US, China trade war: Huawei CFO arrest proves Trump battle bigger than tariffs

After seemingly easing trade tensions with China over the weekend at the G20 summit, the US once again drew the ire of China on Wednesday after the arrest of Sabrina Meng Wanzhou, the CFO of Chinese tech giant Huawei.

Wanzhou, the daughter of Huawei founder Ren Zhengfei, was arrested in Canada and is expected to be extradited to the US on charges of violating US sanctions on Iran.

The move prompted immediate condemnation by Chinese officials and state media. It also raised growing fears among investors and analysts that the trade truce between President Donald Trump and Chinese Xi Jinping may already be dissipating.

“We believe this is a clear signal that the trade war is escalating to a new level,” Zhiwei Zhang, Deutsche Bank’s chief China economist, said Thursday. “We think the probability of US and China reaching a trade deal by March 1 has dropped to 30% from 40%.”

Stock markets across Asia and Europe dove following the news, and US markets opened similarly ugly.

While most of the focus during the trade war has been on Trump’s tariffs, Meng’s arrest is proof that the Trump administration’s battles with China aren’t confined to duties on goods.

Read more: The US-China trade war might still rage on despite a breakthrough deal between Trump and Xi»

The Department of Justice and other parts of the Trump administration have stepped up their crackdown in an attempt to address what the administration sees as systemic problems with China’s economic practices.

In just the last few months, the Department of Justice has taken several actions:

• September 25: The DOJ arrested Ji Chaoqun, a Chinese national in the US on a student visa, alleging that he was working for China’s Ministry of State Security in an attempt to contact engineers and scientists in the US with Chinese backgrounds.
• October 10: The US arrested Yanjun Xu, a senior MSS officer, after luring him to Belgium. The DOJ alleged the Chinese officer was attempting to steal trade secrets.
• November 1: The DOJ announced the creation of a task force called the China Initiative that is designed to go after Chinese economic espionage.

While Meng’s arrest was the most high-profile of the actions to date, the pattern paints a picture. Former US Attorney General Jeff Sessions made the administration’s position clear in a press conference announcing the China Initiative.

“As the cases I’ve discussed have shown, Chinese economic espionage against the United States has been increasing — and it has been increasing rapidly,” Sessions said. “We are here today to say: enough is enough. We’re not going to take it anymore.”

The US is also considering expanding the list of technologies that are banned from being exported to China, including as well as investment restrictions for Chinese firms in the US.

The Section 301 investigation on which the US tariffs were originally predicated focuses heavily on the theft of US companies’ intellectual property and forced technology transfers. Zhang said the chances of a deal to address those issues just got slimmer following Meng’s arrest.

“Public opinion in China will likely become more negative in respect to the trade war, and potentially against US companies,” Zhang said. “The government may find it difficult to tell the public that they have offered significant concessions to the US. The trade talk has just been resumed at the G20 meeting; now its outlook has darkened.”