Update: Since my PBS appearance, China has arrested a Canadian diplomat in Beijing As I told Sue, Xi cannot politically afford to NOT respond in kind when the US seizes a prominent leader. Stay tuned–there will be more of this.
I had a special treat last week when I got to work with my dear friend and PBS Nightly Business Report anchor Sue Herera to talk about the impact of the news that the US had engineered the arrest of Huawei CFO Meng Wanzhou as she was changing planes in Vancouver. My view: some impact on markets but huge impact on US businesses operating in China. You can see a short video of the spot by clicking here. (Our Huawei discussion is between 7:52 – 12:05 on the video). Or if you are getting tired of hearing my TV voice you can read the transcript by clicking here.
Sue asked whether today’s action mean trade war tensions will get worse from here and what impact will it have on markets. My answer: this marks a clear escalation in the US/China cat fight; it is important for markets; it is dangerous for the many US companies and executives working in China.
First, as Sergeant Friday used to stay, the facts:
- Meng Wanzhou was arrested by Canadian officials while changing planes in Vancouver at the request of the US government. Canada had effectively no choice in the matter pursuant to a long-standing US/Canada extradition treaty.
- Although news of the arrest hit the markets on Thursday, the arrest has actually made 5 days earlier, on Saturday December 1, at almost exactly the same time that Trump and Xi were having dinner at the G20 meeting in Buenos Aires. The story was kept under wraps until today.
- Justin Trudeau knew about the impending arrest before he arrived in Buenos Aires. Trump knew about it while he sat across the table from Xi Jinping during the much-televised dinner in Buenos Aires last Saturday.
Meng Wanzhou is, indeed, Huawei’s CFO (and Deputy chair of the board) but that is the least interesting part of the story. She is the daughter and heir-apparent of Huawei’s chairman, billionaire founder Ren Zhengfei, who is a well-known F.O.X. (Friend Of Xi). This was a public slap in Xi Jinping’s face.
There is absolutely no doubt there will be a Chinese reprisal–we just don’t know what it will be. It is not likely to be a formal trade policy; China is more of a rule-of-man than a rule-of-law environment and Xi is the man. Most at risk? US companies operating in China and US executives traveling in China.
Follow On to the story: This week I was able to continue the discussion with CNBC Squawk on the Street anchors Carl Quintanilla and David Faber. You can see a short video of the appearance by clicking here.
My point here is that under the headlines of the Huawei story there is a serious chess match underway on whether China or the US will build and control the global 5G telecom network that will be the backbone for all productivity growth in the coming decades. Huawei is China’s horse in this race and the Chinese government is employing its One Belt One Road initiative to great advantage in emerging economies. I am sure we will talk more about this in future shows.
JR
