In my previous piece on the U.S.-China trade war, I discussed a “gray zone” strategy that applies tools and techniques including but not limited to blockades and severe sanctions, targeted sectoral denial and limited sanctions, and implied economic coercion as part of the implementation of Washington’s trade war policy against China.
There have been several notable cases in the year of 2018 that may help to outline the “gray zone” nature of this ongoing trade war, such as the ZTE incident, which briefly saw the company banned from doing business with U.S. partners but concluded with a hefty fine. The most recent case is the arrest of Meng Wanzhou, Huawei’s chief financial officer, in Vancouver, at the request of the United States for violation of U.S. sanctions against Iran. Both ZTE and Huawei are China’s leading high-technology companies, while Huawei even tops its competitors in the United States and Europe with its outstanding creativity and productivity in telecommunications. The moves against these companies are pre-emptive and targeted strikes against the Chinese high-tech industry. The arrest of Meng Wanzhou – who is now out on bail, pending extradition — is a particularly telling example of the long reach of U.S. domestic judicial decisions.
U.S. long-arm law enforcement has been practiced for years. Perhaps the most striking – and puzzling – aspect is that such U.S. conduct constantly overrides the ordinary understanding of the rights of citizens of a sovereign state. This has been a problem worthy of attention for a long time. To address this issue, a report by a U.S. law firm explained:
As individual jail terms and corporate fines continue to increase, many companies and executives outside the United States are left wondering: How are U.S. laws able to reach so far outside U.S. borders? The United States has some fundamental legal principles that can allow its enforcement authorities to apply its laws well beyond U.S. borders…Many U.S. laws—including the Foreign Corrupt Practices Act (FCPA) in certain circumstances and various antifraud statutes—may establish jurisdiction over a crime whenever it involves the use of any “means or instrumentality of interstate or foreign commerce.”
Simply put, U.S. “fundamental legal principles” allow Washington to export “U.S. justice” nearly anywhere in the world. And the United States thus uses its anti-corruption laws and sanctions to “police the world,” according to the South China Morning Post.
Diplomatically, the arrest of Meng Wanzhou could be very consequential and problematic, particularly as it comes just as the trade war between the United States and China entered a truce. Both sides seemed to see the need for and possibility of finding new common ground to reconcile; Meng’s arrest does not help to mitigate the differences and may send a wrong (if not confusing for both sides) message. The United States can point to judicial independence to explain the arrest, but the simple fact is U.S. law enforcement does not target every company that is possibly guilty of sanctions violations. As Zachary Karabell pointed out in the Washington Post, global supply chains are deeply interconnected and touch multiple countries and numerous companies, and yet U.S. prosecutors are not trying to curtail the work of other mega-technology giants like Samsung and Ericsson, both of which have been doing business with Iran over the past years. This has led many in China to the conclusion that Washington is targeting Huawei for its alleged connection with the Chinese government. Yet China continues purchasing from Boeing, GE, Intel, and many other U.S. corporations, all of which are the major contractors to the U.S. government.
In the big picture, the United States may find its competitiveness risks shriveling when faced with China’s entry into fields including high-technology and high-end manufacturing. Apparently, Washington sees no effective means to counter that except for starting a (trade) war with China. This is an illusion.
So far, there is neither hot nor cold war between the United States and China. It is a kind of “gray zone” trade war that applies multiple tools and techniques. However, the arrest of Huawei’s global CFO in a third country risks sending an inappropriate message at this particular moment, and thus risks interfering with the efforts of both parties to seek common ground to end this trade war.