Huawei executive's arrest puts more pressure on Trump and Xi as they grapple over the global order

Key Points
  • The arrest of Meng Wanzhou, chief financial officer of Chinese tech giant Huawei, opened up a new front in the already fraught relationship between Washington and Beijing.
  • Meng is scheduled to appear at a bail hearing in Vancouver on Friday.
  • In public, China has condemned the arrest. But privately, Beijing has to decide now whether to tie the fate of U.S.-China trade negotiations to the fate of one executive.
President Donald Trump takes part in a welcoming ceremony with China's President Xi Jinping on November 9, 2017 in Beijing, China. 
Pool | Getty Images

The arrest of a top executive at Chinese tech giant Huawei on charges reportedly stemming from the company's violation of U.S. sanctions on Iran opened up a new front in the already fraught relationship between Washington and Beijing.

The arrest of Huawei Chief Financial Officer Meng Wanzhou on Saturday came on the same day the countries entered a 90-day tariff truce that will be marked by rapid fire negotiations on more than 100 specific trade and competitiveness issues. Experts said the timing of the arrest appeared coincidental, despite accusations from China that it was an orchestrated political stunt aimed at giving President Donald Trump additional leverage in the talks.

But while Meng's arrest did not stem directly from the talks, it made them even more complicated and sensitive. It also served as a stark reminder of the deep frustrations that underpin Washington's relationship with Beijing.

"Meng's arrest is yet another indicator that the so-called trade war is not primarily about trade," said Robert Daly, director of the Kissinger Institute on China and the United States at the Woodrow Wilson Center. "Trade is one aspect of a global U.S.-China competition for influence that comprises, strategic, economic, normative, ideological, and increasingly, technical arenas."

Meng was detained by Canadian authorities acting on a U.S. extradition request as she changed planes in Vancouver. The same day, Trump and Chinese President Xi Jinping held a three-hour working dinner in Buenos Aires, where they agreed to suspend any new tariffs for 90 days while negotiators try to reach a deal to halt the escalating trade war.

Why the case is so complicated

The timing of Meng's detention immediately raised suspicions in Beijing that the United States had orchestrated to create additional leverage in the trade talks.

As of Friday morning, neither the Justice Department nor Canadian authorities had released details about the sequence of events leading up to Meng's arrest. On Thursday, national security advisor John Bolton told National Public Radio he knew in advance of Canadian authorities' plan to detain Meng. Bolton told NPR he didn't know whether Trump knew in advance, but The Washington Post said the president learned of the arrest after the dinner and was furious about it.

But it's likely that the timing of the arrest "was coincidence, and not a carefully orchestrated coordination designed to influence the trade talks," former longtime Justice Department prosecutor Richard Serafini told CNBC on Thursday.

The fact that Meng was detained at an airport "makes it seem to me even less likely that it was coordinated" with the trade talks, said Serafini, noting that neither U.S. nor Canadian authorities would have had control over Meng's travel plans.

Larry Kudlow says Huawei case may not spill over into trade talks
Larry Kudlow says Huawei case may not spill over into trade talks

Meng was scheduled to appear in a Canadian court on Friday for a bail hearing, where the charges against her are expected to be made public for the first time.

After that, Meng will likely "either agree to the extradition or decide to fight it," said Serafini. "If she fights it, it could be a considerable amount of time before she ever sets foot on U.S. soil," he said. This phase of the prosecution would take place entirely in a Canadian court, Serafini said, "and the Canadian court would make a final determination."

During that time, Serafini said, "there will likely be steps taken by the Canadians to ensure that she can't leave the country. But she's not likely to remain behind bars."

Meng's extradition process will be separate from whatever charges she faces in the United States, Serafini explained.

"Before she could strike a deal on the U.S. charges, she would need to be before an American court," he said. Nonetheless, "this doesn't preclude the possibility of back-channel talks between the U.S. and China about her case."

But even as China publicly protests Meng's detention, privately, Beijing has to decide whether to tie the fate of the trade negotiations to the fate of one Chinese executive, said Daly.

"China may delay trade negotiations to express its displeasure, but it can't take that approach for long if it wants a resolution," he said.

"Watch the way the Meng story plays out in the Chinese press and on WeChat," he said, referring to China's version of Twitter. "Beijing can either staunch or stoke public opinion. If Chinese propaganda organs play up the Meng story, Beijing is linking Meng's arrest and the trade dispute. If the Chinese media and netizen response is muted, Beijing wants to handle the negotiations and the Huawei issue on separate tracks."

Why the U.S. is angry about Huawei

In Washington, news of Meng's arrest was greeted with a rare show of bipartisan support, as members of Congress in both parties emphasized the threat they said Huawei and other Chinese telecom giants posed to U.S. national security.

"There is ample evidence to suggest that no major Chinese company is independent of the Chinese government and Communist Party — and Huawei, which China's government and military tout as a 'national champion,' is no exception," said Sen. Mark Warner, D-Va., a former telecom executive and now the ranking member of the powerful Senate Intelligence Committee.

Huawei, the world's second-largest smartphone maker after Samsung, insists that it has no formal ties to the Chinese government and that it abides by all international and domestic laws in the countries where it operates.

But critics note that company founder Ren Zhengfei, who is Meng Wanzhou's father, spent the first part of his career as an officer in the Chinese military.

It's clear that the White House views the actions of Chinese companies like Huawei as part of a broader problem.

"We've had enormous concerns for years about the — 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 as arms of the Chinese government's objectives in terms of information technology in particular," Bolton told NPR.

"So not respecting this particular arrest, but Huawei is one company we've been concerned about. There are others as well," Bolton said. "I think this is going to be a major subject of the negotiations that President Trump and President Xi Jinping agreed to in Buenos Aires."

National security, global power

But the Trump administration's strategy of tying the trade talks to larger, strategic issues that impact China's global competitiveness is a risky one, said Daly.

"The more issues like the Meng arrest remind Chinese leaders — and make clear to the Chinese people — that the balance of power is the bone of contention, the less likely it is that the two sides will come to an understanding over trade and investment," he said.

"I'm very concerned that that's just going to ratchet this trade war and make negotiations much more difficult," Gary Locke, a former U.S. ambassador to China under President Barack Obama, said in an interview with The Wall Street Journal. "This is I think a really hot button, almost a grenade, with respect to the 90-day negotiations."

But that's not how current and former Trump administration officials see the move.

"This action is checking several different boxes and addressing several problems around the world at once," said Chris Garcia, a former deputy director at the Commerce Department under Trump.

This action is checking several different boxes and addressing several problems around the world at once.
Chris Garcia
former Commerce Department deputy director

"It's sending a message that we plan to enforce the Iran sanctions; it's addressing these major national security issues we have with the way China structures telecom deals; and if it gives us more leverage to break down trade barriers in other industries like agriculture and manufacturing, then that's simply another bonus," Garcia told CNBC.

Like the other experts interviewed for this story, Garcia believes trade talks were never the driving force behind the Huawei prosecution.

Rather, he said, it was national security, a reality that was underscored on Thursday by the fact that the only White House official who publicly addressed the Huawei situation was Bolton, the national security advisor, who is considered to be hawkish on Iran and China.

In an interview with CNBC on Friday, White House economic advisor Larry Kudlow said: "Look, we have these sanctions on Iran that runs against our policy. Why shouldn't we enforce that?" But he also expressed doubt that it would affect the trade talks.

Representatives for the Commerce Department and Justice Department declined to comment when contacted by CNBC.

But Trump was upbeat. In a tweet Thursday evening, he repeated an optimistic statement from the Chinese Commerce Ministry's spokesman earlier in the day.

"Statement from China: 'The teams of both sides are now having smooth communications and good cooperation with each other. We are full of confidence that an agreement can be reached within the next 90 days.' I agree!" Trump wrote.

And on Friday morning, he tweeted: "China talks are going very well!"