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Arrest of Huawei's CFO Could Prompt More US Businesses to Leave China

Meng Wanzhou, deputy chairwoman and CFO with Huawei.

Just when it seemed as if the U.S. and China might have taken a step along the path toward easing trade tensions, a top executive of Huawei, a Chinese technology giant, has been arrested in Canada at the request of American authorities.

Now, a mere five days after President Donald Trump and China’s Xi Jinping dined together on Dec. 1 during the G20 summit and announced a 90-day truce on tariffs, analysts are speculating that the tentative agreement, which was already mired in confusion, is unraveling, along with any goodwill that the meeting might have generated between the two countries.

The U.S.-backed detention in Vancouver of Meng Wanzhou, chief financial officer of Huawei Technologies Co.—she was detained in Vancouver on Dec. 1, on the same day that Trump and Xi were having dinner in Buenos Aires, according to news reports—could further motivate U.S. companies to move their supply chains outside China. It might also make companies hesitant about sending employees to China on business, international trade lawyers said Thursday.

Why Meng was detained remains unclear, though the Wall Street Journal and other news outlets reported in April that the U.S. Justice Department was looking into whether Huawei violated U.S. trade sanctions against Iran. Reuters reported Thursday afternoon that Meng was arrested as part of an investigation into the use of the global banking system to evade U.S. trade sanctions, citing confidential sources said to be familiar with the matter. Meng also uses the names Cathy Meng and Sabrina Meng and is the daughter of the company's founder.

The U.S. Department of Justice in an email Thursday declined to comment on reports that the U.S. attorney for the Eastern District of New York was handling the case, or to provide any other information on the matter.

The Chinese embassy in Canada on Thursday decried Meng’s arrest as a “serious violation of human rights,” and the Chinese government has called on Canadian and U.S. officials for her release, while the U.S. seeks her extradition.

Peter Quinter, a shareholder at GrayRobinson in Miami who chairs the firm’s customs and international trade law group, said Thursday that he’d just talked with a stateside client who sources all of its products from China and was concerned—and rightfully so—about trade tensions.

“The company is now looking to source their same products from other Asian countries, principally Cambodia and Vietnam,” said Quinter, who also co-chairs the American Bar Association’s customs law committee.

“It’s a result of the deteriorating relationship between the U.S. and China when it comes to international trade. And it may get worse,” he added.

Moving supply chains outside China is difficult and not a decision that companies make lightly. But trade lawyers and analysts report that an increasing number of clients are making the leap or at least considering the move. And that number is likely to grow if U.S.-China relations continue to sour.

Last June, the U.S. Department of Commerce announced new sanctions on another Chinese telecom, ZTE Corp., that replaced an export denial order previously imposed, over the objections of some U.S. legislators and agency officials. ZTE had been accused of exporting telecommunications components and equipment to Iran and North Korea.

“If I’m in an industry that’s been in the headlines regarding the trade wars, I’d probably raise my worry level a little bit,” said Adams Lee, an international trade lawyer at Harris Bricken in Seattle who represents U.S. and China companies.

He suggested that the recent developments also might make U.S. execs and their employees, especially those who are in the auto and tech industries, which have been hit especially hard by the trade conflict, skittish about visiting China out of fear that they might be detained as trade tensions escalate.

“There’s risk if the countries want to go down this road, but they seem to be willing to go there,” he said. “They’re willing to put businesspeople and their families at risk by detaining them. It seems like they’re being used as negotiating leveraging chips.”

As tensions between the U.S. and China escalated over the Huawei executive's arrest, Reuters news agency reported exclusively that a Chinese government hacking operation might be behind Marriott International Inc.'s massive data breach.

As for the Marriott breach, Reuters first reported Wednesday that private investigators believed that the breach had the hallmarks of a Chinese cyberattack. The news agency cited three unnamed sources, who also cautioned that the culprits could be from a different country because the hacking tools that were used against Marriott are available online.

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US Commerce Lifts Export Ban on China Telecom ZTE