April Washington D.C. Preview

As Russia’s assault on Ukraine enters its second month with few signs of slowing, this month’s CEO Report looks beyond Eastern Europe for a preview of how the war will shape American policy at home in the days and weeks ahead.

QUICK FIX — The crisis has ignited calls to dramatically increase U.S. defense spending, especially as the Pentagon readies its plans to restock military equipment sent to Ukraine.   — Ukraine’s capacity to grow and ship food this year hangs by a thread, and global officials are warning of a looming food crisis in the fall.   — As new intelligence suggests Russia is laying the groundwork for major hacks, all eyes are on critical infrastructure in the U.S. as well as the health care sector.

AGRICULTURE Fears of a food crisis this fall: Russia’s war in Ukraine has sent a shockwave through international food markets, worsening the already dire problem of global hunger by disrupting supply and inflating prices. That risks tipping the poorest, most famine-ravaged regions of the planet into political chaos and creating an unprecedented migration crisis, World Food Programme Executive Director David Beasley warned in an interview earlier this month.   Ukraine’s exports have ground to a halt and its capacity to grow food this year is hanging by a thread. The crunch point will come in the fall, Beasley said, when the full impact of the war’s disruption is likely to be felt.   Those concerns have also forced the Biden administration to balance its crushing economic campaign against Russia with a gentler approach to major U.S. food and agribusiness companies still operating there.   In a prominent example, neither the administration nor Democratic lawmakers have critiqued agricultural commodity giant Cargill Inc., the country’s largest privately held company, which is still operating what it says are “essential food and feed facilities” in Russia. The White House even hosted Cargill CEO David MacLennan in March as part of a meeting with corporate leaders to discuss the conflict with Ukraine and its effect on already-strained global supply chains.   During the meeting, top Biden economic officials thanked the companies that had pulled out of Russia for doing so, but officials didn’t make any mention of scaling down Russian operations, according to three people with knowledge of the discussions. Instead, they focused on how food companies could stave off further disruptions to the global supply.   Cargill isn’t the only major Western agribusiness still operating in Russia. German agri-chemical company BASF has said it would resume deliveries of goods “necessary to avoid famine,” such as seeds, pesticides and fertilizers. Bayer, another German chemical giant, also said that it’s maintaining vital business in Russia and Belarus and won’t withhold “essential health and agriculture products from the civilian populations,” because doing so “would only multiply the war’s ongoing toll on human life.” — Eddy Wax, Meredith Lee and Sarah Anne Aarup

DEFENSE Ukraine war roils budget debate: Lawmakers are starting to pick apart the Biden administration’s defense budget request as Russia’s offensive against Ukraine enters its second month. Defense Secretary Lloyd Austin and Joint Chiefs Chair Gen. Mark Milley will defend the proposal on April 5 at a House Armed Services hearing, their first appearance on Capitol Hill of the new budget cycle.   The crisis has fueled calls to significantly increase President Joe Biden’s $773 billion Pentagon budget request for fiscal 2023. Republicans are pushing for a 5 percent increase above inflation, which would amount to tens of billions in extra military funding. Some Democrats could side with those calls, while the party’s progressive wing is pushing Biden to hold the line on the Pentagon budget.   The Pentagon will also soon send Congress its plans for restocking thousands of missiles, ammunition and other equipment sent to Ukraine. Lawmakers earmarked $3.5 billion for the Pentagon to replenish its inventories, and they could provide even more cash over the coming year to ramp up weapons production to supply Ukraine and NATO countries.   The U.S. is also contemplating boosting its permanent troop presence in Europe. Temporary deployments have pushed troop levels on the continent above 100,000, but Pentagon officials are now reexamining force plans with an eye toward bolstering NATO countries on Russia’s periphery, such as Poland and the Baltic nations. — Connor O’Brien

ENERGY The U.S. oil problem: The likelihood of a prolonged conflict in Ukraine is keeping international oil markets on edge, and the potential for supply disruptions loom. Biden, under growing political pressure to tackle pain at the pump, announced a record release of oil from U.S. strategic reserves, adding 1 million barrels per day to the market for six months. That’s about 5 percent of daily consumption, and could help ease the market tightness that pushed gasoline prices to a U.S. record average above $4.30 last month.   While U.S. oil production has climbed under Biden (despite some claims to the contrary), companies have been reluctant to add back drilling rigs too quickly. Typically, oil above $100 a barrel would send them scrambling to punch holes in the West Texas landscape. But the pandemic-inspired drop into negative territory two years ago and a spate of bankruptcies has the sector focused on keeping investors happy rather than looking to raise production — at least for now. —Energy staff

CYBERSECURITY Motivation to reform cyber programs: As its military offensive in Ukraine struggles, Russia could retaliate against the West by unleashing devastating cyberattacks against U.S. critical infrastructure. Biden and his top cyber officials have spent weeks warning businesses to be on alert amid new intelligence suggesting that Russia is laying the groundwork for major hacks.   If such attacks occur, the lessons learned from repelling and recovering from them could prompt policymakers to reform existing programs — like CISA’s Joint Cyber Defense Collaborative, which unites government and industry to share and act on threat data — or create new cyber requirements for overlooked sectors, like the water industry.   Russia’s war has already strained global efforts to develop consensus around appropriate uses of cyberspace, and the coming weeks could further test those already brittle conversations at the United Nations. Western governments have said for years that Russia and China are pushing cyber treaties to institutionalize their models of online content censorship.   Global outrage over the Russian invasion, layered on top of already extreme divergences between democratic and authoritarian countries’ views of the internet, could sink those U.N. cyber norms discussions before they yield any progress. — Eric Geller

TRADE New momentum behind on-shoring push: Russia’s war in Ukraine and the economic ramifications around the globe, particularly on energy and food prices, have strengthened arguments for bolstering industries in the U.S. It’s one of the reasons the Biden administration is now weighing using wartime executive powers to boost domestic battery production — helping secure supplies for the growing market for electric vehicles and power storage on the electric grid.   “As we break our dependence on foreign sources of oil and natural gas, we must ensure that we secure the materials necessary for the clean energy economy in a way that holds to our strong environmental, labor, Tribal engagement standards and does not leave us reliant on unreliable and unsustainable foreign supply chains,” one person familiar with the administration’s thinking said.   It’s also helped build momentum for the economic competitiveness package working its way through Congress. The legislation, which includes $52 billion in incentives for domestic semiconductor production meant to counter American reliance on foreign countries, edged closer to becoming law after the Senate voted March 28 to set up a conference with the House to settle on final language.   “The crisis of Ukraine makes it all more apparent how vulnerable a country is when they are very dependent on other countries for critical supplies, particularly semiconductors,” Commerce Secretary Gina Raimondo said after a meeting with the Senate Finance Committee and other supportive lawmakers in mid-March.   Congressional leaders have not settled on a schedule for the conference committee or its participants, but the cross-chamber talks are expected to involve top lawmakers from several committees and convene sometime early next month. Depending on the speed of negotiations, it could be weeks or even months before a final bill is produced. — Gavin Bade, Josh Siegel, Zack Colman, Jordan Wolman and Tanya Snyder

HEALTH CARE Hospitals, health system vulnerable to cyber attacks: Biden’s warning last month that Russia is “exploring” possible cyberattacks against the U.S. is a particular concern for health care facilities. Nearly 50 million people in the U.S. had their sensitive health data breached in 2021, a threefold increase in three years, according to a POLITICO analysis of the latest HHS data.   Experts say the increased hacking stems from several trends: the health care industry’s rapid move to digital, particularly amid the Covid-19 pandemic; an increase in remote work, which allows more avenues for attacks with employees using more personal devices; the financially lucrative information for cybercriminals in health care; and greater awareness of attacks across the industry, thus more reporting.   Though Biden didn’t specifically mention health care, experts say the sector will remain vulnerable to cyberattacks, with the industry lagging behind in cybersecurity measures. Still, hospitals and health care organizations have been bracing for the impact of potential Russian cyberattacks amid the Ukraine invasion. The American Hospital Association has been warning of threats since December.   Some health care cybersecurity experts tell POLITICO they’ve already seen an increase in cyber threats potentially tied to Russia. The sector is an attractive target for hackers given the trove of sensitive information in health records and health care organizations’ perceived willingness to pay ransoms to unlock systems, given that disruptions to care delivery can be catastrophic.   The threat also has escalated at Ukrainian-based vendors of health care organizations. Carter Groome, CEO of First Health Advisory, a health care risk management consulting firm, said malware attacks on Ukrainian targets have risen significantly. — Dan Goldberg

TAX Bye, bye, tax breaks: Democrats and Republicans in Congress want to strip tax benefits from U.S. companies still doing business in Russia and from individuals who have been sanctioned. Senate Finance Chair Ron Wyden (D-Ore.) has proposed barring companies from taking tax credits here for taxes they pay in Russia and “other countries that are participating in, or materially supporting, the invasion of Ukraine,” along with making their earnings ineligible for a preferential 10.5 percent tax rate.   Wyden also wants to keep sanctioned Russian and Belarusian individuals who make money in the U.S. from receiving benefits, including reduced withholding tax rates on dividends and interest payments.   Other lawmakers want the Biden administration to act on its own. Sens. Ben Cardin (D-Md.) and Rob Portman (R-Ohio) are pushing Biden to suspend the U.S. tax treaty with Moscow, which allows Russian citizens and businesses to pay lower taxes in the U.S. and gives their American counterparts breaks on Russian taxes.   It’s unclear whether any of the proposals will gain traction: Wyden has said he’s talking to Republicans about potential legislation, and there’s been no indication so far that the Biden administration will target the tax treaty. — Bernie Becker and Toby Eckert

EDUCATION Temporary respite: The Biden administration last month granted Temporary Protected Status to Ukrainians in the U.S. after education groups and dozens of lawmakers pressed the government to allow visa flexibility for students and scholars amid Russia’s invasion. More than 1,700 students from Ukraine are studying in the U.S.   Colleges are also getting involved: Higher education groups say they are prepared to help international students and scholars if the Department of Homeland Security, the agency leading the Ukraine-related domestic response, calls on them.   Some institutions are also cutting research ties with Russia. More than a dozen colleges are conferring honorary degrees for Ukrainian President Volodymyr Zelenskyy, and the Texas A&M University system announced it would grant free tuition to more than a dozen Ukrainian students studying at its institutions. — Bianca Quilantan