Is there really a truce in the trade war between the United States and China? The arrest of a senior Huawei executive last week says otherwise. Yes, Donald Trump and Xi Jinping have called a ceasefire in their tit-for-tat tariffs, but there's no peace treaty in sight.
When they met at the G20 summit in Buenos Aires, the American and Chinese leaders agreed to halt any new tariffs for 90 days from Dec 2. That means Washington will not lift tariffs on US$200 billion worth of Chinese goods from 10% to 25% on Jan 1.
But the existing tariffs and counter-tariffs imposed before the truce are still in play. They affect $250 billion in Chinese goods and $110 billion in US products, with fallout hitting supply chains all over the world.
With a truce in place, you might expect global markets to breathe a sigh of relief, but this is the unpredictable Donald Trump we're talking about here. Crazy things happen whenever he logs on to Twitter.
In any case, the arrest of Meng Wanzhou, chief financial officer of Huawei and daughter of the telecom giant's founder, was definitely not part of the US-China armistice plan. She was picked up at Vancouver airport by Canadian police, acting on a request from Washington, which believes she helped Huawei evade sanctions on Iran.
Huawei's response was calm and measured, as it has been trying to improve its image in the West. But the Chinese embassy in Canada did not hide its displeasure, calling on US and Canadian authorities to "immediately correct the wrongdoing and restore the personal freedom of Ms Meng". A foreign ministry spokesperson also called the detention a violation of her human rights.
The arrest comes at a time when Huawei has surpassed Apple to become the second-biggest smartphone seller in the world after Samsung. It also coincides with moves by the US, Australia and New Zealand to block the use of the Chinese firm's equipment in 5G networks.
Like most Chinese tycoons, Huawei chief Ren Zhengfei has close ties with the Communist Party and government officials. Critics say his firm and others could be involved in rigging their technology to allow China to spy abroad. Huawei denies this.
Ms Meng's arrest suggests to me that the US has no intention of letting up in its campaign against alleged Chinese misbehaviour, trade truce or not. And it won't hesitate to enlist others, in this case Canada, to help fight its battles.
Canada's Department of Justice must have contacted the White House before the arrest, as Ms Meng allegedly violated US sanctions laws on Iran and North Korea. There was no way that Canadian officials would have acted without Washington's knowledge given her profile and what is going on right now.
Eurasia Group, a New-York based risk consultancy, says the arrest will probably make trade talks more complicated. Coupled with other pending actions from the US, such as announcing that China is in breach of a 2015 agreement on theft of intellectual property and trade secrets "will affect the atmosphere around the negotiations while making them less likely to bring a sustainable settlement", its analysts wrote.
"The gloves are now fully off in this arena, and US law enforcement officials have a green light from senior administration officials to pursue …individuals the US may not have gone after in a more benign bilateral political climate."
I agree. Keep in mind that one key goal of the truce is to give another chance for structural negotiations on intellectual property protection, cyber theft and technology transfers, so any violations by Huawei will definitely be brought up in the talks. The US will jump at the chance to point to threats to its national security.
With the truce off to a rocky start, many now believe the US will go ahead with a rise in tariff rates against China after March. That would provoke more retaliation from Beijing, which could lead Mr Trump to follow through with his threat to tax the remaining $267 billion worth of Chinese products not yet affected.
The trade war could be good news for Southeast Asia as many China-based businesses are scrambling to find new production bases to avoid tariffs. One can only hope that any benefits reach Southeast Asia before the dispute kickstarts another global economic recession.
Having China's economy slow down faster than expected is not going to benefit anyone who trades with it, especially developing Asia.
