Arrest of Huawei’s Executive - US-China Tech Trade War
iasparliament
December 10, 2018
What is the issue?
Canadian authorities recently arrested Huawei’s global chief financial officer Meng Wanzhou on allegations of fraud levelled by the US.
It comes as a signal for the emerging high-tech trade war between the United States and China.
What is the charge against Meng?
Meng is alleged to have tricked financial institutions into making transactions that violated US sanctions against Iran.
Between 2009 and 2014, Huawei used a Hong Kong company, Skycom Tech, to do business with telecom companies in Iran.
Huawei had tried to import US-made computer equipment there.
Banks in the US cleared transactions for Huawei, inadvertently doing business with Skycom.
When financial institutions asked Huawei about the allegations, Meng reportedly met with an executive from one institution.
He had said Huawei operated in Iran in compliance with US sanctions, and that it had sold its shares in Skycom.
But Canada alleges that Huawei operated Skycom as an unofficial subsidiary, making efforts to keep the connection secret.
Also, Meng’s presentation to the financial institution constituted fraud.
Meng faces possible extradition to the US, a process that can take time.
The arrest has led to China warning Canada and calling in the US Ambassador in Beijing to lodge its protest.
Is this the first time?
Huawei is the second big Chinese tech company to be accused of breaching those sanctions.
The first was ZTE Corp. in 2017.
The US punished ZTE by forbidding it from buying American components, most importantly, telecom chips made by US-based Qualcomm Inc.
Those restrictions were lifted after ZTE agreed to pay a fine.
Is it a trade war scenario?
These episodes highlight Chinese companies’ dependence on critical US technology.
US moves against Huawei and ZTE may be intended to force China to remain a cheap supplier instead of a threatening competitor.
More systematic efforts to block Chinese access to US components are in the works.
E.g. the recently passed Export Control Reform Act
It increased regulatory oversight of US exports of emerging and foundational technologies deemed to have national-security importance.
A second weapon in the high-tech trade war is investment restrictions.
The Trump administration has greatly expanded its power to block Chinese investments in US technology companies.
This is done through the Committee on Foreign Investment in the US (CFIUS) which has already cancelled a bunch of Chinese deals.
The objective is to prevent Chinese companies from copying or stealing American ideas and technologies.
By blocking these investors, the Trump administration hopes to preserve US technological dominance.
The European Union is also moving to restrict Chinese investments, signalling the less-publicised high-tech trade war.
How does the future look?
Trade - The high-tech trade war shows that for all the importance over manufacturing jobs, steel, autos and tariffs, the real competition is in the tech sector.
Losing the lead in the global technology race means lower profits and a disappearing military advantage.
So the US cannot afford to lose its dominance in the tech sector.
With the coming of the high-tech trade war, China's economic co-dependency with the U.S. would come to an end.
Investment restrictions may spur China to upgrade its own homegrown research and development capacity.
Relations - It is very recently that the US and Chinese Presidents declared a 90-day “truce” in their trade war. Click here to know more.
But the arrest in Canada of a Chinese telecom company executive signals a second US-China trade war.
China sees the moves as a political play to create leverage on trade or cripple Chinese technology companies.
This could potentially pose a challenge to the already difficult relationship.
