National Security Threat

Huawei exec's arrest opens a new front in the US-China trade war

By Jethro Mullen

Hong Kong -- The conflict between the United States and China over trade and technology is expanding.
The arrest of a top executive at Chinese tech giant Huawei at the request of the US government has raised new doubts about the fragile truce that the leaders of the world's top two economies reached just days ago.
"You have to see this as a significant escalation in the trade war," said Christopher Balding, a China expert at the Fulbright University Vietnam in Saigon.
Viewed by the US as a national security threat, Huawei sells more smartphones than Apple and builds telecommunications networks in countries around the world.
Huawei CFO Meng Wanzhou arrested in Canada, faces extradition to United States

Canadian authorities said late Wednesday that Huawei's chief financial officer, Meng Wanzhou, had been arrested in Vancouver and that the United States is seeking her extradition.
The US and Canadian governments haven't specified what charges Meng faces, but her arrest follows reports this year that the US Justice Department was investigating whether Huawei violated American sanctions on Iran.
"Under the Obama administration, the US indicted Chinese personnel on similar charges, but was reluctant to take more drastic action such as arresting the individuals in third countries, over fear that Beijing would retaliate against US interests in China or in other countries," Eurasia Group political risk analysts wrote in a note.
Meng's arrest "suggests that the gloves are now fully off in this arena," the analysts said.
What happens next to Meng, the daughter of Huawei's reclusive founder, could have huge repercussions for Huawei's business.

What does it mean for the trade war?
The arrest comes as the US and Chinese governments are discussing ways to tackle problems that led to their trade conflict, which has resulted in new tariffs on hundreds of billions of dollars of goods.
"This type of action will affect the atmosphere around the negotiations," the Eurasia Group analysts said.

China's Commerce Ministry said Thursday it was confident a trade agreement with the United States could still be reached in time to hit a 90-day deadline set by President Donald Trump.
But the Chinese government is clearly angry about Meng's arrest. 

The big question is what Beijing and Washington do now. 

Analysts suggest China could retaliate, and the Trump administration may be preparing other moves against Chinese interests.
The stakes are extremely high.
"This case is like a sharp tug on a loose thread that could be part of an unraveling of the relationship," said Scott Kennedy, an expert on the Chinese economy at the Center for Strategic & International Studies in Washington. 

Technology is at the heart of the trade war. 

The Trump administration says the huge waves of tariffs it has slapped on Chinese goods are part of an effort to stop China from getting its hands on American technology unfairly through practices like cybertheft and forcing companies to hand over trade secrets.
The return to the negotiating table follows a ceasefire reached at a dinner between President Trump and Xi Jinping on Saturday.
Balding pointed out that the deal was reached the same day that Meng was arrested in Canada.
"That is very politically embarrassing to Xi," he said. 

"It has to be considered an escalation."

What does it mean for Huawei?
The arrest is one of the strongest moves yet against Huawei by US authorities.
The company is largely shut out of supplying telecommunications equipment to US carriers. American officials have repeatedly said that the Chinese government uses Huawei products for espionage.
Huawei's no good, very bad year just got even worse

Meng's case "could be a prelude to further action against the firm and its senior officials," Eurasia Group analysts said.
Huawei's smaller rival, ZTE, provides an example of how the US government could go further. 

The Chinese company was crippled for months after the US Commerce Department blocked it from buying vital parts from American companies.
The ban threatened to put ZTE out of business and highlighted China's continued reliance on American technology, a vulnerability Beijing is eager to reduce. 

ZTE eventually got a reprieve after Xi personally asked Trump for help. 

But the crisis caused disruption for telecommunications carriers ZTE supplies around the world.
A similar ban on Huawei would have a bigger impact because its equipment is more widely used.

A Huawei stand at an artificial intelligence conference in Shanghai.

The next moves in Meng's case are key.
"There is a lot of legal and diplomatic wrangling ahead," Balding said. 

"The US and Canada would not have taken this move lightly and it puts everything in a brand new light."