A Chinese telecommunications executive was to appear in court Friday to seek bail, the latest development in a surprising legal wrangle that raises doubts about whether a U.S.-China trade cease-fire can hold.
The arrest of Meng Wanzhou, chief financial officer of the Chinese telecom giant Huawei, came as a jarring surprise after Presidents Donald Trump and Xi Jinping agreed to a trade truce last weekend in Buenos Aires, Argentina.
Fears of renewed U.S.-China trade hostilities have rattled global financial markets. They tumbled Thursday. Stocks regained their equilibrium Friday in Europe and Asia after conciliatory words from Beijing but fell again on Wall Street.
Trump himself sought to inject a note of optimism into the proceedings, going on Twitter before dawn Friday to say: “China talks are going very well!”
The bail hearing for Meng, who faces possible extradition to the United States after her arrest in Vancouver, Canada, last weekend, was set for later Friday. Meng requested and was granted a court publication ban that covers pretty much everything except her name.
Huawei has been a subject of U.S. national security concerns for years and Meng’s case echoes well beyond tariffs or market access. Washington and Beijing are locked in a clash between the world’s two largest economies for economic and political dominance for decades to come.
“It’s a much broader issue than just a trade dispute,” said Amanda DeBusk, chair of international trade practice at Dechert LLP. “It pulls in: Who is going to be the world leader essentially. … It’s a Cold War situation.”
Meng was detained on the same day that Trump and Xi met at the Group of 20 summit in Argentina and agreed to a cease-fire in their trade war.
White House economic adviser Larry Kudlow said Friday on Fox Business Network’s “Varney & Co” that Huawei had violated U.S sanctions on Iran. “They had been warned, and finally we had to prosecute that,” he said.
He dismissed speculation that Meng’s arrest was a deliberate ploy to gain leverage over China in trade talks and said that Trump did not know the arrest was coming.
Huawei is the world’s biggest supplier of network gear used by phone and internet companies and long has been seen as a front for spying by the Chinese military or security services.
“What’s getting lost in the initial frenzy here is that Huawei has been in the crosshairs of U.S. regulators for some time,” said Gregory Jaeger, special counsel at the Stroock law firm and a former Justice Department trial attorney. “This is the culmination of what is likely to be a fairly lengthy investigation.”
In a sign Meng’s case might not derail the Trump-Xi truce, Beijing protested Meng’s arrest but said talks with the Trump administration would go ahead. Chinese Commerce Ministry spokesman Gao Feng said China is confident it can reach a deal during the 90 days that Trump agreed to suspend a scheduled increase in U.S. import taxes on $200 billion worth of Chinese products.
Still, attorney DeBusk said, “I would certainly expect the Chinese to do something in retaliation” for Meng’s arrest, perhaps by targeting U.S. companies doing business in China. “Let’s see who doesn’t get a permit or which U.S. executive gets arrested,” she said.
The world’s two largest economies are locked in a dispute over charges by Washington, echoed by U.S. industry groups and analysts, that China has deployed predatory tactics in its drive to overtake America’s dominance in technology and global economic leadership. These allegedly include forcing American and other foreign companies to hand over trade secrets in exchange for access to the Chinese market and engaging in cyber theft.
Washington also regards Beijing’s ambitious long-term development plan, “Made in China 2025,” as a scheme to dominate such fields as robotics and electric vehicles by unfairly subsidizing Chinese companies and discriminating against foreign competitors.
Priscilla Moriuchi, a former East Asia specialist at National Security Agency and now with the cybersecurity firm Recorded Future, said both Huawei and its biggest Chinese rival, ZTE Corp., are wedded to China’s military and political leadership.
“The threat from these companies lies in their access to critical internet backbone infrastructure,” she said.
The Trump administration has tightened regulations on high-tech exports to China and made it harder for Chinese firms to invest in U.S. companies or to buy American technology in cutting-edge areas like robotics, artificial intelligence and virtual reality.
Earlier this year, the United States nearly drove ZTE out of business for selling equipment to North Korea and Iran in violation of U.S. sanctions. But Trump issued a reprieve, perhaps partly because U.S. tech companies, major suppliers to ZTE, would also have been scorched. ZTE agreed to pay a $1 billion fine, change its board and management and let American regulators monitor its operations.
The U.S. and Chinese tech industries depend on each other so much for components that “it is very hard to decouple the two without punishing U.S. companies, without shooting ourselves in the foot,” said Adam Segal, cyberspace analyst at the Council on Foreign Relations.
Dean Garfield, president of the U.S. Information Technology Industry Council trade group, said innovation by U.S. companies often depends utterly on product development and testing by Chinese partners and component suppliers.
Still, the pushback against Huawei and ZTE is limiting their reach into the world’s richest markets. Nearly a year ago, AT&T pulled out of a deal to sell Huawei smartphones. Barred from use by U.S. government agencies and contractors, they’re mostly locked out of the American market.
Derek Scissors, a China specialist at the conservative American Enterprise Institute, doubts that China will change its tech policies since it needs innovative technologies to keep its economy growing as its labour force ages and it confronts a huge stockpile of debt.
“We’re not going to deal that away in 90 days,” he said. “I don’t see a way out of this.”
Likewise, Rod Hunter, an international economic official in President George W. Bush’s White House and a partner at law firm Baker McKenzie, said, “I’m skeptical that the Chinese are going to want to say ‘uncle.’”
U.S. and Chinese officials are “trying to tackle a problem that is going to take years, maybe a decade, to resolve,” he said.
Gillies reported from Toronto and Wiseman reported from Washington. Associated Press writers Frank Bajak in Boston, Joe McDonald in Beijing and Yuri Kageyama in Tokyo contributed to this report.
Jim Morris, Rob Gillies And Paul Wiseman, The Associated Press