Will the Huawei Arrest Influence the U.S.-China Trade Talks?

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The arrest of Meng Wanzhou, chief financial officer of China’s Huawei, by Canadian police upon the request for extradition by the U.S. Federal Bureau of Investigation has resulted in confusion regarding U.S.-China trade negotiations.

Some believe hardline national security elements of the U.S. government ordered the extradition request in order to sabotage the trade talks or at least to disregard them in the historic tradition of U.S. national security agencies putting their concerns above trade issues.

Some believe that President Trump ordered the extradition request as a way of bringing pressure to bear on Chinese President Xi Jinping for further trade concessions.

Some believe the U.S. has a vendetta against Huawei and senselessly got carried away by its hatred in a way that may undermine the trade discussion.

As it happens, the truth is almost certainly much less exciting.

Let’s start with the last issue. It is true that the U.S. government has a deep concern regarding Huawei. But that concern is not entirely without foundation. Huawei is the world’s largest telecommunications-equipment maker. Its founder came from the People’s Liberation Army  and has had a continuing close relationship with the PLA as well as with other security agencies of the Chinese government. It has been the beneficiary of extensive government subsidies, contracts, protection, and, some say, government-sponsored hacking of foreign technology companies and of the U.S. government.

The U.S. government has charged Huawei with illegally selling U.S. components to Iran, and the FBI has been tracking Huawei executives for some time for purposes of making an arrest. It was fortuitous that Meng happened to be in Canada when she was, but the FBI move was not made in a sudden fit of anger. The warrant for arrest had been out for some time.

Did a group of hawks deliberately try to sabotage the trade talks? The Chinese probably wouldn’t mind if this view were widely believed, but it seems unlikely. In the first place, the real hawks are the administration’s trade negotiators led by U.S. Trade Representative Robert Lighthizer and Assistant to the President Peter Navarro. They certainly didn’t want to sabotage themselves. Moreover, since the timing of the arrest was fortuitous, it was not something that could have been purposely arranged to sabotage the trade talks.

If it’s true that Trump and Lighthizer did not know of the arrest in advance, it does raise the issue of why no one told them. There are two possible explanations. One is that the FBI was focused on its case and simply didn’t think of the arrest in the context of the trade talks. However, National Security Adviser John Bolton was informed but did not pass the information on to the president. Informing the national security adviser would be a natural thing to do in this kind of a situation.

Why didn’t Bolton inform the president? One possible answer is that he saw it was a case of the FBI simply doing its job and thus there was no reason to interrupt the president who was in the midst of discussions with President Xi. Another is that Bolton is a national security hawk who might prefer a breakdown in trade talks that might relieve pressure within the U.S. government to take more vigorous defense measures with regard to China. Or maybe it was a combination of the two. Take your pick.

What about the notion that the president ordered the arrest precisely in order to wring more trade concessions from Xi? This is unlikely. First, the timing was unpredictable, and the president could not have known in advance that an arrest was even possible. Second, intertwining the arrest with the trade talks would be more likely to undermine the talks than to lead to greater concessions.

Of course, the president subsequently has thrown doubt into the equation by stating that he would intervene to halt proceedings against Meng if he got a really big trade deal from Xi. But the fact is that the president does not have the authority to intervene in the legal proceedings against Meng. So his statement seems to be something he thought of subsequent to, rather than before, the arrest.

A key part of the equation is Lighthizer’s strong insistence that the talks and the arrest are two completely different and unrelated activities. He knows the Chinese would probably like a public perception of some kind of relationship because that would weaken his negotiating hand. So he is emphasizing that the talks and the arrest are not at all entangled. Since Lighthizer would be the big loser in the case of any entanglement, it is easy to believe he was not part of any nefarious scheme.

In summary, it’s highly likely that Meng’s arrest and the new U.S.-China trade talks were not initially related. The degree to which the Chinese government and the Trump administration allow them to become part of the negotiations remains to be seen. I just hope that the Trump administration keeps them separate. Too many times in the past, the U.S. government has needlessly sacrificed crucial trade priorities to the goals or concerns of national security agencies. It would be a shame for that to happen again.





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