OPINION: No Country Is Safe From the US-China Trade War

OPINION: No Country Is Safe From the US-China Trade War
Credit: Reuters / Lindsey Wasson

What you need to know

The conflict between two tantrum-prone superpowers may leave no US ally unscathed.

Last week Canada was dragged full-square into the United States’ widening economic war on China. American authorities requested the extradition of the chief financial officer of Chinese technology giant Huawei, Meng Wanzhou, while she was in transit through Vancouver from Hong Kong to Mexico.

The arrest is significant on many levels. Meng is the daughter of Huawei’s founder, Ren Zhengfei. Huawei is a major Chinese private corporation, one of China’s technology champions, and Meng one of its top executives. The Chinese government cannot but have a major interest in the matter.

The arrest takes place in the early phase of the negotiations during a truce in the trade war between the United States and China. President Trump has linked Meng’s release to favorable settlement of the trade war and this alone has the potential to derail a settlement between the two powers. On the Canadian account (from its Prime Minister Justin Trudeau and, in more detail, from Foreign Minister Chrystia Freeland) the arrest is a consequence of Canada’s haplessly fulfilling its international legal treaty obligations at the request of its neighbor and ally, the United States, with no political interest in the matter. However, two prominent Canadians – a former diplomat and a North Korea tour company operator – were subsequently detained in China. The collateral damage to Canada–China relations from the U.S.–China contest of power seems almost inescapable. It could equally well be Australia, Japan, the United Kingdom or Germany in the frame.

Credit: Reuters / Lindsey Wasson
A man holds a sign calling for China to release dissident Wang Bingzhang and former Canadian diplomat Michael Kovrig, who was detained in China on Monday night, at the B.C. Supreme Court bail hearing of Huawei CFO Meng Wanzhou in Vancouver on Dec. 11, 2018.

The context of the arrest matters enormously as prominent U.S. economist Jeff Sachs argues. Sachs suggests that the ‘move is almost a U.S. declaration of war on China’s business community. Nearly unprecedented, it puts American businesspeople travelling abroad at much greater risk of such actions by other countries. … Quite transparently, the U.S. action against Meng is really part of the Trump administration’s broader attempt to undermine China’s economy by imposing tariffs, closing Western markets to Chinese high-technology exports, and blocking Chinese purchases of U.S. and European technology companies.’

Sachs says that it is no exaggeration to suggest that Meng’s arrest is part of an economic war on China, a war that he claims is a reckless one at that.

The collateral damage to Canada–China relations from the U.S.–China contest of power seems almost inescapable. It could equally well be Australia, Japan, the United Kingdom or Germany in the frame.

The formal U.S. charges against Meng focus on the alleged violations of international sanctions against trading with Iran via a Hong Kong-based subsidiary of Huawei. The American authorities claim she misled banks about Huawei’s involvement, thus allowing the banks to clear transactions that potentially violated sanctions. A U.S. judge issued a warrant for her arrest in August. The United States is seeking her extradition to have her appear in a federal court to face these charges.

But Sachs points out that the United States rarely arrests senior businesspeople, American or foreign, for crimes allegedly committed by their companies. Corporate managers are usually arrested for their alleged personal crimes (such as embezzlement, bribery or violence) rather than their company’s alleged malfeasance. He says that to start this practice with a leading Chinese businessperson, rather than the dozens of culpable U.S. CEOs and CFOs, is a stunning provocation to the Chinese government, business community, and public.

‘Huawei is one of China’s most important technology companies, and therefore a prime target in the Trump administration’s effort to slow or stop China’s advance into several high-technology sectors. America’s motivations in this economic war are partly commercial – to protect and favor laggard U.S. companies – and partly geopolitical. They certainly have nothing to do with upholding the international rule of law’, Sachs declares.

Credit: Reuters / David Ryder
Lisa Duan, a visitor from China, holds a sign in support of Huawei outside of the B.C. Supreme Court bail hearing of Huawei CFO Meng Wanzhou, who is being held on an extradition warrant in Vancouver on Dec. 10, 2018.

The broader strategic context in which Meng’s arrest sits is a concerted U.S. campaign to dissuade allies from using Huawei telecommunications equipment and push back against China’s developing chip capacity in an increasingly digitally connected world. Every channel and U.S. agency of influence that can be is being brought to bear on US allies and partners, prominently but not only the so-called Five Eyes security partners, to achieve this objective. The case for compliance is far from being clear-cut, neither on economic grounds nor. plausibly, on geopolitical grounds. The strategy is unlikely to isolate China from developing competitiveness in frontier digital technologies. More likely there will be a division of the world into two major telecommunications blocs, one where Huawei and Chinese firms dominate Asia and Africa and another dominated by America that includes the United States and some of its closest but not all of its allies.

The trade war over steel, cars and agricultural goods may be where the United States has formally declared battle with China, but it is the battle over technology where it fears it has most to lose and, almost certainly wrongly, certain chance of victory.

In this week’s lead essay at East Asia Forum, James Curran points out that, ‘for all the legitimate concerns about increasingly aggressive Chinese economic and strategic statecraft, it seems no U.S. allies want to be shoehorned into a new Cold War.’ There is the overriding question, too, he adds, as to whether in the end there is the political and popular will in the United States for a ‘long twilight struggle’ with Beijing.

In countries like Australia, connected through alliance relationships with Washington, the ‘trumpet-sounding and drum-beating’ chorus that would march into a new Cold War without calculation of its costs or the likelihood of its success to the nation and the world has become that much louder. There’s a growing instinct, Curran argues, to resist its call and not ‘slip into the tired clichés of a world that passed away nearly 30 years ago.’ But it will now require more strategic and more active diplomacy with countries that have similar instincts and objectives in the region and around the world and in engagement with China and the United States if that is to be avoided.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.


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