Story Of The Week

The Arrest of Huawei CFO : Economical & Political Implications

The Law is the Public conscience

                                                                   -Thomas Hobbes

The latest example of the United States’ national security concerns regarding the massive Chinese smartphones and telecommunication networking gear maker, is the arrest of Meng Wanzhou. The deputy chairman and chief financial officer of Huawei, was arrested by Canadian authorities at the request of U.S. officials, which comes amid heightened political and economic tensions between the two superpowers.

The charges that have been made against Meng have not been made public, although the U.S. officials reportedly were concerned about the sanctions against Iran being violated by Huawei. The arrest has several implications as the other Western governments have started warning their companies and consumers about the potential security risks of using Huawei products in their businesses and homes. Most recently, the intelligence agency of New Zealand, the Government Communication Security Bureau, rejected the request of the country’s telecom industry to use Huawei equipment for its 5G networks, citing concerns for national security. In addition, officials with the UK telecom company, British Telecom said the company would not use Huawei technology for its 5G network and would remove the Huawei equipment, it had already bought for its 4G network within two years. Australia had also previously barred Huawei, during the summer from providing equipment for the 5G networks of that country.

Source: Wayne Daily News

The major concern from lawmakers from the United States and other countries about Huawei and ZTE, a Chinese networking infrastructure maker, is that the companies might postnational security risks due to their extremely close ties with the Chinese government. The major reason for concerns is that their products could come with backdoors or other technologies that can give Chinese officials access togovernment or personal data.

The arrest of Meng, who is the daughter of the founder of Huawei, Ren Zhengfei could be a significant move by the United States, given the size and global reach of the company and the trade tensions with China that have been going on. Meng was arrested on December 1, 2018, in Vancouver, but this arrest wasn’t made public until December 5, 2018. A bail hearing was also scheduled for Dec. 7. She is now facing extradition to the United States to face charges.

Huawei officials in a statement said that they had little information about the charges and were not aware of the wrongdoings by Meng, adding that the company believes the Canadian and U.S. legal systems will ultimately reach a just conclusion. “Meng’s human rights were being violated and demanded her to be released”, added the Chinese officials.

The effects – On the US

The news of the CFO getting arrested might not have any real impact on the U.S. economy because Huawei doesn’t have any presence in the US, but it could result in people outside the United States rethinking whether to buy Huawei products. Huawei is one of the largest vendors of telecom equipment in the world, with a very strong presence in both Europe and Asia. However, the US lawmakers in 2012 had said that both Huawei and ZTE were national security risks and had subsequently banned government entities from using gears from Huawei in their infrastructures. The US government had also warned American telecom companies to not buy the companies’equipment.Huawei officials eventually said that there were efforts dropping to move into the U.S. market, instead deciding to focus on other parts of the world.

U.S. officials recently began warning allies not to use the Chinese company’s equipment.As the company started expanding into mobile phones in recent years by pushing Android phones at lower costs, the officials tried to bring products into the U.S. market again, but they were met by resistance. In January, AT&T walked away from a deal with Huawei to sell the Chinese vendor’s Mate 10 to US consumers. The lawmakers of the US had urged to cut ties with Huawei as well as oppose efforts by China Mobile to move into the US market. The same suit was followed by Verizon later in January by dropping plans to sell Huawei smartphones in the United States

Source: CNBC.com

The US intelligence recommended against Huawei phones

In addition, US intelligence officials recommended against American citizens using Huawei phones, and Best Buy also announced it would stop selling them soon after.

In 2015, Huawei officials had boasted that it would become one of theworld’s top three storage providers.

It looks to be a bigger conflict between the two countries that can have political and economic ramifications as well as national security implications, particularly under Trump administration, which has leveraged tariffs on billions of Chinese goods. Infact, the arrestof Meng came on the same day when President Trump was meeting Chinese President Xi Jimping in Argentina at the G20 Summit.

It almost looks like it’s Apple that has the Trump administration jumping to their tune to weaken Huawei to the outside world, which doesnt play well in China and might likely justify a nasty response from China.

Unintended consequences might happen

Regarding the impact on U.S. businesses and consumers, it might do little damage, but action like these between governments typically have huge unintended consequences like the massive stock market drop.

U.S. stock markets have been seeing volatility in recent days as investors are worried bout trade relations between the United States and China.

In April,the U.S. Commerce Department had also penalized ZTE for violating sanctions against Iran and North Korea. However, in July, the Trump administration being concerned about the loss of jobs in China, a month later lifted the ban on US companies selling equipment to ZTE in exchange for paying a $1 billion fine and ther concessions.

References 

  • https://economictimes.indiatimes.com/news/international/business/huawei-arrest-tests-chinas-leaders-as-fear-and-anger-grip-elite/articleshow/66998680.cms
  • https://economictimes.indiatimes.com/news/international/business/china-warns-canada-of-consequences-if-does-not-release-huawei-cfo/articleshow/67003165.cms
  • https://www.bbc.com/news/world-us-canada-46494935
  • https://www.abc.net.au/news/2018-12-09/china-calls-on-canada-to-free-huawei-cfo-or-face-consequences/10597884
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