Biden adviser: Sanctions on Russia are working – and getting tougher

Monitor Breakfast

Sometimes, it seems, Americans are living in two economies. There’s the one that’s undergoing an extraordinary recovery from the pandemic shock, with 11 straight months of job gains topping 400,000, unemployment down to 3.6%, and rising wages. 

Then there’s the economy of high energy costs and 7.9% overall inflation, a 40-year-high, affecting everyday staples such as food and household items. 

Polls show President Joe Biden gets little credit for the positives – some voters even deny any job gains – and plenty of blame for the negatives. On top of that, the November midterm elections are fast approaching. Ask the president’s top economic policy adviser, Brian Deese, whether there’s a sense of frustration, and he chuckles ruefully. 

“I’ll hesitate to provide commentary on my feelings,” said Mr. Deese, director of the White House National Economic Council, at a breakfast for reporters hosted Wednesday by The Christian Science Monitor.

But he quickly follows up with a serious response, calling this dichotomy of public perception a “false debate.” 

“Our view is not, ‘The economy’s great; why isn’t anybody noticing?’” Mr. Deese says. “It’s that we need to recognize and build on the uniquely strong aspects of this economic recovery in addressing the clear, ongoing challenges, particularly around inflation and costs for families.” 

Mr. Deese also addressed new sanctions on Russia related to its invasion of Ukraine, announced Wednesday by the Biden administration in conjunction with the Group of Seven top industrialized Western economies and the European Union. The sanctions target two of the country’s largest banks, Sberbank and Alfa Bank; several state-owned Russian enterprises, including an aircraft and shipbuilding corporation; the adult daughters of President Vladimir Putin; and family members of Foreign Minister Sergey Lavrov. Also included is a ban on inbound investment by Americans in Russia. 

The key to effective sanctions, Mr. Deese said, is international coordination. He advised “patience and perspective” in allowing the sanctions to take effect. 

“Anyone who looks at the Russian economy right now and thinks they’re bouncing back or showing some signs of life is I think missing the forest for the trees,” Mr. Deese said, describing Russia as “completely ostracized.” 

He said the Russian currency, the ruble, is rebounding principally as a function of the “contorted capital control regime that the Russian Central Bank or the Russian government are having to put in place, which is in and of itself bleeding them of resources.”

He added, “Most estimates are the Russian economy is now on track to contract by 10% to 15% over the course of this year, which would be historic and on the order of what they experienced in 1998.”

At the Monitor Breakfast, Mr. Deese also discussed the shortage of semiconductors in the United States, the long-term economic challenge from China, energy production, and climate change. The audio of our session is available here. 

Following are additional excerpts of Mr. Deese’s comments, lightly edited for clarity. 

On the impact of the U.S. shortage of semiconductors, essential for the electronics behind everything from cars to smartphones: 

The best estimates are that the lack of available semiconductors probably took a full percentage point off of GDP in 2021. 

Today we produce 12% of global semiconductors in the United States. But we produce none of the advanced leading-edge semiconductors. So we are 100% vulnerable on foreign supply chains for those advanced semiconductors. And what we are seeing is increasingly aggressive efforts by China and other countries to try to build their own resilience in semiconductor manufacturing, which, if not addressed effectively by the United States, would increase our vulnerability and our economic risk.

On geopolitical tensions, particularly between China and Taiwan, accelerating the need for “reshoring” initiatives to bolster manufacturing in the U.S.:

Ten, 11 months ago, I went out and explained a core part of President Biden’s economic strategy as having an affirmative industrial strategy for the country. And at the time, the question was, is, that actually, why should we have an industrial strategy? Does that bring up echoes of failed industrial policy in the past?

And I would say over the course of the last 10, 11 months, that question has now gone decidedly from why to how – that the debate around, do we need to be more deliberate and explicit and have more direct and proactive public investment and public-private partnership to build industrial strength in key sectors of our economy, is now much more broadly understood and a broadly shared goal across the aisle, Republicans and Democrats. 

On the apparent lack of increased energy production in the U.S.: 

We’ve been having conversations with oil and gas producers. ... Our takeaway from the data is that in the immediate term – over the next, call it, six to 12 months – there is no constraint to companies ramping up production. And the price in the market environment provides a lot of reason and rationale for them to do so.

A number of companies have now explicitly made decisions, are increasing “cap ex” [capital expenditures], and the result of that is why we’ve now seen projections of U.S. domestic production increase, such that by the third quarter of this year, the expectation is we’ll be up by about a million barrels a day.

That is the result of people responding to market forces.

On the Biden administration’s year-two strategy on private-sector engagement on climate change: 

The war in Ukraine and the geopolitical consequences of energy that we are seeing play out now really do provide as stark a reminder as anything of the need to accelerate our transition to ultimate energy independence, which ultimately means reducing and eliminating our dependence on fossil fuels altogether. 

That is a process that will only happen if the American private sector, including the incumbent energy producers in the United States, utilities and otherwise, are an inextricable part of that process. And that’s defined our approach from the get-go. 

For example, the clean energy tax-credit package that we have been working on is designed explicitly with the understanding that what we will do on the government side is provide long-term technology-neutral incentives that the private sector then will drive and innovate off.