Zachary Karabell is the author of several books, including “The Leading Indicators: A Short History of the Numbers That Rule Our World.”December 8 at 6:00 AM
The U.S.-China relationship seemed to improve last week at the G-20 summit in Argentina, where President Trump announced that he’d reached an important agreement with President Xi Jinping. Then, an ominous development: American authorities asked Canada to arrest the CFO of one of China’s largest technologies companies for alleged sanctions fraud and violations of U.S. export controls. Meng Wanzhou isn’t just a top leader at Huawei, which makes phones and other gadgets; she is also the daughter of the company’s founder and chairman, which makes her arrest somewhat like the Chinese arresting the daughter of Steve Jobs if she had helped run Apple. It would be an understatement to say that Beijing did not react well: It demanded her release and accused the U.S. government of violating the rights of a Chinese citizen.
The timing could hardly be worse, and from what can be told, it reflects the overall chaos of the Trump administration. National security adviser John Bolton claimed that he was informed of the pending arrest by the Justice Department but did not pass that information to the president. That no one in the White House considered the implications of her arrest on the tenuous trade truce between China and the United States is itself rather astonishing.
The case against Huawei and its executives may be legitimate under U.S. law, but it is nonetheless a hideous political mistake. Perhaps Huawei used American-made components in equipment it sold to Iran, violating U.S. sanctions. But even in less ambiguous cases, there is always such a thing as prosecutorial discretion. Not every case that can be brought should be brought, and not every case should be prosecuted to the full letter of the law. In international cases, that is doubly true. If the United States wants to respond to China’s rise and manage the changing role of the United States in the international system, it could hardly have picked a dumber tactic.
Huawei is not exactly a noble avatar of social responsibility. Since at least 2016, when President Barack Obama was in office, the Commerce Department has been investigating Huawei for export violations to Iran and North Korea. In the spring of 2017, the Treasury Department opened its own inquiry.
Even before that, though, Huawei operated on the margins of legality. In 2003, Cisco sued it for copying some of the code used in its routers. (Huawei admitted as much before the trial and promised to stop.) In 2012, a House committee named the company as a potential threat to U.S. national security because of its ties to the Chinese government, its legacy of intellectual property theft and its ability to embed spyware in its phones. The United States, Australia and New Zealand have already blocked Huawei from being part of the initial build-out of the next generation 5G telecom networks.
Even if everything alleged is correct, however, the quest against Huawei is a ridiculous overreach — predicated on an assumption that the United States can dictate how foreign competitors conduct business. Yes, the company has deep ties with the Chinese Communist Party, though it’s worth mulling whether those are any more pernicious than the close bonds that connect defense contractors such as Boeing and Lockheed with the Pentagon.
More important, global supply chains are now deeply interconnected and touch multiple countries and numerous companies. Samsung, for instance, is the second largest cellphone provider in Iran, behind Huawei, while the Swedish telecom company Ericsson has been selling equipment to Iran even under the sanctions. Those companies may have done a better job not using American components for products sold to those countries, though with the complexity of global component sourcing, it is unlikely that no American intellectual property has been used by Iranian consumers. Yet U.S. prosecutors are not trying to curtail the work of those mega-technology giants, or aggressively investigating where every component originated.
Samsung and Ericsson, of course, are domiciled in countries that are American allies, whereas Huawei is tightly connected to what is now being seen by many as a prime American adversary. The initial reaction in China, judging by the social media flow and some interviews, is that the Americans are using their legal system to advance political interests in an ongoing contest with China.
There is a long and debated legacy on how far American laws extend. On the one hand, the Supreme Court has recognized a “presumption against extraterritoriality,” which holds that U.S. laws should not be enforced outside the United States. On the other, there are statutes such as the Foreign Corrupt Practices Act, which punishes bribery by foreign entities. Sanctions occupy a zone of their own, whereby the U.S. government has acted against other countries by threatening foreign companies that do business with them, if they also do business in the U.S. To the degree that the United States has enjoyed dominant economic power relative to any one country that might object, it has been able to use law enforcement as one tool among many to achieve policy objectives.
That works, however, primarily where there are stark power imbalances, which is clearly not the case with China. Arresting the No. 2 executive of one of the world’s largest technology companies is an ineffective way to achieve policy aims — and a very effective way to complicate negotiations that matter rather more. It’s one thing to ban Huawei’s 5G components from the U.S. market, a defensible response to a perceived threat. That’s an unassailable invocation of American sovereignty (which would still carry a steep economic and political cost).
It’s something else entirely to arrest a very senior executive and potentially try her for evading U.S. export controls. Using law enforcement against individuals for corporate actions of this sort risks backfiring spectacularly. It is easily painted as a crude attempt by the Trump administration to put pressure on Beijing in the upcoming trade negotiations, even if that is not the actual intent. It exposes American executives to potential retaliation in China and abroad in a tit-for-tat that will chill an already frosty business climate, with direct effects on the domestic American economy and markets. And it may succeed only in pushing technology even further into national camps that compete and develop their own protocols, which appears to be happening with the evolution of artificial intelligence. We can hope to win that competition, but it will prove costlier than the mutual dependence that defined much of the past two decades.