Just when prospects for a sustained trade detente between the world’s two largest economies appeared to be improving, the DOJ has kicked hornets nest.
Mere hours after Chinese officials finally affirmed President Trump’s description of Saturday’s trade ‘truce’ – this after fears that the true nature of the agreement might have been “lost in translation” helped trigger the worst one-day market selloff since October – the DOJ has gone ahead and kicked the hornet’s nest, seriously jeopardizing the prospects for a prolonged trade detente between the world’s two biggest economies.
Canada’s Globe and Mail reported Wednesday evening that Canadian authorities have arrested Wanzhou Meng, the CFO of Huawei Technologies and daughter of the telecom giant’s founder, Ren Zhengfei. An ex-officer with the People’s Liberation Army, Ren is one of the country’s most revered business figures. Wanzhou is facing extradition to the US on suspicions that she violated US sanctions against Iran (allegations that nearly resulted in a devastating Treasury “death sentence” earlier this year for Huawei rival ZTE).
“Wanzhou Meng was arrested in Vancouver on December 1. She is sought for extradition by the United States, and a bail hearing has been set for Friday,” Justice department Ian McLeod said in a statement to The Globe and Mail. “As there is a publication ban in effect, we cannot provide any further detail at this time. The ban was sought by Ms. Meng.
Prosecutors in New York have been investigating suspicions that Huawei violated US sanctions against Iran since earlier this year. News of the probe was first reported in April. We seriously doubt the Chinese leaders will interpret Wanzhou’s arrest as a gesture of good faith and trust at a time when negotiations over a possible trade truce were expected to finally begin in earnest after a months-long standoff. To understand the magnitude of this arrest, just imagine how the US would react if Beijing arrested Jeff Bezos’ (hypothetical) daughter? As investors digest the implications of the DOJ’s investigation, expect a kneejerk response where investors shoot first Thursday and dump shares of big Huawei suppliers, as they did with ZTE.