The Chinese government is reportedly baffled about why the United States would ask Canada to arrest a high-ranking Chinese executive, escalating tensions only days after President Trump agreed to a trade truce with Chinese President Xi Jinping in Argentina. Beijing hasn’t yet realized that, for the United States, the economic confrontation is a matter of national security — and it’s just getting started.
Chinese officials have been scrambling this week to make sense of the Trump administration’s China policy, according to U.S. officials and experts. Beijing’s bewilderment built as Trump alternatively tweeted encouraging and then discouraging things about the Argentina meeting. Wednesday’s announcement that Canada had arrested Huawei Technologies chief financial officer Meng Wanzhou at the U.S. Justice Department’s request is compounding Beijing’s confusion.
For the Chinese, it’s unthinkable that the U.S. government could be operating on two different tracks regarding the same basic issue. But that’s what happened this week, officials told me. While trade negotiations commenced on the political level, U.S. law enforcement was already working on the Meng arrest, and it happened to play out at roughly the same time.
“What you see is the parallel movements of the U.S. government,” said Derek Scissors, a resident fellow at the American Enterprise Institute. “Part of the administration wants a very different China policy than the other part of the administration.”
It’s not that the bureaucracy was working against Trump. The president has given U.S. law enforcement agencies explicit instructions to do what they’ve long wanted: to crack down on Chinese espionage and economic aggression. Xi cashed in a personal favor to get Trump to back off of ZTE, another Chinese tech giant accused of crimes. But that was a one-time exception.
Meng’s arrest, reportedly based on allegations that Huawei is violating U.S. sanctions on Iran, is part of a series of actions the Justice Department has taken in recent months to confront Chinese economic crimes. In October, a Chinese Ministry of State Security official was arrested in Brussels based on U.S. criminal charges of attempting to steal secrets from U.S. defense contractors.
Meanwhile, the U.S. government and Congress are waging a broad campaign to stop Huawei from posing a threat to U.S. national security. The U.S. intelligence community has long believed Huawei technology is vulnerable to abuse by the Chinese government for espionage and other purposes.
The U.S. government is working to persuade allies to exclude Huawei from their telecom infrastructure. The U.S. government is barred from using Huawei technology, and Huawei is also under scrutiny in Australia, Britain, New Zealand and Canada. In Congress, Rep. Jim Banks (R-Ind.) and Sen. Marco Rubio (R-Fla.) are leading an effort to examine Huawei’s research partnerships with American universities.
“Huawei is a state-directed entity actively undermining America’s national security,” Banks said. “China is trying to cheat its way to global dominance, and we can’t let it happen.”
At a dinner in Washington on Wednesday, Commerce Secretary Wilbur Ross said the next 90 days will determine whether the Trump administration will be able to make an overarching deal with Beijing or be forced to escalate further.
“We have some optimism that they are serious, and if they are, we certainly are serious,” he said. “And if they are not, something else will happen.”
The crucial question is, what does “serious” mean? Wall Street-friendly officials, including Treasury Secretary Steven Mnuchin and National Economic Council Director Larry Kudlow, see the trade talks as being primarily about opening Chinese markets and fixing the trade deficit. They want Xi to give Trump concessions on soybeans or market access for cars, to see if Trump would strike a very limited deal.
Meanwhile, national security hawks such as national security adviser John Bolton and economic nationalists like White House trade adviser Peter Navarro prioritize China’s intellectual property theft, forced technology transfer and the threat of Chinese tech being embedded in networks that American or allied troops rely on all over the world.
They want China to fundamentally change its overall industrial policy, which is to aid its national-champion tech companies by hook or by crook in expanding worldwide and vanquishing their U.S. and European competitors. Trump wants both. But Beijing has not even admitted, much less addressed, the larger structural issues. That’s why the Trump-Xi trade truce will likely end 90 days from now.
Every effort should be made to persuade, pressure or coerce Beijing to stop its economic aggression. But if that doesn’t work, the United States has no choice but to move forward with more drastic measures. Tariffs are just a pressure tool. The long-term solution is to decouple our economy from certain Chinese industries such as telecom and digital infrastructure.
The U.S.-China economic confrontation is going to get worse before it gets better — something the markets are beginning to realize. Critics will paint this coming escalation as anti-business or anti-China, but it’s actually about defending America.