a drop in overall foreign holdings of Treasuries in April that helped propel yields higher. U.S. benchmark 10-year Treasury yields started April with a yield of 2.3895% , and surged roughly 55 basis points to 2.9375% by the end of the month.

Japan’s holdings of U.S. Treasuries fell further in April to their lowest since January 2020, amid a persistent decline in the yen versus the dollar, which may have prompted Japanese investors to sell U.S. assets to benefit from the exchange rate.

Japanese holdings fell to $1.218 trillion in April, from $1.232 trillion in March. Japan remained the largest non-U.S. holder of Treasuries.

Overall, foreign holdings of Treasuries slid to 7.455 trillion, the lowest since April 2021, from $7.613 trillion in March.

On a transaction basis, U.S. Treasuries saw net foreign outflows of $1.152 billion in April, from net new foreign inflows of $48.795 billion in March. This was the first outflow since October 2021.

The Federal Reserve, at its policy meeting in March, raised benchmark interest rates by a quarter of a percentage point.

It lifted rates by 50 bps in May, but at the June policy meeting on Wednesday lifted rates by a hefty 75 bps to stem a disruptive surge in inflation. The Fed also projected a slowing economy and rising unemployment in the months to come. read more

In other asset classes, foreigners sold U.S. equities in April amounting to $7.1 billion, from net outflows of $94.338 billion in March, the largest since at least January 1978, when the Treasury Department started keeping track of this data. Foreign investors have sold stocks for four consecutive months.

U.S. corporate bonds, on the other hand, posted inflows in April of $22.587 billion, from March’s $33.38 billion, the largest since March 2021. Foreigners were net buyers of U.S. corporate bonds for four straight months.

U.S. residents, meanwhile, decreased their holdings of long-term foreign securities, with net sales of $36.7 billion, data showed.

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Reporting by Gertrude Chavez-Dreyfuss; Editing by Paul Simao and Richard Pullin

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Treasury Secretary Yellen Looks to Get Global Tax Deal Back on Track

“I think the reality of turning a political commitment into binding domestic legislation is a lot more complex,” said Manal Corwin, a Treasury official in the Obama administration who now heads the Washington national tax practice at KPMG. “The E.U. has moved and gotten over most of the objections, but they still have Poland and it’s not clear whether they’re going to be able to get the last vote.”

With President Emmanuel Macron of France heading the European Union’s rotating presidency until June, his administration was eager to get a deal implemented. But at a meeting of European finance ministers in early April, Poland became the sole holdout, saying there were no ironclad guarantees that big multinational companies wouldn’t still be able to take advantage of low-tax jurisdictions if the two parts of the agreement did not move ahead in tandem, undercutting the global effort to avoid a race to the bottom when it comes to corporate taxation.

Poland’s stance was sharply criticized by European officials, particularly France, whose finance minister, Bruno Le Maire, suggested that Warsaw was instead holding up a final accord in retaliation for a Europe-wide political dispute. Poland has threatened to veto measures requiring unanimous E.U. votes because of an earlier decision by Brussels to block pandemic recovery funds for Poland.

The European Union had refused to disburse billions in aid to Poland since late last year, citing separate concerns over Warsaw’s interference with the independence of its judicial system. Last week, on the eve of Ms. Yellen’s visit to Poland, the European Commission came up with an 11th-hour deal unlocking 36 billion euros in pandemic recovery funds for Poland, which pledged to meet certain milestones such as judiciary and economic reforms, in return for the money.

Negotiators from around the world have been working for months to resolve technical details of the agreement, such as what kinds of income would be subject to the new taxes and how the deal would be enforced. Failure to finalize the agreement would likely mean the further proliferation of the digital services taxes that European countries have imposed on American technology giants, much to the dismay of those firms and the Biden administration, which has threatened to impose tariffs on nations that adopt their own levies.

“It’s fluid, it’s moving, it’s a moving target,” Pascal Saint-Amans, the director of the center for tax policy and administration at the Organization for Economic Cooperation and Development, said of the negotiations at the D.C. Bar’s annual tax conference this month. “There is an extremely ambitious timeline.”

Countries like Ireland, with a historically low corporate tax rate, have been wary of increasing their rates if others do not follow suit, so it has been important to ensure that there is a common understanding of the new tax rules to avoid opening the door to new loopholes.

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Fed Raises Interest Rate Half a Percentage Point, Largest Increase Since 2000

Deciding how quickly to remove policy support is a fraught exercise. Central bankers are hoping to move decisively enough to arrest the pop in prices without curbing growth so aggressively that they tip the economy into a deep downturn.

Mr. Powell nodded to that balancing act, saying, “I do expect that this will be very challenging — it’s not going to be easy.” But he said the economy had a good chance “to have a soft, or soft-ish, landing.”

He later elaborated that it could be possible to “restore price stability without a recession, without a severe downturn, and without materially higher unemployment.”

The balance sheet plan the Fed released on Wednesday matched what analysts had expected, which probably also contributed to the sense of market calm. The Fed will begin shrinking its nearly $9 trillion in asset holdings in June by allowing Treasury and mortgage-backed debt to mature without reinvestment. It will ultimately let up to $60 billion in Treasury debt expire each month, along with $35 billion in mortgage-backed debt, and the plan will have phased in fully as of September.

By reducing its bond holdings, the Fed is likely to take steam out of financial markets — bond prices will fall, causing yields to rise, and riskier investments like stocks will become less attractive. It also could help to cool the housing market by pushing up longer-term borrowing costs, which follow bond yields, reinforcing the effect of the central bank’s interest rate increases.

In fact, mortgage rates have already begun to push higher, climbing nearly two percentage points since the start of the year. The rate on a 30-year fixed-rate mortgage averaged 5.1 percent for the week that ended last Thursday, according to Freddie Mac, touching its highest level in more than a decade.

The Fed’s moves “will quickly make financing big-ticket purchases more challenging.” Jonathan Smoke, chief economist at Cox Automotive, wrote in a research note after the meeting. “This is exactly what the Fed wants to see. As demand for homes, cars and other durables declines in response to declining affordability, the rate of price increases should slow as well.”

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Ukraine Live Updates: Russia Continues Bombardment, but Its Forces Have Shrunk, Pentagon Says

WASHINGTON — When the Cold War ended, governments and companies believed that stronger global economic ties would lead to greater stability. But the Ukraine war and the pandemic are pushing the world in the opposite direction and upending those ideas.

Important parts of the integrated economy are unwinding. American and European officials are now using sanctions to sever major parts of the Russian economy — the 11th largest in the world — from global commerce, and hundreds of Western companies have halted operations in Russia on their own. Amid the pandemic, companies are reorganizing how they obtain their goods because of soaring costs and unpredictable delays in global supply chains.

Western officials and executives are also rethinking how they do business with China, the world’s second-largest economy, as geopolitical tensions and the Chinese Communist Party’s human rights abuses and use of advanced technology to reinforce autocratic control make corporate dealings more fraught.

The moves reverse core tenets of post-Cold War economic and foreign policies forged by the United States and its allies that were even adopted by rivals like Russia and China.

“What we’re headed toward is a more divided world economically that will mirror what is clearly a more divided world politically,” said Edward Alden, a senior fellow at the Council on Foreign Relations. “I don’t think economic integration survives a period of political disintegration.”

“Does globalization and economic interdependence reduce conflict?” he added. “I think the answer is yes, until it doesn’t.”

Opposition to globalization gained momentum with the Trump administration’s trade policies and “America First” drive, and as the progressive left became more powerful. But the pandemic and President Vladimir V. Putin’s invasion of Ukraine have brought into sharp relief the uncertainty of the existing economic order.

President Biden warned President Xi Jinping of China on Friday that there would be “consequences” if Beijing gave material aid to Russia for the war in Ukraine, an implicit threat of sanctions. China has criticized sanctions on Russia, and Le Yucheng, the vice foreign minister, said in a speech on Saturday that “globalization should not be weaponized.” Yet China increasingly has imposed economic punishments — Lithuania, Norway, Australia, Japan and South Korea have been among the targets.

The result of all the disruptions may well be a fracturing of the world into economic blocs, as countries and companies gravitate to ideological corners with distinct markets and pools of labor, as they did in much of the 20th century.

Mr. Biden already frames his foreign policy in ideological terms, as a mission of unifying democracies against autocracies. Mr. Biden also says he is enacting a foreign policy for middle-class Americans, and central to that is getting companies to move critical supply chains and manufacturing out of China.

The goal is given urgency by the hobbling of those global links over two years of the pandemic, which has brought about a realization among the world’s most powerful companies that they need to focus on not just efficiency and cost, but also resiliency. This month, lockdowns China imposed to contain Covid-19 outbreaks have once again threatened to stall global supply chains.

Credit…Kin Cheung/Associated Press

The economic impact of such a change is highly uncertain. The emergence of new economic blocs could accelerate a massive reorganization in financial flows and supply chains, potentially slowing growth, leading to some shortages and raising prices for consumers in the short term. But the longer-term effects on global growth, worker wages and supplies of goods are harder to assess.

The war has set in motion “deglobalization forces that could have profound and unpredictable effects,” said Laurence Boone, the chief economist of the Organization for Economic Cooperation and Development.

For decades, executives have pushed for globalization to expand their markets and to exploit cheap labor and lax environmental standards. China especially has benefited from this, while Russia profits from its exports of minerals and energy. They tap into enormous economies: The Group of 7 industrialized nations make up more than 50 percent of the global economy, while China and Russia together account for about 20 percent.

Trade and business ties between the United States and China are still robust, despite steadily worsening relations. But with the new Western sanctions on Russia, many nations that are not staunch partners of America are now more aware of the perils of being economically tied to the United States and its allies.

If Mr. Xi and Mr. Putin organize their own economic coalition, they could bring in other nations seeking to shield themselves from Western sanctions — a tool that all recent U.S. presidents have used.

“Your interdependence can be weaponized against you,” said Dani Rodrik, a professor of international political economy at Harvard Kennedy School. “That’s a lesson that I imagine many countries are beginning to internalize.”

The Ukraine war, he added, has “probably put a nail in the coffin of hyperglobalization.”

China and, increasingly, Russia have taken steps to wall off their societies, including erecting strict censorship mechanisms on their internet networks, which have cut off their citizens from foreign perspectives and some commerce. China is on a drive to make critical industries self-sufficient, including for technologies like semiconductors.

And China has been in talks with Saudi Arabia to pay for some oil purchases in China’s currency, the renminbi, The Wall Street Journal reported; Russia was in similar discussions with India. The efforts show a desire by those governments to move away from dollar-based transactions, a foundation of American global economic power.

For decades, prominent U.S. officials and strategists asserted that a globalized economy was a pillar of what they call the rules-based international order, and that trade and financial ties would prevent major powers from going to war. The United States helped usher China into the World Trade Organization in 2001 in a bid to bring its economic behavior — and, some officials hoped, its political system — more in line with the West. Russia joined the organization in 2012.

But Mr. Putin’s war and China’s recent aggressive actions in Asia have challenged those notions.

“The whole idea of the liberal international order was that economic interdependence would prevent conflict of this kind,” said Alina Polyakova, president of the Center for European Policy Analysis, a research group in Washington. “If you tie yourselves to each other, which was the European model after the Second World War, the disincentives would be so painful if you went to war that no one in their right mind would do it. Well, we’ve seen now that has proven to be false.”

“Putin’s actions have shown us that might have been the world we’ve been living in, but that’s not the world he or China have been living in,” she said.

The United States and its partners have blocked Russia from much of the international financial system by banning transactions with the Russian central bank. They have also cut Russia off from the global bank messaging system called SWIFT, frozen the assets of Russian leaders and oligarchs, and banned the export from the United States and other nations of advanced technology to Russia. Russia has answered with its own export bans on food, cars and timber.

The penalties can lead to odd decouplings: British and European sanctions on Roman Abramovich, the Russian oligarch who owns the Chelsea soccer team in Britain, prevent the club from selling tickets or merchandise.

Credit…Andy Rain/EPA, via Shutterstock

About 400 companies have chosen to suspend or withdraw operations from Russia, including iconic brands of global consumerism such as Apple, Ikea and Rolex.

While many countries remain dependent on Russian energy exports, governments are strategizing how to wean themselves. Washington and London have announced plans to end imports of Russian oil.

The outstanding question is whether any of the U.S.-led penalties would one day be extended to China, which is a far bigger and more integral part of the global economy than Russia.

Even outside the Ukraine war, Mr. Biden has continued many Trump administration policies aimed at delinking parts of the American economy from that of China and punishing Beijing for its commercial practices.

Officials have kept the tariffs imposed by Mr. Trump, which covered about two-thirds of Chinese imports. The Treasury Department has continued to impose investment bans on Chinese companies with ties to the country’s military. And in June, a law will go into effect in the United States barring many goods made in whole or in part in the region of Xinjiang.

Despite all that, demand for Chinese-made goods has surged through the pandemic, as Americans splurge on online purchases. The overall U.S. trade deficit soared to record levels last year, pushed up by a widening deficit with China, and foreign investments into China actually accelerated last year.

Some economists have called for more global integration, not less. Speaking at a virtual conference on Monday, Ngozi Okonjo-Iweala, director general of the World Trade Organization, urged a move toward “re-globalization,” saying, “Deeper, more diversified international markets remain our best bet for supply resilience.

But those economic ties will be further strained if U.S.-China relations worsen, and especially if China gives substantial aid to Russia.

Besides recent warnings to China from Mr. Biden and Secretary of State Antony J. Blinken, Commerce Secretary Gina Raimondo has said her agency would ban the sale of critical American technology to Chinese companies if China tried to supply forbidden technology to Russia.

In the meantime, the uncertainty has left the U.S.-China relationship in flux. While many major Chinese banks and private companies have suspended their interactions with Russia to comply with sanctions, foreign asset managers appear to have also begun moving their money out of China in recent weeks, possibly in anticipation of sanctions.

Mary Lovely, a senior fellow at the Peterson Institute for International Economics, said she did not expect China to “throw all in” with Russia, but that the war could still strain economic ties by worsening U.S.-China relations.

“Right now, there is great uncertainty as to how the U.S. and China will respond to the challenges posed by Russia’s increasingly urgent need for assistance,” she said. “That policy uncertainty is another push to multinationals who were already rethinking supply chains.”

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How Western Firms Quietly Enabled Russian Oligarchs

Behind a set of imposing metal doors in an easy-to-miss office building in a New York City suburb, a small team manages billions of dollars for a Russian oligarch.

For years, a group of wealthy Russians have used Concord Management, a financial-advisory company in Tarrytown, N.Y., to secretly invest money in large U.S. hedge funds and private equity firms, according to people familiar with the matter.

A web of offshore shell companies makes it hard to know for sure whose money Concord manages. But several of the people said the bulk of the funds belonged to Roman Abramovich, a close ally of President Vladimir V. Putin of Russia.

Concord is part of a constellation of American and European advisers — including some of the world’s largest law firms — that have long helped Russian oligarchs navigate the Western financial, legal, political and media landscapes.

both said they were leaving Russia. A spokeswoman for another large firm, Debevoise & Plimpton, said it was terminating several client relationships and would not take any new clients in Moscow. Ashurst, a large London-based law firm, said it would not “act for any new or existing Russian clients, whether or not they are subject to sanctions.”

The accounting giants PwC, KPMG, Deloitte and EY — which have provided extensive services to oligarchs and their networks of offshore shell companies — also said they were leaving Russia or severing ties with their local affiliates.

wrote a letter to the White House arguing that Russia’s Sovcombank shouldn’t face sanctions, citing the bank’s commitment to gender equity, environmental and social responsibility.

Sovcombank had agreed to pay the lobbyist’s firm, Mercury Public Affairs, $90,000 a month for its work.

The Biden administration recently imposed sanctions on Sovcombank. Within hours of the announcement, Mercury filed paperwork with the Justice Department indicating that it was terminating its contract with Sovcombank.

As recently as mid-February, the British law firm Schillings represented the Russian oligarch Alisher Usmanov, a longtime ally of Mr. Putin.

Two weeks later, the European Union and the U.S. Treasury placed sanctions on Mr. Usmanov. Nigel Higgins, a spokesman for Schillings, said the firm is “not acting for any sanctioned individuals or entities.”

say on its website that it represents “some of Russia’s largest companies,” including Gazprom and VTB. The firm said it was “reviewing and adjusting our Russia-related operations and client work” to comply with sanctions.

In Washington, Erich Ferrari, a leading sanctions lawyer, is suing the Treasury on behalf of Mr. Deripaska, who is seeking to overturn sanctions imposed on him in 2018 that he claims have cost him billions of dollars and made him “radioactive” in international business circles.

And the lobbyist Robert Stryk said he had recently had conversations about representing several Russian oligarchs and companies currently under sanctions. He previously represented clients targeted by sanctions, including the administrations of President Nicolás Maduro of Venezuela and former President Joseph Kabila of the Democratic Republic of Congo.

Mr. Stryk said he would consider taking the work if the Treasury Department provided him with the necessary licenses, and if the prospective clients opposed Russia’s aggression in Ukraine.

online profiles of current and former Concord employees.

Wall Street bankers and hedge fund managers who have interacted with Concord and its founder, Michael Matlin, said it oversaw between $4 billion and $8 billion.

It isn’t clear how much of that belongs to Mr. Abramovich, whose fortune is estimated at $13 billion.

Mr. Abramovich has not been placed under sanctions. His spokeswoman, Rola Brentlin, declined to comment on Concord.

Over the years, Concord has steered its clients’ money into marquee financial institutions: the global money manager BlackRock, the private equity firm Carlyle Group and a fund run by John Paulson, who famously anticipated the collapse of the U.S. housing market. Concord also invested with Bernard Madoff, who died in prison after being convicted of a vast Ponzi scheme.

panel focused on European security, requested that the U.S. government impose sanctions on Mr. Abramovich and seize the assets at Concord, “as this blood money presents a flight risk.”

The work performed by law, lobbying and public relations firms often plays out in public or is disclosed in legal or foreign agent filings, but that is rarely the case in the financial arena.

While Russian oligarchs make tabloid headlines for shelling out for extravagant superyachts and palatial homes, their bigger investments often occur out of public view, thanks to a largely invisible network of financial advisory firms like Concord.

Hedge fund managers and their advisers said they were starting to examine their investor lists to see if any clients were under sanctions. If so, their money needs to be segregated and disclosed to the Treasury Department.

Some hedge funds are also considering returning money to oligarchs who aren’t under sanctions, fearful that Russians might soon be targeted by U.S. and European authorities.

Paradise Papers project, involved the files of the Appleby law firm in Bermuda. At least four clients owned private jets through shell companies managed by Appleby.

When sanctions were imposed on companies and individuals linked to Mr. Putin in 2014, Appleby jettisoned clients it believed were affected.

The Russians found other Western firms, including Credit Suisse, to help fill the void.

Ben Freeman, who tracks foreign influence for the Quincy Institute for Responsible Statecraft, said Russians were likely to find new firms this time, too.

“There is that initial backlash, where these clients are too toxic,” Mr. Freeman said. “But when these lucrative contracts are out there, it gets to be too much for some people, and they can turn a blind eye to any atrocity.”

David Segal contributed reporting. Susan Beachy contributed research.

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