A man holds a Chinese flag outside the British Columbia Supreme Court in Vancouver during the third day of a bail hearing for Meng Wanzhou, the chief financial officer of Huawei Technologies, on Dec. 11. (Darryl Dyck/Canadian Press/AP)

Whatever the final outcome of the criminal case against Meng Wanzhou, Huawei Technology’s chief financial officer, her arrest seems sure to force countries and multinational companies to take sides between the United States and China. It’s an impossible choice — and one that academic research suggests will leave all sides worse off.

To be clear, there’s every reason to believe that Meng’s detention was justified, as legal scholar Julian Ku has argued. Canadian authorities detained Meng on suspicion of committing fraud to evade U.S. sanctions against Iran. At her bail hearing last week, Canadian prosecutors presented substantial evidence that Meng had indeed done so. But as Henry Farrell has noted, the issue is inextricably linked to broader U.S.-China tensions over trade and intellectual property theft.

From a broader vantage point, Meng’s arrest looks more like a litmus test for how countries like Canada and companies such as Huawei navigate the growing great-power rivalry between the United States and China. Few are willing to take sides — but unless Washington and Beijing change course, countries and companies will increasingly be forced to.

It’s hard for middle powers to stare down the Middle Kingdom 

In acting on the U.S. request to detain Meng before extradition, Canada is following its long-standing strategy of close cooperation on security and law enforcement matters with its southern neighbor. But while Canada remains a steadfast U.S. ally, its economic relationship with China has grown rapidly over the past two decades. Beijing is Ottawa’s second-largest trading partner.

In the aftermath of Meng’s arrest, China has attempted to use every bit of this increased leverage, threatening consumer boycotts of Canadian goods and detaining two Canadian citizens. Such pressure has put Ottawa squarely in the line of fire between Washington and Beijing. So far, Canada is standing firm, but it’s hardly the only middle power to face a stark choice between the United States and China.

As Patrick Cronin and other analysts have noted, the countries of Southeast Asia increasingly face such choices as Chinese investment flows and Beijing’s political influence increases. The choice is especially acute for traditional U.S. allies such as Australia, which, as foreign policy scholars have long noted, are increasingly pulled between dependence on Washington for security and on Beijing for investment.

Such tensions are likely to grow in the wake of Meng’s arrest. This suggests two things: 1) that U.S. officials are willing to expose close partners to Chinese pressure tactics, and 2) that Beijing is more than willing to put them in a vise.

Technological development can’t be decoupled 

But if it’s tough for the world’s middle powers to choose between the United States and China, it’s almost impossible for multinational companies, which rely on innovation to stay ahead of competitors. This is as true for Chinese tech firms as it is for American ones.

As legal analysts Robert Williams and Peyton Lim have detailed, the threat of intellectual property theft and espionage has led Washington to impose greater restrictions on technology transfer and on Chinese researchers working in the United States. Scholarly work on technological development, though, suggests that innovation is inherently a two-way street.

The research on international science and technology collaboration overwhelmingly finds that global innovation networks are more successful than localized ones. Cross-national research collaborations speed up innovation both by leveraging the comparative advantages of different national talent pools, economic structures and policies, and by facilitating the transfer of knowledge across borders. Technology-focused research papers written by collaborators from multiple countries are cited more often, and are featured in more highly ranked journals, than those with collaborators from single countries.

Here’s what this means for companies. Increasingly, proximity to international partners is critical to marketing products and services within localized contexts. And companies that create global collaboration networks are more innovative than those that keep research and development in-house.

At the same time, it’s becoming harder and harder for Western multinational firms to ignore technological developments in China. Research and development spending by Chinese firms rose by 12.5 percent in 2017, with much of it directed at next-generation technologies such as 5G wireless networks.

Such investment creates the risk that Chinese firms might leave U.S. companies in the dust when it comes to the digitization of the developing world. Under plans such as the “Digital Silk Road,” the Chinese government and state-owned enterprises are making a major push to build both hardware and software across Asia, Africa and Latin America. If U.S. companies are frozen out of these ecosystems, they may face limited market share in some of the world’s fastest-growing countries.

What does seem certain, given current research, is that an attempt to decouple technological development in the United States and China will leave both sides worse off. Innovation will be slower, more difficult and less effective for both sides. Whatever Washington’s estimate of the costs of cooperation with China in science and technology, the benefits are also great.

No hard choices 

There is, of course, another way: Avoid situations in which countries or companies must make a binary choice between the United States and China. In the Meng case, it looks as if putting Ottawa in a bind was at least in part an unintentional side effect of disjointed decision-making in Washington. Some hard choices might be avoided simply by improving coordination between U.S. government officials.

More broadly, as I’ve noted before, most countries would prefer to continue to rely on the U.S. security guarantees, along with basic features and protections of the global order, even while expanding commercial relationships with China.

A non-binary foreign policy would require Washington to get more comfortable with the idea of its friends and partners deepening cooperation with China in some fields. There will be areas, such as some of the communications technologies Huawei produces, in which U.S. security concerns will continue to make close cooperation extremely difficult. But in others, such as basic science and technology research, the United States could adopt a more balanced cost-benefit calculus, mindful that for many countries and companies, it’s an impossible choice between the world’s two largest economies.

Scott Moore (@water_futures) is director of the Penn Global China Program at the University of Pennsylvania and the author of the book “Subnational Hydropolitics” (Oxford University Press), which examines the spread of water conflict and how to prevent it.