Trade War | US charges against Huawei could inflame China talks

A T-Mobile store in New York. The federal indictment accuses Huawei of stealing trade secrets from T-Mobile

The Trump administration’s unveiling of criminal charges against the Chinese tech giant Huawei has complicated high-level talks set to begin today in Washington that are intended to defuse the trade war between the administration and Beijing.

The Justice Department charged yesterday [Macau time] that Huawei had violated U.S. sanctions against sales to Iran and stolen trade secrets from T-Mobile, a U.S. partner. Those charges cut to the heart of some of the administration’s key complaints about China’s trade practices.

Analysts said the trade talks would likely proceed, but reaching any substantive agreement would probably be harder. And unless the two sides can forge some sort of accord by March 1, U.S. tariffs on USD200 billion of Chinese imports are set to rise from 10 percent to 25 percent.

“The Chinese will keep talking,” said David Dollar, a senior fellow at the Brookings Institution and a former U.S. Treasury official. “They won’t be happy with the Justice Department action, but I think they would like to keep it separate from the trade talks.”

Representatives of U.S. business groups privately raised concerns that the administration’s actions could poison the atmosphere between the two sides. Any backlash in China against the indictment of Huawei, one of the country’s global powerhouses, could limit Beijing’s ability to agree to anything that might be seen as bowing too willingly to U.S. demands.

The Justice Department has also charged Huawei’s chief financial officer Meng Wanzhou. The United States is seeking to extradite Meng, who has been held in Canada since Dec. 1.

Sarah Sanders, the White House spokeswoman, was asked whether the criminal charges against Huawei were linked to the trade talks with China and amounted to a carrot-and-stick approach.

“No, those two things are not linked,” she said. “They are a totally separate process.”

This week’s negotiations were already facing low expectations.

“We are anticipating no big outcomes this week,” Erin Ennis, senior vice president at the U.S.-China Business Council, said before the Huawei charges were announced.

The Trump administration, with support from U.S. businesses, wants China to make fundamental changes to its economy that China is reluctant to accept and that will be difficult to verify, analysts say. The administration has accused Beijing of deploying predatory trade tactics, ranging from requiring U.S. and other foreign companies to hand over technology in return for access to the vast Chinese market to outright cyber-theft.

Robert Lighthizer, the U.S. trade representative and lead negotiator in this week’s talks, wants China to toughen its protections of intellectual property and to stop unfairly subsidizing its state-owned enterprises.

“The scope of these talks will be the broadest and deepest in U.S.-China history,” Larry Kudlow, a top White House economic adviser, said.

Yet reaching the kind of deal the United States wants could prove elusive if not impossible. Chinese officials deny that they force U.S. companies to transfer technology. And they regard the support of their state-owned companies and the acquisition of cutting-edge technology, much of it from abroad, as vital to China’s economic development.

U.S. companies in China say that forced technology transfers typically happen at the local level and stem from informal pressure by Chinese officials, which would make it difficult to verify whether Beijing has complied with any major agreement.

In previous rounds of talks, China has shown little inclination to yield to the administration’s demands.

“China has yet to show any indication that it is ready to address U.S. and global concerns about its structural issues,” said Scott Kennedy, a China specialist at the Center for Strategic and International Studies. “The two sides are pretty far apart.”

Beijing has previously offered to increase its purchases of U.S. products, notably soybeans and other agricultural goods as well as natural gas. This would help address Trump’s concern about the gaping U.S. trade deficit with China. Beijing could also open more industries to U.S. companies and pledge better protection for U.S. intellectual property. In return, China could press the U.S. to remove the tariffs that President Donald Trump imposed last year.

Derek Scissors, a China expert at the American Enterprise Institute, said that China would likely accept such a deal, if it were offered. Doing so would outweigh any concerns China has about Huawei.

“If they think they can get the deal that they want, they won’t cancel the talks over Huawei,” he said. Christopher Rugaber, Washington, AP

Australia’s TPG abandons mobile network plan over Huawei ban

Australian company TPG Telecom said yesterday it had abandoned the rollout of what would have been the country’s fourth mobile network because of a ban on Chinese giant Huawei, which would have been the main equipment vendor.

In light of the ban announced in August, “that upgrade path has now been blocked,” TPG’s statement said.

Australia blocked Huawei and Chinese mobile device maker ZTE Corp. from its 5G network due to security concerns. The government said involvement of a company “likely to be subject to extrajudicial directions from a foreign government” presented too much risk.

Several governments have been scrutinizing Huawei over its links to the Chinese government. The private Chinese company started by a former People’s Liberation Army major in 1987 suffered a setback in the U.S. market in 2012 when a congressional report said it was a security risk and warned phone companies not to buy its equipment.

The U.S. Justice Department unsealed criminal charges Monday against Huawei, two of its subsidiaries and a top executive, who are accused of misleading banks about the company’s business and violating U.S. sanctions.

The company is also charged in a separate case with stealing trade secrets from T-Mobile, according to federal prosecutors.

Prosecutors are seeking to extradite the company’s chief financial officer, Meng Wanzhou, and allege she committed fraud by misleading banks about Huawei’s business dealings in Iran. She was arrested on Dec. 1 in Canada.

TPG said it had explored other options but concluded “it does not make commercial sense to invest further shareholder funds […] in a network that cannot be upgraded to 5G.”

TPG executive chairman David Teoh said: “It is extremely disappointing that the clear strategy the company had to become a mobile network operator at the forefront of 5G has been undone by factors outside TPG’s control.” AP