Today, Explained - Wait, why did Canada arrest a Chinese CFO?

Episode Date: December 7, 2018

Canada arrested a Chinese executive at the request of the United States this week. It may set off a whole new Cold War. Learn more about your ad choices. Visit podcastchoices.com/adchoices

This past Saturday, Donald Trump and Xi Jinping met up for dinner in Argentina. The relationship is very special, the relationship that I have with President Xi. Everyone had a nice, friendly time. I think that is going to be a very primary reason why we'll probably end up getting something that will be good for China and good for the United States. That whole trade war seemed like it might be coming to an end. Tonight, trade truce. President Trump, back from Argentina, reached the temporary breakthrough at Saturday's two-and-a-half-hour dinner in Buenos Aires with Chinese President Xi Jinping. Meanwhile, in Canada...

Canadian authorities arrested Chinese telecom executive Meng Wanzhou while she changed planes at Vancouver Airport. The chief financial officer of Huawei, one of the biggest companies in China, was arrested. And guess who asked for her arrest? The Trump administration's Justice Department requested the arrest and extradition to the U.S., action typically reserved for drug lords and arms dealers, not corporate executives. So much for a nice, friendly time. Alex Ward, you're one of the hosts of The Worldly Podcast. Would you agree that there was a second there like this past week where it seemed like the U.S. and China might actually have like a cooling moment in their relationship? Meh. There's like a little trade truce. But now it looks like they're definitely going to get worse. Yeah. And it's all because of this Chinese company Huawei. What does it even do?

What does it make? You can think of it this way. It's sort of the backbone of mobile networks around the world. It's big in China, of course, where it's from. It's big in Europe. What it's really known for, though, is that it's the second largest cell phone manufacturer. It goes Samsung, Huawei, and then a small company called Apple. So Meng Wanzhou, not only the CFO of Huawei, but she's the daughter of the company's founder. Why is she arrested? We're not 100% sure why, but it really looks like it's because of her company's dealings with Iran. What did they do in Iran? There are allegedly two things that Huawei is doing.

The first is that they're using U.S. origin products, meaning American-made products within the supply chain, to sell to Iran. And the second one is that they're using a bank, HSBC, to illegally do transactions with Iran. Is this what the U.S. does, though? Like, if you're doing business with Iran, you make a trip to Vancouver, Canada, we'll send the Canadian authorities in to arrest you on the U.S.'s behalf? This is a little odd. We have been arresting Chinese people or people who have ties to China for spying on our businesses. We've been doing this quite a bit under the Trump administration. This is a different step, though. This is a pretty

important Chinese business person and arresting them because of something not necessarily related to us, but because of their dealings with Iran, a country we're trying to squeeze. This is quite an escalation at a really tense time for U.S.-China relations. Is this the first time the United States has sanctioned Huawei, has gone after Huawei? No. In fact, this year, the Pentagon banned Huawei products from U.S. military bases. Why did the Pentagon ban them? It's because we're worried that it's actually helping the Chinese state to surveil and provide intelligence. Part of that is because the company's founder used to be in the military.

The other part of that is just the way China's acting these days to be more aggressive and have more eyes and ears around the world. That why not use a big company that has technology everywhere to start surveilling people around the world? So how big a deal is this? How is China reacting to it? They're not happy about it. Huawei put out a statement about Meng saying the company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng. The Chinese foreign ministry has made kind of similar statements. And the foreign ministry has demanded her immediate release. The issue here is that, you know, the U.S. and China were supposed to be working together on economic issues now, at least for a 90-day period.

This seems like a provocation at a really unfortunate time. But is it clear that the U.S. arresting the CFO of a Chinese company at this particular moment, that it's just about more than the company, that it's certainly about U.S. and China relations? There are a couple of things at play here. I think the first one is we have been combating China economically really hard for quite some time. We've been worried that they are stealing our electronics, that they're stealing our intellectual property, that they are thwarting our efforts to isolate Iran, right? China is a big lifeline to Iran's economy. And it does seem like this case is on the surface about Iran. But it also speaks volumes about the broader U.S.-China relationship.

While most people worry about an actual war, I think this is one of the first shots in what will be a much larger economic war between the two countries. So what's a Chinese company like Huawei's obligations to abide by U.S. sanctions against Iran? This is one of the questions here, right? The U.S. said, you know, like, we just don't want anyone doing business with Iran. There are U.N. sanctions against Iran. And so what's unclear right now is, you know, are the U.S. charges on how China's doing business with Iran against U.N. law or is it against U.S. wishes? There's something here I think beyond what we know. More generally, it's a warning shot against Huawei and the Chinese government.

And more specifically, Meng Wanzhou could be used as leverage in the U.S.-China economic talks. Perhaps her release will be traded for some concession by the Chinese. Or if China doesn't want to give anything, she'll be kept in Canadian custody, maybe in the future American custody. So what does this mean going forward for the U.S. and China? Expect bad things. The U.S. and China are at loggerheads. It doesn't look like it's going to reverse anytime soon, despite Trump's insistence that he and Chinese President Xi Jinping have a really good relationship.

They're in the middle of an arms race for the military. They're in a battle for economic supremacy. This is a longstanding fight. This is just another battle within it. If this is all starting to feel like a cold war to you, you're not alone. That's next on Today Explained. Hello? Bridget McCarthy. You're an editor.

You're a producer. Sometimes you make the whole damn show here at Today Explained, but it's your day off, so I thought I'd call you and bother you. Okay, so what are we doing here? Well, you know that podcast, Missing Richard Simmons? Yeah. The people behind it have a new podcast about Y2K. So I wanted to ask you what you were doing on New Year's Eve 1999.

Well, it was my birthday, so I was hopefully doing something fun. But we didn't know that the end of the world was coming in our cupboard because we had our own little Y2K disaster. I opened one of the cupboards in our kitchen and moths started flying out. That's weird. It's the dead of winter. And I looked in the bottom shelf of our cupboard where we keep our flour and our sugar. Not only were moths living in there, but all kinds of little bugs. Our lovely babysitter had decided to prepare us for the coming apocalypse by buying several gallons of water. And one of them had leaked. And so all the water had

broken into our flour and sugar and created just a little feeding frenzy for all kinds of bugs. Oh my gosh. So you started the new year by firing your babysitter? No, no. We didn't. Well, stories like these, Bridget, and many others are what you can expect from Headlong Surviving Y2K. Did you listen yet?

I did not. I'm sure there are better ones too, because mine was just a science experiment. Alex, was this move to arrest Meng Wanzhou sort of haphazard or strategic for Trump? I think it's a small part of the anti-Iran strategy, but I think it's a big part of the pushback on China. So let's put this arrest in context. What other kinds of aggressive stuff has Trump been doing in China? The big one is the trade war. The U.S. has put

tariffs on at least $200 billion worth of Chinese goods. Of course. China has responded in kind. This is lifting the prices of American products. The public goal of the Trump administration here is that we're just trying to close the trade deficit. We're trying to make it so China works better with us on the economy, effectively, you know, doesn't steal our intellectual property, allows access to American companies into its market, that kind of stuff. But I've talked to people within the Trump administration and three sources have told me in the past that the actual goal of this administration is to completely tank China's economy. That the goal is to effectively decouple China from the center of the global supply chain. If you think of what the supply chain is, right, it is the ways in which your product gets to you, right? How it's made, how it's shipped, et cetera, et cetera.

China is a massive venue for you, right? How it's made, how it's shipped, et cetera, et cetera. China is a massive venue for this, right? They have tons of minerals to turn into products. They have a great ability to export products. The future of their economy relies on this effectively. Tanking China's economy would affect hundreds of millions, if not billions of people. Why would the president want to do that? From people who have told me within the administration, it's about short-term pain for long-term gain. So if companies choose to leave China, go elsewhere in Asia or elsewhere in the world,

yes, that tanks China's economy. And one of two things kind of happen. One is it reverses course and becomes more democratic. And yay, that's good. Or two, a bad force for American workers is gone. And that's also worth it too. In the Trump administration's mind, you know, they've been screwing with our economy for years, stealing our intellectual property, not allowing access of our companies into its market,

as they would say, stealing American jobs because Chinese labor is inherently cheaper than American labor. And so if this screws China, why not? Is it working, this plan to sort of tank the Chinese economy slowly? We've already got, what, billions and billions of dollars of tariffs, right? Is any of that doing anything? Yes and no. No in the sense that our trade imbalance is getting worse, right? Our products

are more expensive because of the tariffs. Yes, in the sense that there are worries within China that their economy is struggling. There are companies that are pulling some of their business out. Some of their products are becoming a lot more expensive. And so while China will still remain a major economic player, if not the major economic player for quite some time, there are signs that this kind of pressure from the United States is actually having an effect on China. And if this starts to curb China's growth, then that could be a legitimacy problem for Xi Jinping, for the Communist Party, and that may be the ultimate game is to cause some pain to the legitimacy of the party. Is it possible that that's what the U.S. is going for? So Jim Lewis of the Center for Strategic International Studies think tank here, he used to work on Chinese commerce and security for the government.

And he told me that this was a warning shot to China, that they are on notice, not only for their Iran stuff, but for the way Huawei conducts its business, for the way the Chinese government basically supports all of their state-run companies. I think this was somewhat of an opportunity because she happened to be in an area where American friends could nab her. But Lewis also put it to me this way. You don't want American executives going to China anytime soon because they could also be nabbed and who knows for what. So this is an escalation. We're now at a point where Tim Cook or Mark Zuckerberg or some of their subordinates right under them may not want to travel to China anytime soon.

That could be a potentially big problem. What have all of these tariffs, this trade war and now this arrest of this huge company's CFO meant for the economy of the United States, the economy of China, the world economy. No matter how the trade war is going on, our trade deficit is going up. In fact, it was $55.5 billion in October. That's the highest level in a decade. And you may remember that after Xi and Trump met on December 1st, Trump tweeted, like, you know, we're about to have this deal. Tariffs on cars are going to go really low,

which, side note, would help other countries way more than the United States. But effectively, markets rose. Dow futures, Chad, up 500. Tell me about it. This is on a 90-day pause. Trade truce. And then when it turned out that there was really no economic deal, that Trump had kind of exaggerated the whole thing, they started to crash down. We begin here tonight with today's sell-off on Wall Street. The Dow nosedived to its fourth worst one-day point loss. We've even seen the International Monetary Fund this year reduce their projection for global growth by 0.2%. That doesn't seem like a lot, but that's billions and billions of dollars.

And the only reason that went billions and billions of dollars. And the only reason that went down is because of the trade war. And now on Thursday, we've seen that the Dow and S&P 500, two major indicators of the stock market's health, they've both lost all the gains they had this year because of the trade war, because of U.S.-China fighting, perhaps even because of the arrest. And in effect, they're having their worst quarter in seven years. There's this whole phrase that, you know, if China or the U.S. sneezes, the whole world catches a cold. But we haven't really seen what it looks like when those two guys really go at each other's throats or in the middle of a brawl,

because then it turns into like a rumble royale. So Beijing is responding aggressively. The stock market is plunging. The trade deficit is skyrocketing. Do you think the president might see all this and change tack? That's literally the billion dollar question. There's no question that he wants to hurt China. I mean, he called China's economic practices against the U.S. a rape during the election.

We can't continue to allow China to rape our country, and that's what they're doing. That's how he sees it. Right. But it's hurting farmers who are the bread and butter of the Trump base. Soybean exports have dropped by nearly 50%. So he's sort of playing this game like, does he still go after China as he said he would? And as he's continuing to do? Or if he sees big pain in the United States, does he step away and not punish China as much? He's kind of in a bit of a bind here. It feels kind of like a new Cold War with China. Is this how it starts,

this arrest of the CFO in Vancouver? Is this how we officially say, we're coming for you? I have bad news for you, Sean. The Cold War's already started. China under Xi Jinping wants to restore its global supremacy. It wants to be the economic and military power of the world. The U.S. currently is the economic and military power of the world, and it wants to stay that way. In the past, especially since the Nixon era, the U.S. has tried to curb China's rise in effect by

making it a responsible stakeholder, by making it a member of the global community. However, it doesn't seem like China wants that. It doesn't necessarily want to be part of the world that the U.S. built after 1945. And Trump is really the only president so far who is not having it, is deciding to punish China for its decision. And it's doing so with the trade war. It's doing so by arresting Chinese nationals who may have ties to the intelligence service, by arresting high-level executives. And China is, of course, responding in kind with its own tariffs and other measures. We've seen Mike Pence give a major speech

in which he did basically everything but call China an evil empire. We all agree that empire and aggression have no place in the Indo-Pacific. And we've seen Trump, without evidence, call China out at the UN. Regrettably, we found that China has been attempting to interfere

in our upcoming 2018 election. We are in the middle of this Cold War. If you talk to some Trump administration officials, they would say, no, this isn't really competition. We're really just trying to make our statements felt. I would call bullshit on that. I don't think you start a multi-billion dollar trade war

and arrest these kinds of folks if this weren't a competition. It's very clearly won, and I think the world is starting to see it that way. But more than anyone, Meng Wanzhou is caught in the middle of it. Thank you.