Arrest triggers fresh doubts about Trump’s ability to deliver on China deal

Instead, the detention of Chinese tech giant Huawei’s chief financial officer, Meng Wanzhou, in Vancouver, British Columbia, triggered a market meltdown Thursday amid uncertainty about whether President Donald Trump can strike a lasting trade deal with Beijing.

The volatility put a spotlight on doubts about Trump’s ability to deliver on his promises with China — and exposed a clash between his policy goals in China and his efforts to crack down on technology companies and other actors.

The Dow crashed by as much as 785 points before recovering on Thursday. It had slipped nearly 800 points earlier this week on investor concerns about the status of the trade talks. The drop came despite clear statements from Beijing indicating that President Xi Jinping intends to move ahead with the trade talks as planned.

“Markets were already nervous before this arrest information came out,” said David Dollar, a senior fellow in the John L. Thornton China Center at the Brookings Institution who was an economic and financial emissary to China for the Treasury Department under President Barack Obama. “After some initial euphoria it became clear that there weren’t a lot of detailed preparations, and therefore nobody really knew what was the likelihood of this agreement lasting.”

China has offered a restrained response, only expressing public outrage over the arrest of Meng, the daughter of the founder of Huawei. China’s Commerce Department expressed confidence on Thursday that a trade agreement with the US could still be reached in time to hit a 90-day deadline, but it called on the US and Canada to “immediately correct the wrongdoing” and restore her “personal freedom.”

US-China experts said the muted response by Beijing — for now — shows how badly it wants to avoid upsetting the negotiations with the Trump administration.

“It really speaks to the depth of the Chinese concern in their economies and their desire to get the US-China relationship back on a more even keel,” said Elizabeth Economy, a senior fellow at the Council on Foreign Relations. “At any other time, if the Chinese were feeling more confident, if they were feeling their economy were more robust, the response would have been to cancel any pledges they made. This company is a national champion, and the daughter of the founder, who is the CFO, it doesn’t get any tighter with the leadership of the elite than this.”

What is Huawei, and why the arrest of its CFO matters
The US and Canadian governments haven’t specified what charges Meng faces. Her arrest follows reports this year that the Justice Department was investigating whether Huawei had violated American sanctions on Iran. The Justice Department is seeking Meng’s extradition, according to a White House official.

Huawei said in a statement about Meng’s arrest that it “has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng.”

“Huawei complies with all applicable laws and regulations where it operates, including applicable export control and sanction laws and regulations of the UN, US and EU,” it added.

The timing of the arrest couldn’t have been more awkward. Meng was detained in Canada on Saturday, the same day Trump sat down over a steak dinner to hash out an oral agreement with Xi in Buenos Aires.

The arrest wasn’t made public until late Wednesday.

“The Chinese will absolutely interpret it as being directly connected,” said Dean Cheng, a Heritage Foundation senior research fellow on Chinese political and security affairs. “Having a better sense of how American bureaucracy works, I’d be more skeptical.”

But, he added, “from the Chinese perspective, this is going to be absolutely seen as part and parcel of our negotiating practice.”

The White House says Trump and his close aides were not aware the US planned to place an extradition request for Meng ahead of his dinner with Xi on Saturday.

National security adviser John Bolton said in an interview with National Public Radio that he was aware before the dinner that an arrest was coming.

Bolton told NPR that Huawei has represented “enormous concerns for years” for the US over the theft of American intellectual property and forced technology transfers, two notable issues the administration is seeking to resolve as part of the trade negotiations.

Aaron David Miller, a vice president at the Wilson Center, said the clash of priorities — squeezing Iran on one hand and reaching a trade agreement with China on the other — was likely accidental.

“If the Trump administration were really serious about Iran, that would be the overwhelming priority, and it wouldn’t have granted waivers to eight countries allowing them to import Iranian oil,” Miller said. “I think this is a question of one hand not knowing what the other hand is doing.”

Yet another administration official told CNN the US would seek Meng’s extradition from Canada, adding that it could provide Washington with leverage against China as trade talks proceed.

Long viewed by US intelligence agencies as a national security threat, Huawei is one of China’s most prominent tech companies. It sells more smartphones than Apple (AAPL) and builds telecommunications networks in countries around the world.

Canada’s top cyber official said the country is prepared for possible retaliation from Beijing for the arrest of Huawei’s CFO.

Scott Jones, director of the Canadian Centre for Cyber Security, said he could not directly answer any questions in relation to the case, but added, “We always have to be resilient no matter what the possible trigger could be, so we increase our resilience against any form of malicious activity that we could be facing as a nation. We are working very closely with the broader security community.”

Jones confirmed that Canada is assessing the security risk and he refused to indicate when that review would be completed. Canada released its long-scheduled Cyber Threat Assessment today, the first of its kind in the country.

Huawei’s smaller rival, ZTE (ZTCOF), provides an example of how the US government could go further. The Chinese company was crippled for months after the Commerce Department blocked it from buying vital parts from American companies.

The ban threatened to put ZTE out of business and highlighted China’s continued reliance on American technology, a vulnerability Beijing is eager to reduce. ZTE eventually got a reprieve after Xi asked Trump for help. But the crisis caused disruption for telecommunications carriers and ZTE suppliers around the world.

A similar ban on Huawei would have a bigger impact because its equipment is more widely used.

CNN’s Pam Brown, Kevin Liptak, Jethro Mullen and Paula Newton contributed to this report.

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