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China politics trade

Trump Now Taking Hostages, Will Use Huawei CFO As ‘Leverage’ In Trade Talks

This is a bad idea.

It’s hard to imagine that the U.S. would take such a dramatic step without considering the ramifications for the fledging trade truce.

That’s what we said on Wednesday evening while assessing news that Canada had arrested Huawei Technologies CFO Wanzhou Meng who now faces extradition to the U.S. in connection with allegedly running afoul of U.S. sanctions on Iran.

To say that news damaged already fragile sentiment about the tenuous trade truce struck last weekend in Buenos Aires would be an understatement. Global markets reacted violently to the news and while U.S. stocks managed to claw back losses by the time the closing bell sounded on Wall Street, things were looking exceptionally dire during morning trading.

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‘China Will Take Hostages’: Huawei CFO Arrest Grabs Top Billing For Nervous Markets

Fast forward to Thursday evening and we now learn that Meng was arrested around the same time Donald Trump was sitting down for dinner with Xi Jinping and the Chinese delegation in Argentina.

John Bolton, who could be seen sitting at the table and, in some pictures from the event, flashing an ear-to-ear smile from beneath his famous mustache, told NPR today that he knew in advance of Washington’s demand request that Canada detain Meng. The White House was quick to say that Trump himself was not aware of the arrest, a futile effort to dispel the notion that the U.S. President was negotiating in the baddest of bad faith.

Apparently, it was something of a coincidence that Meng ended up in Vancouver on Saturday just as Trump was preparing to dine with Xi, but that’s really beside the point. The U.S. knew this was going to happen sooner or later and Trump still looked the Chinese strongman in the eyes and pretended as though nothing was afoot that might upend the deal they were about to strike.

On Wednesday evening, in the same linked post cited here at the outset, we highlighted some quotes from James Lewis, a former Commerce Department official who worked on Chinese high tech policy and who spoke to Axios about the arrest. “Huawei is one of the Chinese government’s pet companies,” he said, adding the following:

They will retaliate and China will take hostages. If I was an American tech executive, I wouldn’t travel to China this week.

Well, guess what? It sounds like Meng herself is a hostage.

“Trump administration official tell CNN there’s a plan for the US to seek extradition of Huawei Technologies CFO Meng Wanzhou, arrested in Canada”, Jake Tapper said Thursday in a tweet, before contending that “the view among some officials is that she could be used as leverage with China in trade talks.”

So, not only did Trump negotiate in bad faith by failing to mention a plot to have Meng arrested, the administration now plans to effectively hold her for ransom.

As noted on Wednesday night, this is just the latest (and most serious) escalation in an ongoing U.S. effort to turn the screws on Huawei. Here’s what Bolton told NPR in the same interview mentioned above:

Steve InskeepWe’ll just dive right in. But I want to start with the arrest that we learned about last night and that I presume you’ve known about for some time. What is the message that is sent by the arrest of Meng Wanzhou?

National Security Adviser John Bolton: Well, I’d rather not get into the specifics of law enforcement matters but, but we’ve had enormous concern for years about … in this country about the practice of Chinese firms to use stolen American intellectual property to engage in forced technology transfers and to be used really as arms of the Chinese government’s objectives in terms of information technology in particular. So not respecting this particular arrest, but Huawei is one company we’ve been concerned about, there are others as well. I think this is going be a major subject of the negotiations that President Trump and President Xi Jinping agreed on in Buenos Aires.

We’ll say this: Bolton is absolutely correct to contend that this is “going be a major subject of the negotiations”.

In fact, it may end up being the only “subject” that matters and could well end up deep-sixing “negotiations” once and for all if everybody isn’t careful.

For what it’s worth, Barclays laid out what they believe are the four possible outcomes from this situation in a note dated Thursday. We’ll leave you with the list:

  1. A positive scenario would entail no eventual charges against Huawei, which we believe is unlikely.
  2. A neutral scenario that would involve financial penalties, charges against individuals, and/or corrective action by Huawei.
  3. A worse-case scenario may involve a ban of the sale of US technological products to Huawei, which could affect a portion of its sales, if Huawei is found guilty.
  4. A more drastic scenario would involve financial sanctions, including restrictions on holding Huawei bonds.

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