Just as talks between Donald Trump and Xi Jinping signaled a cooling of a trade war between the US and China, the arrest of Meng Wanzhou in a Vancouver airport might signal a new round of hardball. Ostensibly, the detention and potential extradition of the daughter of Chinese telecom Huawei’s founder and its chief financial officer relates to US suspicions that Huawei has violated sanctions against Iran. That would make for a stunning coincidence, however:
The chief financial officer of China’s Huawei Technologies faces extradition to the United States after she was arrested in Canada, Canadian officials said Wednesday.
Meng Wanzhou, a senior executive who is also the daughter of the tech giant’s founder, Ren Zhengfei, was arrested in Vancouver on Dec. 1, according to Canada’s Department of Justice. …
Meng is expected to face charges in the Eastern District of New York in Brooklyn.
U.S. authorities have been investigating Huawei since 2016 for violations of export controls and U.S. sanctions related to Iran and other countries. It is unclear how Huawei might have violated sanctions.
China, for one, doesn’t seem to be a big believer in coincidence:
China said on Thursday that Canada and the United States had yet to clarify their reason for arresting the daughter of Chinese tech giant Huawei’s founder, in an incident that has dealt a blow to hopes of easing Sino-U.S. trade tensions.
Meng’s arrest throws a wrench into the negotiations, whether intentional or not. As the New York Times points out, China will make Meng’s case a part of those talks — although how that plays out will be anyone’s guess:
The arrest of Meng Wanzhou, the chief financial officer, unfolded on the same night that President Trump and President Xi Jinping of China dined together in Buenos Aires and agreed to a 90-day trade truce. The two countries are set to begin tense negotiations in hopes of ending a trade war that has been pummeling both economies.
Those talks now face an even steeper challenge. The aim will be for the United States to ease its tariffs; in exchange, China will be expected to lower trade barriers and further open its markets to American businesses.
What’s more, Ms. Meng’s detention raises questions about the Trump administration’s overall China strategy. Beijing is now likely to pressure Canada to release her and to press the United States to avoid a trial.
“The arrest of a family member linked to Huawei’s founder indicates how the tension between the two sides is rapidly escalating,” said T.J. Pempel, a professor of political science at the University of California, Berkeley, who specializes in East Asian politics and economy.
There are plenty of reasons to chalk this up to coincidence, though. Senators from both sides of the aisle have been warning about Huawei and another Chinese telecom, ZTE, and their threat to national security for both the US and Canada. Marco Rubio, Ben Sasse, and Chris Van Hollen all agree on this point and supported the Canadian government’s decision to arrest Meng. In a statement to The Globe and Mail, Rubio urged the Canadian government to go one step further and lock out both telecoms from Canada’s development of a domestic 5G network, in part to protect information-sharing in North America:
Republican Senator Marco Rubio, a member of the U.S. Senate intelligence committee, lauded Canada for the arrest of Ms. Meng and once again urged Prime Minister Justin Trudeau to bar Huawei from 5G technology.
“Huawei has direct ties to the Chinese government and Communist Party, has long posed a serious risk to U.S. national security, and I continue to strongly urge Canada to reconsider Huawei’s inclusion in any aspect of its 5G development, introduction, and maintenance,” Mr. Rubio said in a statement to The Globe. …
Republican Senator Ben Sasse, a member of the Senate armed services and banking committees, also praised Canada for the arrest and criticized Huawei as an agent of China’s ruling party.
“China is working creatively to undermine our national security interests, and the United States and our allies can’t sit on the sidelines,” Mr. Sasse said. “Americans are grateful that our Canadian partners have arrested the Chief Financial Officer of a giant Chinese telecom company for breaking U.S. sanctions against Iran.”
Even all this might transcend coincidence. The trade fight is in part a pushback against China’s government effort to use technology as an economic and intelligence weapon. That certainly relates to national security as well as efforts to contain Iran and their nuclear ambitions. Meng’s arrest might not be a move directly related to the trade talks — hostaging, as it were — as much as it might be a statement that we won’t let trade talks stop us from protecting ourselves.
That puts China in a bind. Meng is, as former Canadian ambassador to China David Mulroney puts it, “by birth and position a member of China’s corporate royalty.” Beijing likely cannot abide a public trial of Meng and by extension Huawei for sanctions violations. Xi and his negotiators will demand her release and expulsion from the US. However, if federal prosecutors have a good case to bring to trial, China’s going to have to make significant and lasting concessions to get her out of jail — if they make Meng an issue in the talks.
The big risk in this equation is that China might start looking for American executives to arrest. Stay tuned.
Addendum: Investors aren’t big believers in coincidence, either.