What is the issue?
- Canadian authorities recently arrested Huawei’s global chief financial officer Meng Wanzhou on allegations of fraud levelled by the US.
- It comes as a signal for the emerging high-tech trade war between the United States and China.
What is the charge against Meng?
- Meng is alleged to have tricked financial institutions into making transactions that violated US sanctions against Iran.
- Between 2009 and 2014, Huawei used a Hong Kong company, Skycom Tech, to do business with telecom companies in Iran.
- Huawei had tried to import US-made computer equipment there.
- Banks in the US cleared transactions for Huawei, inadvertently doing business with Skycom.
- When financial institutions asked Huawei about the allegations, Meng reportedly met with an executive from one institution.
- He had said Huawei operated in Iran in compliance with US sanctions, and that it had sold its shares in Skycom.
- But Canada alleges that Huawei operated Skycom as an unofficial subsidiary, making efforts to keep the connection secret.
- Also, Meng’s presentation to the financial institution constituted fraud.
- Meng faces possible extradition to the US, a process that can take time.
- The arrest has led to China warning Canada and calling in the US Ambassador in Beijing to lodge its protest.
Is this the first time?
- Huawei is the second big Chinese tech company to be accused of breaching those sanctions.
- The first was ZTE Corp. in 2017.
- The US punished ZTE by forbidding it from buying American components, most importantly, telecom chips made by US-based Qualcomm Inc.
- Those restrictions were lifted after ZTE agreed to pay a fine.
Is it a trade war scenario?
- These episodes highlight Chinese companies’ dependence on critical US technology.
- US moves against Huawei and ZTE may be intended to force China to remain a cheap supplier instead of a threatening competitor.
- More systematic efforts to block Chinese access to US components are in the works.
- E.g. the recently passed Export Control Reform Act
- It increased regulatory oversight of US exports of emerging and foundational technologies deemed to have national-security importance.
- A second weapon in the high-tech trade war is investment restrictions.
- The Trump administration has greatly expanded its power to block Chinese investments in US technology companies.
- This is done through the Committee on Foreign Investment in the US (CFIUS) which has already cancelled a bunch of Chinese deals.
- The objective is to prevent Chinese companies from copying or stealing American ideas and technologies.
- By blocking these investors, the Trump administration hopes to preserve US technological dominance.
- The European Union is also moving to restrict Chinese investments, signalling the less-publicised high-tech trade war.
How does the future look?
- Trade - The high-tech trade war shows that for all the importance over manufacturing jobs, steel, autos and tariffs, the real competition is in the tech sector.
- Losing the lead in the global technology race means lower profits and a disappearing military advantage.
- So the US cannot afford to lose its dominance in the tech sector.
- With the coming of the high-tech trade war, China's economic co-dependency with the U.S. would come to an end.
- Investment restrictions may spur China to upgrade its own homegrown research and development capacity.
- Relations - It is very recently that the US and Chinese Presidents declared a 90-day “truce” in their trade war. Click here to know more.
- But the arrest in Canada of a Chinese telecom company executive signals a second US-China trade war.
- China sees the moves as a political play to create leverage on trade or cripple Chinese technology companies.
- This could potentially pose a challenge to the already difficult relationship.
Source: Indian Express, BusinessLine
