Just a few days ago the world sighed in relief as the United States and China moved to de-escalate the ongoing trade war. Markets responded warmly, economists and analysts were upbeat, and leaders in both countries were optimistic. Now, the arrest of Huawei CFO Meng Wanzhou is threatening to undo the progress.
Currently, Wanzhou has been released on bail in Canada while the United States is seeking to extradite her. Wanzhou has been accused of circumventing American sanctions on Iran but some believe that the arrest is politically motivated. It’s possible that Wanzhou could become a bargaining chip in the ongoing trade dispute.
Canada has urged the United States to not politicize the arrest and to only pursue justice. Regardless, the Chinese appear to be readying actions against Canada and have apparently arrested two Canadian citizens, Michael Spavor and Michael Kovrig. The Chinese government alleges that the two may have committed activities that have endangered China’s national security.
The arrests come after China warned Canada that their actions would have grave consequences. The Chinese government is demanding that Canada release Wanzhou and that she be allowed to return to China. So far, it appears that Wanzhou will be extradited to the United States but it’s possible that Canada will decide it’s not worth the fight.
Meanwhile, President Donald Trump has weighed in on the matter and stated that Wanzhou could be released as part of the ongoing trade negotiations. The comments rankled some, including Canadian officials, who have accused the president of politicizing what should principally be a legal issue.
Wanzhou has been accused of helping her company circumvent sanctions on Iran by portraying Huawei-owned subsidiary “Skycom” as being completely separate and unaffiliated. Prosecutors in the United States have argued that this constitutes fraud involving millions of dollars.
Many companies, including Huawei, are closely linked to the Chinese government. Many believe that the Chinese government has been installing methods to spy via phones and other electronic devices sold by Huawei. In fact, Japanese mobile carrier SoftBank is replacing Huawei network equipment, owing to security concerns. The Japanese government had already moved to ban government organizations from using Chinese communications equipment.
Meanwhile, the Chinese have been ramping up the ability to conduct cyber attacks and to use technology to hurt opponents. The Chinese government is believed to have been behind recent cyber attacks targeting the Marriott hotel chain, health insurers, and security clearance files. Data covering roughly 500 million people is believed to have been exposed via Chinese efforts.
The attacks have rattled the intelligence community and suggest that China doesn’t even have to take to the battlefield to hurt its rivals. Currently, the United States government is preparing indictments against hackers who work for China’s secretive Ministry of State Security. Even if the trade war is resolved, ongoing security threats could strain U.S.-China relations.
Indeed, the United States is considering a ban on the export of crucial semiconductors and other high-end technology components. China relies on these inputs to produce many of their electronics, which are in turn exported across the world. Meanwhile, China is apparently considering a similar ban on crucial exports to the United States. Thus, even if the trade dispute is resolved, security concerns could impact the economies of both nations regardless.
