Caught in a crossfire?

The diplomatic row between Beijing and Ottawa over the detention and treatment of Canadian nationals in China continues to escalate, to the detriment of bilateral relations. But more serious could be the implications of the standoff for the ongoing trade war between China and the U.S. The spat goes back to the detention on December 1 of a top Chinese telecom executive in Vancouver, who has since been released on bail, in response to a U.S. request. Washington wanted custody of Meng Wanzhou, the chief financial officer of Huawei and the daughter of the company’s founder. Her arrest was part of the U.S. Justice Department’s ongoing criminal probe into the company’s sale of telecommunications equipment to Iran, a potential breach of sanctions against Tehran. But the arrest is also seen in the context of the caution in much of the West against Huawei’s potentially winning bids as 5G communication networks are adopted, on grounds of a security threat. The military background of the Huawei founder has only raised speculation about the firm’s connection to the Chinese defence and intelligence services. Conversely, the U.S. has invoked a rare national security provision under domestic law to impose punitive tariffs on global steel and aluminium imports. A similar investigation is under way specifically to determine the risk to domestic security from alleged Chinese intellectual property abuses. In addition, Beijing’s “Made in China 2025” industrial policy has aroused deep suspicion in the U.S. about the persistence of state subsidies to prop up indigenous firms. It is therefore speculated that Washington has its lens trained on Huawei, which has emerged as the world’s largest telecommunications equipment maker, surpassing Sweden’s Ericsson. Meanwhile, there is concern that Canadian residents in China may face retribution for Ms. Meng’s detention. A Chinese court last week ruled as too lenient the 15-year sentence against a Canadian convicted of drug-related offences. A former diplomat who was arrested has apparently been denied legal representation, although Canadian embassy officials were permitted to visit him. Another Canadian was detained for alleged transgressions of national security. Given the climate of mistrust between the U.S. and China, it is hard to dispel the perception that Canada has got caught in the crossfire. In fact, the Canadian Foreign Minister has suggested that President Donald Trump should desist from using the episode as a bargaining chip in trade disputes with China. But it is conceivable that Chinese trade concessions to de-escalate tensions could pave the way for a resolution of the standoff over Huawei. That would likely satisfy the hawks in Washington who fear that the U.S. is ceding its technological dominance to China.

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