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Politics Chinese tech giant Huawei's CFO proves Trump's trade war is 'escalating to a new level,' and the stock market is spooked

  • Published:

The arrest of Huawei CFO Meng Wanzhou is a clear example that President Donald Trump's trade war is more than just tariffs and the trade deficit.

trump china play

trump china

(Jonathan Ernst/Reuters)

  • News emerged Wednesday that Meng Wanzhou, the CFO of the Chinese tech giant Huawei, was arrested in Canada on Saturday.
  • She is expected to be extradited to the US to face charges that she violated US sanctions on Iran.
  • The arrest drew immediate condemnation from Beijing and raised worries among analysts and investors about the seemingly promising signs coming out of Trump and Xi's dinner at the G20 summit.
  • The move also fits into the Trump administration's larger plan to address China's growing global influence.
  • Meng's arrest and the Trump administration's hard line on China mean the US-China trade war "is escalating to a new level," according to one economist.

After seeming to ease trade tensions with China over the weekend at the G20 summit, the US once again drew the country's ire Wednesday when news emerged of the arrest of Meng Wanzhou, the CFO of the Chinese tech giant Huawei.

Meng, the daughter of Huawei's founder, Ren Zhengfei, was arrested in Canada on Saturday and is expected to be extradited to the US on charges of violating US sanctions on Iran.

The move prompted immediate condemnation by Chinese officials and state media. It also raised growing fears among investors and analysts that the trade truce between President Donald Trump and Chinese President Xi Jinping might already be dissipating.

"We believe this is a clear signal that the trade war is escalating to a new level," Zhiwei Zhang, Deutsche Bank's chief China economist, said Thursday. "We think the probability of US and China reaching a trade deal by March 1 has dropped to 30% from 40%."

Stock markets across Asia and Europe dived following the news, and US markets opened similarly ugly. As of 12:00 p.m. ET, the Dow Jones industrial average was down nearly 600 points, or 2.4%, while the S&P 500 dropped 67 points, or a bit less than 2.5%.

While most of the focus during the trade war has been on Trump's tariffs, Meng's arrest is evidence that the Trump administration's battles with China aren't confined to duties on goods.

Read more: The US-China trade war might still rage on despite a breakthrough deal between Trump and Xi

The Department of Justice and other parts of the Trump administration have stepped up their crackdown in an attempt to address what the administration sees as systemic problems with China's economic practices.

In just the past few months, the Department of Justice has taken several actions:

  • September 25: The DOJ arrested Ji Chaoqun, a Chinese national in the US on a student visa, accusing him of working for China's Ministry of State Security in an attempt to contact engineers and scientists in the US with Chinese backgrounds.
  • October 10: The US arrested Yanjun Xu, a senior MSS officer, after luring him to Belgium. The DOJ accused the Chinese officer of attempting to steal trade secrets.
  • November 1: The DOJ announced the creation of a task force called the China Initiative that is designed to go after Chinese economic espionage.

Meng's arrest was the highest-profile of the actions to date, the pattern paints a picture of an increased focus on China's economic actions. This isn't to say that previous adminstration's haven't addressed similar problems, but the focus by the Trump adminstration appears to be sending an intentional message. While still serving as US attorney general, Jeff Sessions made the administration's position clear in a press conference announcing the China Initiative.

"As the cases I've discussed have shown, Chinese economic espionage against the United States has been increasing — and it has been increasing rapidly," Sessions said. "We are here today to say: enough is enough. We're not going to take it anymore."

The US is also considering expanding the list of technologies barred from being exported to China and introducing investment restrictions for Chinese firms in the US.

The Section 301 investigation on which the US tariffs were originally predicated focuses heavily on the theft of US companies' intellectual property and forced technology transfers. Zhang said the chances of a deal to address those issues just got slimmer following Meng's arrest.

"Public opinion in China will likely become more negative in respect to the trade war, and potentially against US companies," Zhang said. "The government may find it difficult to tell the public that they have offered significant concessions to the US. The trade talk has just been resumed at the G20 meeting; now its outlook has darkened."

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