THE TICKER

U.S.-China trade talks will confront a potentially explosive test early, as the chief financial officer of Chinese telecom giant Huawei Technologies faces extradition to the United States following her arrest in Canada. 

The executive, Meng Wanzhou, is also the daughter of the company’s founder. She was arrested on Dec. 1 — the same day President Trump and Chinese President Xi Jinping hashed out a preliminary trade truce over dinner in Buenos Aires — on suspicion of violating U.S. sanctions on Iran. A bail hearing has been set for Friday, The Washington Post’s Emily Rauhala and Ellen Nakashima report. The Justice Department isn’t providing any details. 

Huawei, the world’s third-largest cellphone maker, has faced scrutiny from U.S. officials over suspected export control violations for years. A 2012 report from the U.S. Permanent Select Committee on Intelligence identified the company — and fellow Chinese telecom champion ZTE — as potential national security threats for their ties to the government. The Commerce Department subpoenaed records from Huawei back in 2016, the New York Times reported at the time, and the Justice Department has been looking into whether it ran afoul of sanctions on Iran, the Wall Street Journal reported in April of this year. 

But Meng’s arrest comes at a particularly sensitive time, as the Trump administration starts a three-month sprint with Beijing toward trying to resolve long-simmering American complaints over predatory Chinese commercial behavior. The Chinese are set to send a delegation to Washington next week to kick off negotiations.

“This case alone may not scupper the talks, particularly if there is clear evidence and the U.S. has scrupulously adhered to legal procedures in detaining the accused executive,” Scott Kennedy, director of the project on Chinese business and economy at the Center for Strategic and International Studies, said in an email. “But if other shoes drop in the tech space, it may be extremely hard for the Chinese to keep issues that sit astride the boundary of national security and high-tech business from infecting the negotiations on the overall commercial relationship. We are at a very precarious moment in the history of our relationship and, in fact, the international order.”

From Silvercrest Asset Management chief strategist Patrick Chovanec: 

The Trump administration has been down this road. In April, the Commerce Department dealt what would have been a death blow to another Chinese telecom champion, ZTE, when it barred American firms from exporting to it as punishment for violating U.S. sanctions on Iran and North Korea. Xi prevailed on Trump in a personal appeal to lift that ban

“The Huawei news brings back to mind the ZTE sanctions announcement last spring which negatively affected the ongoing trade talks at that time,” Wendy Cutler, vice president of the Asia Society Policy Institute and a former U.S. trade negotiator who dealt with China, said in an email. She called Meng’s arrest “yet another complicating factor” in the upcoming talks, “which are already facing a whole host of challenges.”

The Chinese Embassy in Canada released a statement demanding Meng’s release and blasting the United States and Canada. “The Canadian police, at the request of the United States, arrested a Chinese citizen who had not violated any U.S. or Canadian law,” the statement read. “China has already made solemn representations to the United States and Canada, demanding they immediately correct their wrong behavior and restore Ms Meng Wanzhou’s freedom.”

And the arrest also helped trigger a global stock sell-off. "The Hang Seng China Enterprises index of large-cap Chinese companies listed in Hong Kong dropped 2.6 per cent. Shares of ZTE, a rival Chinese telecoms equipment maker, tumbled more than 5.7 per cent," per the Financial Times. "In Europe, Germany’s Dax dropped 2.5 per cent and the FTSE 100, London’s benchmark of blue-chip stocks, dropped by a similar amount. S&P 500 futures extended their drop to 1.9 per cent."

Some China watchers noted that the move against Huawei continues a pattern of tightening pressure on Chinese companies accused of violating U.S. law. “This type of action has gained strong support from China hawks in the administration who believe China has gotten away with sanctions violations, cyber theft of IP, and other transgressions without paying a sufficient price,” Eurasia Group’s Paul Triolo wrote in a Wednesday night note. “The arrest of the senior Huawei officials suggests that 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.”

From The Economist's Simon Rabinovitch: 

From China expert Bill Bishop: 

Both firms are in the middle of the global race for control of 5G telecom networks, the wireless technology expected to undergird the burgeoning Internet of Things. And both are facing crackdowns from the U.S. and its allies over concerns Beijing will tap the companies' equipment to spy or otherwise interfere with devices. Per The Post, "On Wednesday, British telecom firm BT said it will not use Huawei equipment in its 5G network. Last week, New Zealand did the same. In August, Australia banned Huawei and ZTE from its 5G networks."

Claire Reade, a former U.S. trade negotiator now with Arnold & Porter, said via email Meng's arrest would play well at home, "and if the evidence is very strong, will make China embarrassed and uncomfortable. In that case, it should not affect the trade talks fundamentally. Perhaps more important, it also reinforces that whatever trade truce may be imposed, the increasing vigilance and active enforcement against Chins reflects the skeptical underlying attitudes toward the relationship."

MARKET MOVERS

— Investors see the bull market ending in 2019. CNBC's Jeff Cox: “The longest bull market run in history is coming to an end in 2019, according to the pros who handle Wall Street’s big-money clientele. A survey of institutional investors show that 65 percent see a change coming, with the biggest threats being geopolitical tensions and rising interest rates . . . In addition to seeing the bull market stopping, they also anticipate the next financial crisis coming in one to five years.”

It's the worst time to make money in markets since 1972. Bloomberg's Elena Popina: “Market statisticians are falling over each other in 2018 to describe the pain being felt across asset classes. One venerable shop frames it this way: Things haven’t been this bad since Richard Nixon’s presidency. Ned Davis Research puts markets into eight big asset classes — everything from bonds to U.S. and international stocks to commodities. And not a single one of them is on track to post a return this year of more than 5 percent, a phenomenon last observed in 1972 . . . In terms of losses, investors have seen far worse. But going by the breadth of assets failing to deliver upside, 2018 is starting to look historic.”

— OPEC recommends oil cuts, but no deal yet on how much. Annmarie Hordern, Grant Smith and Javier Blas at Bloomberg: “Saudi Arabia, Russia and other members of the OPEC group recommended an oil production cut, defying a Twitter plea from [Trump] to keep the taps open, but their meeting didn’t agree on how big any reduction should be. The group secured the participation of Russia for six months of output curbs starting in January . . . The committee didn’t discuss specific numbers and there’s still debate on the scale of the cut that’s needed. . . .

“Ministers from the core OPEC group, which doesn’t include Russia, will now meet on Thursday to seek a consensus on exactly who will cut and by how much. While Saudi Arabia, the group’s biggest producer, will shoulder most of the burden, the kingdom wants commitments from other countries before completing a final deal."

Shale profits at the mercy of OPEC cuts and Trump tweets. Jennifer Hiller at Reuters: “The recent nosedive in crude oil prices came just as shale producers had started delivering healthy returns after years of heavy spending to boost production and market share. The shift has pleased investors who had grown weary of waiting for a payoff while watching the frenetic west Texas shale boom make the United States the world’s top oil producer and a major exporter. The 29 percent drop in U.S. crude oil prices CLc1 since October now threatens those improved margins, and sustained prices below $50 per barrel could dent the value of shale reserves, which banks use to determine borrowing power.

“Activity in the largest U.S. oil field could fall 10 to 20 percent next year if prices stay down . . . The price retreat sparked a sell-off of shale firms’ shares and another setback could sour investors on the sector for years. The dynamic leaves shale producers hoping for a rescue in the form of production cuts from The Organization of the Petroleum Exporting Countries (OPEC) when it meets on Thursday - and at odds with [Trump], who has pushed OPEC to keep the taps wide open."

TRUMP TRACKER

TRADE FLY-AROUND: 

— Trump welcomes China's optimism on trade even as details of the negotiation remain vague. The Post's Taylor Telford: “Trump on Wednesday embraced an optimistic statement from the Chinese Ministry of Commerce as evidence of success in talks with Beijing about resolving the nations' trade conflict. Trump wrote on Twitter that China was sending 'very strong signals' and that he believed the country would follow through on a meeting held on the sidelines of the Group of 20 summit in Buenos Aires last week . . . the Chinese Ministry of Commerce painted a positive picture, saying that the Buenos Aires meeting was 'very successful' and that the two countries would seek within 90 days to formulate a more specific deal, meeting Trump’s stated deadline.”

— Here’s where the Fed says tariffs are taking a toll. CNBC's Jacob Pramuk: “Federal Reserve banks saw modest economic growth in the U.S. this fall. Still, the Beige Book released Wednesday by the central bank shows manufacturing and agricultural sectors in parts of the country rattled by [Trump’s] tariff policy. Reports from 11 of the 12 Fed districts, which cover mid-October through late November, mention the effects of tariffs and trade policy. One central bank region mentioned tariffs as a mixed bag, but businesses largely viewed the duties as a drag on performance. The potential for the U.S. trade war with China to widen if talks during a 90-day truce crumble has increased concerns about slowing economic growth and rattled stock markets.”

— No deal on auto tariffs as White House backpedals. More from CNBC: “What looked earlier this week like a resolution to the costly automotive tariff war with China has proven to be little more than a presidential boast. The tit-for-tat trade war with China has been proving costly for the U.S. with signs that some automakers might be ready to move some production and jobs out of the country. That’s why carmakers and car parts manufacturers on both sides of the Pacific were initially buoyed by the claim of an “incredible” trade deal emerging from the 2½ hour dinner meeting [Trump] held with [Xi] at the G-20 summit.

“But the White House has now backpedaled, acknowledging there was no deal in place to roll back automotive tariffs. Trump himself on Tuesday tweeted there 'probably will' be a trade deal to follow the dinner meeting, even as he declared himself 'a Tariff Man.' He might actually ramp up the trade dispute with the world’s largest automotive market if there isn’t a broader agreement within 90 days.”

— Foreign steel flows in the United States despite tariffs. WSJ's Bob Tita and Alistair MacDonald: “U.S. tariffs on imported steel are delivering higher profits for steel companies but haven’t changed the country’s dependence on foreign-made steel. Foreign steelmakers have been subjected since March to 25 percent tariffs in the U.S. Instead of isolating imported steel as the most expensive in the market, domestic steel producers have raised their prices by as much or more, moves that have generated higher profits for those steelmakers and driven up costs for U.S. manufacturers. Foreign steel’s share of the steel market remains significant, and the U.S. continues to be the world’s largest market for imported steel.”

MELTDOWN WATCH:

POCKET CHANGE

— Facebook allegedly offered advertisers special access to users’ data and activities. The Post's Elizabeth Dwoskin, Craig Timberg and Tony Romm: “A trove of emails and internal documents released by a British lawmaker on Wednesday illustrate how Facebook rose to dominance years ago by using people’s data as a bargaining chip, undermining its claim that changes to its business practices were motivated by a desire to protect people's privacy.

“The more than 250 pages of documents, which a British parliamentary committee recently obtained as part of a wide-ranging investigation into Facebook, revolve around a decision Facebook made in 2014 and 2015 to cut off developers’ access to posts, photos and other profile information from Facebook users. The internal communications, some of them from Facebook CEO Mark Zuckerberg, appear to show Facebook trading access to user data in exchange for advertising buys and other concessions, which would contradict Facebook’s long-standing claim that it doesn’t sell people’s information. 'We've never sold anyone's data,' Zuckerberg said in a post Wednesday. He added that the emails . . . 'were only part of our discussions.' "

— Bloomberg will sell Bloomberg for the WH. CNBC's Alex Sherman: “Mike Bloomberg said Tuesday in a Radio Iowa interview that he will probably try to sell Bloomberg LP if he becomes president in 2020. . . . Bloomberg said he would have to start the process of either selling or putting the business into a blind trust if he ran because any process would take a long time. But he won’t sell the business unless he actually becomes president . . . Finding a buyer may not be easy. Bloomberg takes in about $10 billion in annual revenue, according to a source familiar with the matter. The company would probably fetch more than $40 billion in a sale.”

— Volkswagen will stop making gas-powered cars by 2026. Aris Folley at the Hill: “Volkswagen will shift to producing electric cars after 2026, the company announced this week. The company's strategy chief, Michael Jost, made the announcement at the Handelsblatt automotive summit conference held at Volkswagen's headquarters in Wolfsburg, Germany . . . The decision to stop producing gas-powered cars is Volkswagen’s latest effort to recover from an international emissions-cheating scandal.”

— Canadian Pot 101. The Post's Danielle Paquette: “Nearly a dozen colleges nationwide [in Canada] are adding or expanding courses designed to train the next generation of marijuana producers, often at the nudging of area employers. Some of the classes count toward two- and four-year degrees. Other schools offer certificates. Although the use of medical marijuana has been legal in Canada since 2001, the rise of recreational toking has fueled a hiring boom as growers rush to scale up production of smokable buds and oils. Openings have tripled over the past year and now represent 34 of every 10,000 job postings . . . Educators have seized on the moment, pledging to equip students for greenhouses and laboratories and storefronts.”

MONEY ON THE HILL

Barra to Congress: GM must move forward. Todd Spangler of The Detroit Free Press: "General Motors CEO Mary Barra told members of Congress upset about impending layoffs Wednesday that while she understands that the federal government spent billions on saving the company a decade ago, she must look forward to positioning the company for growth.  'We are in an industry that is transforming faster than I've seen in a 30-plus-year career,' said Barra, referring to technological, consumer and other forces that she has said forced the company to announce last week the idling of plants in Detroit-Hamtramck, Lordstown, Ohio, and elsewhere and the loss of some 14,000 employees.

"After meeting with U.S. Sens. Sherrod Brown and Rob Portman, both of Ohio, Barra, in her first public appearance since last week's announcement, said GM is working with the UAW to determine how best to use the so-called 'unallocated' plants and how to train workers to put them into positions open elsewhere."

Does the tax law encourage outsourcing? The Post's Jeff Stein: "General Motors’ decision last week to stop production at five plants in North America and lay off 15 percent of its salaried workforce has renewed partisan debate over whether the Republican tax law passed last fall encourages companies to ship their jobs overseas... The 2017 Republican tax law transformed how the U.S. tax code applies to multinational corporations and their subsidiaries, slashing the tax burdens companies face on both their national and their foreign earnings. To conservative economists, and even some liberals who opposed the law overall, these changes have in fact reduced the incentives to outsource.

"These experts said the status quo before the tax overhaul included its own incentives that promoted outsourcing and noted that the law slashed the U.S. corporate tax rate from 35 percent to 21 percent — which should encourage more, not less, domestic investment. But other left-leaning and some nonpartisan economists defended Brown’s assertion [that the law spurred GM's move], pointing to the law’s dramatic cuts in the amount of U.S. taxes paid by multinational firms on their foreign subsidiaries."

DAYBOOK

Today:

Coming soon:

THE FUNNIES

— A cartoon from The New Yorker's Chon Day, circa 1957: 

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A cartoon by Chon Day, from 1957. #TNYcartoons

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