The arrest of Meng Wanzhou, chief financial officer of Huawei, is threatening a diplomatic incident
Detained: Meng Wanzhou, Huawei's chief financial officer © Reuters

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As news of the arrest of Meng Wanzhou, the Huawei chief financial officer, broke — adding a serious twist to the trade war consuming the US and China — I was in London for the World Trade Symposium, a two-day conference on what the future of trade might look like.

The symposium was an eye-opener in that it highlighted the way in which new technologies are radically transforming the nuts and bolts of trade, changing the nature of products that are exchanged across borders, and the ways in which these sales are financed in the digital age. But here’s the catch. It is far from clear that these advances can thrive in a world of economic conflict and strategic confrontation between Washington and Beijing.

The Huawei case dealt a significant blow to markets last week because it offered a stark reminder that behind the battle over tariffs and trade deficits between the US and China lies a struggle over the technologies of the future. The US has long believed that Huawei is a de facto agency of the Chinese government with the ability — and possibly even a mission — to infiltrate foreign telecoms networks to steal details of systems used by companies and governments. Many other western countries now think the same.

Huawei denies those accusations. But it is only the tip of the iceberg. Because of national security fears, last month the US commerce department produced a list of emerging technologies for which it is considering export controls. Although China was not mentioned by name, the move is clearly aimed at preventing Silicon Valley from selling products ranging from genomics to robotics and AI to Beijing and enabling it to leapfrog the US as an innovative economy and potentially as a strategic power.

But the costs of such widespread controls could backfire on Washington if it follows through on the plan. US technology companies would be deprived of a major market for their newest products — their ability to participate in schemes to develop them that often involve researchers in other countries would be hampered.

Yet China hawks in the US administration may think it’s a risk worth taking. A similar logic could apply to trade finance. As traditional ways of funding the purchases of goods and services across borders are reshaped by fintech, including blockchain, the potential for large and small businesses to benefit from the expansion of export credit is huge. But governments may be uneasy allowing these products to flourish, and seem to be moving policy in the other direction. Trade tensions aren’t helping.

In trade debates since the beginning of the digital revolution in the late 1990s, the biggest obstacle to greater commercial exchange of digital technologies has been privacy, with some countries insisting on preventing data from leaving their borders. Now the issue is national security, and it raises the stakes in a big way.

Canada is caught in the crossfire

Pity the Canadians. When Meng Wanzhou needed to travel from China to Mexico she must have known that it was unwise to arrange a layover in the US, instead deciding to stop in Vancouver. It is obvious now that the Huawei CFO did not count on Canada arresting her on US sanctions-busting charges, pending an extradition request from Washington.

China has reacted with fury against Ottawa, warning Justin Trudeau’s liberal government that it should release Ms Meng or face consequences. Ms Meng has denied the charges.

Canada has insisted that detaining Ms Meng was not a political decision but an act by its independent judiciary. Yet there is little doubt that Canada is caught in the crossfire between Washington and Beijing, and is having to choose between the two feuding powers. Despite all the friction with the Trump administration, Canada is still so economically dependent on the US that it will inevitably remain on its side when push comes to shove.

And expect more countries to get stuck in the middle and be forced to pick between the two. In Asia, Africa, Latin America and eastern Europe, regions where Beijing has made large investments in recent years, states may have a tough time deciding which way to turn.

Number of the week — $1.5tn

Alisa DiCaprio, head of research at R3 and formerly an economist at the Asian Development Bank, produced this estimate of the gap in financing needs for international trade transactions in 2017.

Chart of the week

Courtesy of a tweet from Peter Martin, a Bloomberg reporter in China. This shows Huawei overtaking Cisco in recent years, at least by revenue. Huawei’s revenue versus Cisco’s since 2012

Further reading and watching

  • Robert Lighthizer, US Trade representative, made a rare appearance on the Sunday talk shows to clear the air on the US-China truce. Here’s the video link to the Face the Nation interview on CBS. Christine Lagarde, head of the IMF, follows right after. (CBS)
  • There’s been a lot of talk about the China hawks in Washington. Now meet some US hawks in Beijing. (FT)
  • The fate of the revision of Nafta is growing more uncertain by the day. (Bloomberg)
  • Enjoy the trade truce while it lasts, says Mireya Solís. (Brookings)
  • It’s a big week for Brexit. Assuming the deal is voted down by parliament, should there be a second referendum? Philip Stephens makes the case. (FT)

Question of the week

Has the Huawei arrest done irreparable damage to any hopes of a deal on trade within the next 90 days between the US and China? Please email me at james.politi@ft.com and I would be happy to share any answers.

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