Why the Huawei Arrest Could Derail Trade Talks

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The arrest of Huawei Technologies Co.’s global chief financial officer in Canada risks derailing a potential trade truce between Washington and Beijing.

Last week, U.S. President Donald Trump and Chinese President Xi Jinping gave global stock markets a lift by agreeing to resolve their trade dispute. However, during those talks, it has since emerged that the U.S. convinced Canada to arrest Wanzhou Meng, chief financial officer of Huawei and daughter of the smartphone maker’s founder, for violating sanctions against Iran.

U.S. authorities have been targeting Huawei, a company at the forefront of Xi’s plan to make China self-sufficient in strategic technologies, for several years now. The U.S. government has grown increasingly wary of the company’s dominance of the smartphone sector and leading position in fifth-generation wireless networks and built a case against the tech giant by accusing it of shipping U.S.-origin products to Iran and other countries in violation of U.S. export and sanctions laws. (See also: After Passing Apple, Huawei Sets Sights on Samsung.)

Yet while the Trump administration’s dislike of Huawei was clear, few expected a leading figure at the company to be arrested during such a critical time for trade talks.

Analysts Shocked

“The timing and manner of this is shocking,” Andrew Gilholm, director of North Asia analysis at Control Risks Group, told Bloomberg. “It’s not often the phrase OMG appears in our internal email discussions.”

Eurasia Group analysts were also left gobsmacked. In a research note they warned that the move risks derailing trade talks, according to CNBC. “This type of action will affect the atmosphere around the negotiations — making them less likely to bring a sustainable settlement,” analysts at the risk consultancy wrote.

“The arrest and extradition request by the U.S. government represents a new and major escalation in what has been a series of U.S. efforts to hold Chinese companies accountable for violations of U.S. law, some dating back years. The arrest of the senior Huawei officials suggests that the gloves are now fully off in this arena, and U.S. law enforcement officials have a green light from senior administration officials to pursue… individuals the U.S. may not have gone after in a more benign bilateral political climate.”

Huawei confirmed the arrest in a statement, adding that it has been provided little information of the charges and was “not aware of any wrongdoing by Ms. Meng.” CNBC reported that China’s embassy in Canada criticized the arrest and has called for Meng to be released immediately. (See also: China’s Huawei Threatens US Giants With New AI Chips.)