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Huawei CFO Meng Wanzhou’s arrest threatens Trump-China trade truce

December 7, 2018

At a time of maximum tension in the U.S.-China relationship, news of the arrest last weekend of a top Chinese tech official in Canada managed to set off multiple shock waves Thursday, shining a harsh light on U.S. and allied concerns about Chinese state-backed corporate giants, massively complicating a trade war “truce” just negotiated by President Trump and Chinese President Xi Jinping, and for a few hours threatening to buckle global stock markets and wipe out a big chunk of the recent Wall Street gains Mr. Trump is fond of trumpeting.

Virtually at the same moment Mr. Trump and Mr. Xi were working out their deal over dinner at the G-20 summit in Argentina Saturday, Canadian officials were arresting Meng Wanzhou, chief financial officer of Huawei Technologies Co., a crown jewel of China’s burgeoning high-tech industry, at the request of U.S. officials.

Ms. Meng, who happens to be the daughter of the company’s founder, was reportedly being held on suspicion of violating U.S. sanctions against trading with Iran.

The arrest angered the Chinese government, set off a furious burst of outraged nationalism on Chinese social media, and briefly sent the Dow Jones index down nearly 800 points on fears it could reignite the simmering trade war between the globe’s two economic superpowers.

While Chinese government spokesman stopped well short of declaring a trade deal off, the fact that Ms. Meng was being held because of the U.S. Iran sanctions was a particular sore spot.

Huawei, a global leader in telecommunications and the world’s second biggest smartphone manufacturer, has long been a source of worry for the U.S. and its allies, given its close ties to the Chinese government and China’s military leaders. The U.S. has moved to limit Huawei’s role in sensitive national security contracts and nations such as New Zealand and Australia recently banned the company from bidding on lucrative new 5G wireless communications networks contracts.

Investors, who staged a rally late in the trading day, were whipsawed by a string of conflicting developments, unsure how the trade and Huawei arrest were related, who had ordered what, and whether the Meng arrest would limit Mr. Xi’s maneuvering room to cut a deal.

Canadian Prime Minister Justin Trudeau said Thursday he had been aware of the pending arrest, but denied his government had any involvement in the apprehension. It occurred when Ms. Meng transferred flights at Vancouver airport.

At the White House, National Security Adviser John Bolton said that the Justice Department had informed him of its plans for Ms. Meng, but added that he was unsure if Mr. Trump knew of the operation before it occurred.

“These kinds of things happen with some frequency,” Mr. Bolton said in an interview with National Public Radio. “We certainly don’t inform the president on every one of them.”

Chinese officials, meanwhile, said Thursday Ms. Meng broke no U.S. or Canadian laws and demanded Canada “immediately correct the mistake” and release her. It was not clear why Chinese officials waited until the story broke in the Canadian press before lodging a public protest of Ms. Meng’s detention.

An opinion published in the Global Times, a leading business paper known for reflecting the Chinese Communist Party’s foreign policy views, accused Washington of “resorting to despicable hooliganism” and “maliciously picking holes in Huawei” through the U.S. legal system.

Mr. Bolton refused to provide specifics on what the Justice Department was seeking in its extradition request, and reports only offered the briefest details of an investigation launched earlier this year by the Justice, Treasury and Commerce departments into Huawei activity that could have violated U.S. economic sanctions against Iran.

More information is expected to emerge on Friday in the Eastern District of New York where a bail hearing has been scheduled for Ms. Meng.

The trade conflict, driven by Mr. Trump’s desire to push China to lower its trade barriers to American businesses, appeared to be cooling after he and Mr. Xi gathered on Saturday night in Buenos Aires and declared the 90-day truce.

Improving Washington’s hand

Despite U.S. denials of a linkage, Chinese analysts viewed Ms. Meng’s arrest as “a calculated act” by Washington to improve its hand in the trade standoff.

Liu Weidong, China-U.S. affairs expert at the Chinese Academy of Social Sciences think tank in Beijing, predicted that the Trump administration would use more legal measures against China during the 90-day truce.

“We’ll see more cases like this over the next three months,” he told The South China Morning Post, Hong Kong’s leading English language newspaper. There will be more “sanctioning of China’s state-owned enterprises and individuals, to boost momentum on the U.S. side.”

Earlier this year, the United States nearly drove Huawei’s biggest Chinese rival, ZTE Corp., out of business for selling equipment to North Korea and Iran in violation of U.S. sanctions, according to the Associated Press. President Trump issued a reprieve after a personal appeal from Mr. Xi. ZTE got off with paying a $1 billion fine, changing its board and management and agreeing to let American regulators monitor its operations.

But some U.S. analysts expressed skepticism that Ms. Meng’s arrest was part of a coordinated plan to exert pressure in the trade war.

David Dollar, a senior fellow and China scholar at the Brookings Institution, said in an interview that he believed the move was what U.S. officials said it was: a move to punish Huawei for trading with Iran in defiance of U.S. sanctions.

“The U.S. has been targeting Huawei for years and pursuing Iran sanctions violations for months,” he said. “I don’t believe [President Trump] knew about the arrest. But even if he did, it’s highly unlikely it was a pre-planned negotiation tactic, with the Canadians pulled in.”

Dean Cheng, senior research fellow at the Heritage Foundation’s Asian Studies Center, said the arrest could temper some of “the unwarranted optimism” over the 90-day truce, especially given how deeply divided the countries remain over a range of thorny issues, from intellectual property rights to South China Sea territorial disputes.

“Both sides are looking at this through their respective lenses and seeing it verifies what they think,” Mr. Cheng said. “It will make it much harder to trust each other.”

He added that ripple effects are also significant, especially for European countries already confronting Washington over the Iran deal.

“The two largest economies are eyeball to eyeball in a showdown,” Mr. Cheng said, “And now you have the CFOs of one of the primo companies from one country seized in a third country and awaiting sentencing. What does the rest of the world make of all this?”

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