The Huawei case is scrambling US-China relations. What happens next?

Posted at 6:07 AM, Dec 12, 2018
and last updated 2018-12-12 08:07:19-05

Top Chinese tech executive Meng Wanzhou has been released on bail, but the international crisis triggered by her arrest is snowballing.

President Donald Trump added a dramatic new twist on Tuesday by suggesting he may intervene in American efforts to prosecute Meng, the chief financial officer of tech giant Huawei, if it would help his pursuit of a trade deal with China.

Meng’s arrest in Canada has injected an unpredictable new element into the volatile relationship between the United States and China, the world’s top two economies, as they try to find a way out of their damaging trade war. Her case has prompted a backlash in China, alarmed businesses around the world and put Canada in the middle of a geopolitical standoff.

“If I think it’s good for what will be certainly the largest trade deal ever made — which is a very important thing — what’s good for national security — I would certainly intervene if I thought it was necessary,” Trump told Reuters in an interview published shortly after Meng was granted bail by a judge in Vancouver.

By casting Meng, the daughter of Huawei’s founder, as a potential bargaining chip in the trade talks, Trump has undermined the stance taken by senior officials in his administration that the case is strictly a law enforcement matter. It also provides more fuel for Chinese accusations that Meng’s detention is politically motivated.

So what happens next?

Meng’s next court date

Meng, 46, walked out of a court in Vancouver on Tuesday after posting bail of 10 million Canadian dollars ($7.5 million).

After spending 10 days in jail, she now faces a lengthy legal battle over whether she should be extradited to the United States, where prosecutors accuse her of helping Huawei get around sanctions on Iran.

As a condition of her release, she has agreed to surrender her passports and live in one of her two multimillion-dollar homes in Vancouver. She will also wear a GPS ankle bracelet and pay for an around-the-clock security detail, measures her legal team proposed to assuage concerns that she might return to China.

The United States has 60 days from the date of a provisional arrest to provide Canada with its formal extradition request and supporting documents. Canada’s Justice Department then has 30 days to decide whether to give the go-ahead for a hearing in which the request is weighed by a judge.

The process of approving or denying the US government’s request is expected to take months. Meng is next due back in court on February 6.

China’s tech ambitions

Meng’s arrest has set alarm bells ringing at Huawei, which is a vital part of China’s efforts to become a global tech powerhouse. It sells more smartphones than Apple (AAPL) and builds telecommunications networks in countries around the world.

Huawei, which is widely viewed by US government officials as a national security risk, has repeatedly said it’s unaware of any wrongdoing by Meng and insisted it follows all the laws and regulations where it operates.

The risk for Huawei is that the US case against Meng could evolve into a broader move against the company. The US government paralyzed Huawei’s smaller rival, ZTE (ZTCOF), for months earlier this year by blocking it from buying vital American-made parts. It did something similar to a Chinese chipmaker last month.

That kind of move against Huawei would have much wider consequences and potentially disrupt China’s efforts to lead the global introduction of 5G, the future of wireless technology.

After Meng’s arrest, Beijing’s 5G ambitions are hanging by “a thin thread,” analysts at investment bank Jefferies wrote in a research note Friday.

US-China trade talks

Trump’s suggestion that he could use Meng as leverage in trade talks with China contradicts what his top trade negotiator, Robert Lighthizer, said just days ago.

“It’s entirely a criminal justice matter,” Lighthizer said Sunday of Meng’s case during an interview on CBS. “It has nothing to do with anything I’m working on.”

Faced with a slowing economy and slumping financial markets, Chinese leaders are eager to reach a trade deal with the United States to prevent the trade war doing even more damage, analysts say.

But Meng’s case is a wild card. It has already fueled a nationalist backlash against American products from some Chinese businesses. If the Huawei executive is extradited to the United States, experts warn US and Canadian businesses in China could face retaliation.

The detention this week of a former Canadian diplomat working for a nonprofit group in Beijing has added to jitters among Western executives over whether they or their colleagues could get caught up in tit-for-tat reprisals.

“Meng’s arrest won’t cripple the [trade] talks on its own, but it makes an already difficult process much harder,” analysts at advisory firm Eurasia Group wrote in a commentary for CNN.