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Arrest of Chinese executive intensifies trade war fears

Global markets fell Thursday amid intensified concerns about an emerging cold war between the United States and China.

By: New York Times | Washington | Published: December 7, 2018 8:35:19 am
Arrest of Chinese executive Meng Wanzhou Huawei intensifies trade war fears The arrest of Meng Wanzhou, CFO of Huawei, further complicates efforts to resolve the United States’ trade war with China. (File Photo)

Written by Edward Wong

As President Donald Trump was arranging a trade truce with President Xi Jinping of China in Buenos Aires, Argentina, over dinner Saturday night, his administration was coordinating the arrest of a top Chinese technology executive who was flying through Canada.

White House officials, including John Bolton, the national security adviser who attended the dinner with Trump and Xi, knew of the impending arrest. So did a leading Senate Republican and Democrat. But it is unclear whether Trump knew of the arrest. And Xi was apparently never told at the dinner.

The detention is a boon to administration officials trying to limit the global spread of Chinese technology, especially equipment that poses security risks, and to enforce sanctions with Iran. But the move threatens to upend sensitive talks to resolve a trade war between the world’s two largest economies.

Global markets fell Thursday amid intensified concerns about an emerging cold war between the United States and China, a sign that the 90-day trade truce announced by Trump and Xi would not quickly produce an end to the trade war.

The arrest of Meng Wanzhou, chief financial officer of Huawei and daughter of its billionaire founder, was the culmination of a monthslong investigation by a Brooklyn office of the Justice Department into whether the flagship Chinese company had violated Iran sanctions, US officials said. She was detained Saturday while in transit in Vancouver, British Columbia, at the request of the United States, which now wants her extradited.

Bolton told NPR in an interview Thursday that he knew in advance that Meng’s arrest was coming. He said such notifications from the Justice Department “happen with some frequency,” and “we certainly don’t inform the president on every one of them.”

The Justice Department typically briefs the White House in advance of actions in cases that are going to garner national attention or impact the public interest. Before Meng was arrested, Justice Department officials notified the White House office of legal counsel, according to an administration official.

Arrest of Chinese executive intensifies trade war fears Meng Wanzhou, Executive Board Director of the Chinese technology giant Huawei. (Reuters Photo by Alexander Bibik)

The department also notified the chairman of the Senate Intelligence Committee, Richard Burr, R-N.C., and its ranking Democrat, Mark Warner of Virginia, according to a committee staff member.

Xi was apparently never told of the intent to arrest Meng at the dinner with Trump, where Bolton was present. The arrest came as a surprise to the Chinese government, which is calling for her immediate release and has accused the United States and Canada of human-rights violations.

“To detain someone without giving clear reason is an obvious violation of human rights,” Geng Shuang, a spokesman for China’s Foreign Ministry, said at a news conference Thursday.

While Meng’s arrest is a warning to other nations about the administration’s intolerance of economic sanction violations and its security concerns about doing business with Chinese technology companies, it further complicates efforts to resolve the United States’ trade war with China.

Trump has prioritized both curbing China’s rise as a technological powerhouse and enforcing economic sanctions on Iran. At the same time, he has increasingly linked trade matters with national security — imposing new restrictions on Chinese investment in the United States and hitting China with tariffs on $250 billion worth of Chinese goods, including many products that the administration views as critical to US national security, like nuclear reactor parts and semiconductors.

Trump argues that tougher sanctions will force Iran to abandon its nuclear weapons program, and in May he said the United States was withdrawing from a multinational agreement forged by President Barack Obama.

The Justice Department has not revealed exactly what Huawei was doing to run afoul of the sanctions. Chinese companies regularly do business in Iran, and much of that trade complies with sanctions regulations. But the Trump administration previously punished another Chinese telecom firm, ZTE, for violating US sanctions against Iran and North Korea. The question over Huawei appears to be whether it violated sanctions by selling technology from the United States to Iran or in some other manner.

“In the past we have dealt with these cases by interrupting the legal process to avoid offending the Chinese Communist Party,” said Robert Spalding, a retired Air Force general who was on the National Security Council until January.

“In essence that is what has made geopolitics so challenging to American interests in the last 20 years,” he said. “If we want an international system that is not solely based on power politics, there should be due process and transparency. If Huawei is not guilty of selling technology to the Iranians, then let the legal process play out. If we truly want a liberal international order, this is our chance to prove it.”

China has been critical of Trump’s withdrawal from the nuclear treaty, and last month, a top Chinese foreign policy official, Yang Jiechi, said in Washington that the United States should honor the nuclear agreement, which eases sanctions on Iran in exchange for the nuclear freeze. The Iran issue was a notable point of conflict in a meeting that Yang and the Chinese defense minister had with Mike Pompeo, the secretary of state, and Jim Mattis, the defense secretary.

China continues to be the biggest buyer of Iranian oil, while the United States aims to lower Iran’s oil exports to zero. When it imposed a round of strict sanctions on Iran last month, the United States had to grant China and a handful of other nations waivers to continue buying oil for six months.

Huawei and Meng are at the top of China’s corporate world, thrusting diplomatic and policy issues in the mix along with law enforcement priorities as the Trump administration weighs its next moves.

On Saturday, as Meng was being arrested in Canada, Trump and Xi said at a working dinner at the Group of 20 summit in Argentina that they had reached a truce on the trade war, which Trump started over the summer. That conflict has roiled global markets, which in turn has made Trump uncomfortable. The two nations set a goal of reaching a broader trade agreement within 90 days. The timing of Meng’s arrest appeared to be coincidental.

But that arrest means the trade talks will almost certainly become more difficult. China could cancel upcoming rounds of the talks; in September, China canceled talks after Trump announced new tariffs.

Besides aiding sanctions policy on Iran and North Korea, the arrest allows the Trump administration to underscore the risks of doing business with large Chinese technology companies. US officials, including Spalding, have warned other nations not to deal with Huawei or ZTE. (It was the earlier Justice Department investigation of violation of Iran sanctions by ZTE that helped lead to the Huawei inquiry.)

US officials have raised questions about how closely tied the two companies are to Chinese security agencies and the People’s Liberation Army. The founder of Huawei and Meng’s father, Ren Zhengfei, is a former army engineer who has become one of China’s most successful entrepreneurs. US officials are urging other countries to not enter into deals with Huawei on developing fifth-generation, or 5G, wireless service networks.

Members of Congress have also been involved in the efforts. In October, two members of the Senate Intelligence Committee — Warner and Marco Rubio, R-Fla. — wrote Prime Minister Justin Trudeau of Canada to urge him to prevent Huawei from supplying equipment for his country’s 5G network. In August, Australia barred Huawei and ZTE from providing equipment for building 5G network infrastructure.

If Meng were to stand trial, prosecutors might try to lay out ways in which the United States believes Huawei is tied to the Chinese Communist Party and various state agencies, and highlight potential security compromises related to that.

The National Security Agency breached Huawei servers years ago in an effort to investigate its operations and its ties to Chinese security agencies and the military, and to create back doors so the NSA could roam in networks around the globe wherever Huawei equipment was used.

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