Huawei CFO arrest in Canada could affect iPhone tariffs if US-China trade talks sour
Huawei's CFO -- and founder's daughter -- Meng Wanzhou was arrested in Canada on Saturday and faces extradition to the United States. The move against one of Apple's biggest international smartphone competitors threatens to open a new front in a looming trade war between the US and China.
Meng, Huawei CFO and deputy chair, was apprehended by Canadian police in Vancouver while transferring between flights on December 1. The executive, one of four who rotate in the position of vice chair, is also the daughter of ex-Chinese army officer and founder Ren Zhengfei, and is thought to be a candidate to take over the company in the future.
It is unclear why the arrest was made, as no details have been provided by Canada's government on the matter. The only real information provided so far is that she was arrested and is being held by the country, with Canada's justice department advising a court hearing has been set for Friday, reports The Guardian.
The lack of information on the arrest is unusual, with the justice department claiming "As there is a publication ban in effect, we cannot provide any further detail at this time." Notably, the statement adds "The ban was sought by Ms. Meng," rather than by a government agency or Huawei itself.
It is believed the arrest relates to U.S. sanctions violations, according to sources of Reuters. Authorities in the United States said to have investigated the company since 2016 over shipping products of U.S. origin to Iran and other countries that are subject to sanctions.
Friday's court hearing could lead to Meng being extradited to the United States over the matter, if it does relate to sanctions violations.
The Chinese government has demanded more information from both the Canadian and U.S. Governments about the arrest, as well as for an immediate release of Meng. Chinese consular assistance has been provided to Meng since her arrest.
"We are putting the world on notice: the games are over," Commerce Secretary Wilbur Ross said in a statement in March 2017 when a governmental ban on ZTE was put into place. "Those who flout our economic sanctions and export control laws will not go unpunished -- they will suffer the harshest of consequences. Under President Trump's leadership, we will be aggressively enforcing strong trade policies with the dual purpose of protecting American national security and protecting American workers."
ZTE's and Huawei's technologies were used across a wide range of enterprise and defense applications before a ban was put into place by the US and several European countries. Despite the ban, Huawei remains one of the world's largest suppliers of telecommunications and networking hardware in the world, with a burgeoning Android smartphone business directly competing with Apple in many markets.
At present, Huawei is only restricted from governmental contracts. An escalation of that ban could prevent other companies in the US from selling other critical components to Huawei -- and prevent Google from providing Android to the company.
China's Huawei has already produced its own Kirin smartphone chip, so in that regard, it is not beholden to U.S. interests. The company is still reportedly working on an internal OS to similarly avoid "the crutch of Android" as it calls it -- but it is not clear how far along that development is, after the effort starting in 2012.
Should the administration choose, it could also apply a total import ban on the company, preventing U.S. consumers from purchasing Huawei's smartphones and other products.
Trump and Chinese President Xi Jinping recently held talks on the matter, with a 90-day truce on trade embargo expansions announced by the President on the same day as Meng's arrest -- but the facts of the matter are under some dispute by the Chinese government. The potential extradition of Meng to the United States and prosecution may add more pressure to the talks, and could cause China to withdraw.
If the discussions break down, President Donald Trump has already signaled an intention to apply more tariffs onto all other imports. While previously tariffs did not impact the iPhone, it is highly likely Apple's products imported from the country will be hit by the extra fees.
It is thought the iPhone could be hit by a 10-percent tax if the extra tariffs are applied, with Apple either having to consume the cost or pass it on to consumers. Analysts estimate this could raise the cost of an iPhone XS Max by between $60 and $160, if passed on to customers.
Meng, Huawei CFO and deputy chair, was apprehended by Canadian police in Vancouver while transferring between flights on December 1. The executive, one of four who rotate in the position of vice chair, is also the daughter of ex-Chinese army officer and founder Ren Zhengfei, and is thought to be a candidate to take over the company in the future.
It is unclear why the arrest was made, as no details have been provided by Canada's government on the matter. The only real information provided so far is that she was arrested and is being held by the country, with Canada's justice department advising a court hearing has been set for Friday, reports The Guardian.
The lack of information on the arrest is unusual, with the justice department claiming "As there is a publication ban in effect, we cannot provide any further detail at this time." Notably, the statement adds "The ban was sought by Ms. Meng," rather than by a government agency or Huawei itself.
It is believed the arrest relates to U.S. sanctions violations, according to sources of Reuters. Authorities in the United States said to have investigated the company since 2016 over shipping products of U.S. origin to Iran and other countries that are subject to sanctions.
Friday's court hearing could lead to Meng being extradited to the United States over the matter, if it does relate to sanctions violations.
The Chinese government has demanded more information from both the Canadian and U.S. Governments about the arrest, as well as for an immediate release of Meng. Chinese consular assistance has been provided to Meng since her arrest.
Sanctions consequences
Huawei Competitor ZTE found itself in financial hot water when the Trump administration issued a total ban for breaking embargo restrictions on Iran. This cost the company dearly, with a $892 million penalty for breaking sanctions, and a billion-dollar loss of business above and beyond that fine since the ban."We are putting the world on notice: the games are over," Commerce Secretary Wilbur Ross said in a statement in March 2017 when a governmental ban on ZTE was put into place. "Those who flout our economic sanctions and export control laws will not go unpunished -- they will suffer the harshest of consequences. Under President Trump's leadership, we will be aggressively enforcing strong trade policies with the dual purpose of protecting American national security and protecting American workers."
ZTE's and Huawei's technologies were used across a wide range of enterprise and defense applications before a ban was put into place by the US and several European countries. Despite the ban, Huawei remains one of the world's largest suppliers of telecommunications and networking hardware in the world, with a burgeoning Android smartphone business directly competing with Apple in many markets.
At present, Huawei is only restricted from governmental contracts. An escalation of that ban could prevent other companies in the US from selling other critical components to Huawei -- and prevent Google from providing Android to the company.
China's Huawei has already produced its own Kirin smartphone chip, so in that regard, it is not beholden to U.S. interests. The company is still reportedly working on an internal OS to similarly avoid "the crutch of Android" as it calls it -- but it is not clear how far along that development is, after the effort starting in 2012.
Should the administration choose, it could also apply a total import ban on the company, preventing U.S. consumers from purchasing Huawei's smartphones and other products.
Fixing relations
The arrest may affect more than Huawei's standing with the U.S. government, as it could negatively impact the current political climate between the U.S. and China. The two are currently in a trade war, with the Trump administration threatening to apply tariffs on $200 billion of goods from China, although the two companies are in talks to try and de-escalate the situation.Trump and Chinese President Xi Jinping recently held talks on the matter, with a 90-day truce on trade embargo expansions announced by the President on the same day as Meng's arrest -- but the facts of the matter are under some dispute by the Chinese government. The potential extradition of Meng to the United States and prosecution may add more pressure to the talks, and could cause China to withdraw.
If the discussions break down, President Donald Trump has already signaled an intention to apply more tariffs onto all other imports. While previously tariffs did not impact the iPhone, it is highly likely Apple's products imported from the country will be hit by the extra fees.
It is thought the iPhone could be hit by a 10-percent tax if the extra tariffs are applied, with Apple either having to consume the cost or pass it on to consumers. Analysts estimate this could raise the cost of an iPhone XS Max by between $60 and $160, if passed on to customers.
Comments
But how can they look at criminally charging a Chinese citizen who works for a Chinese company that is doing business in China?
Does this mean that Saudi Arabia could demand my extradition for violating their Apostasy laws?
Could Russia demand my extradition for slandering Putin and his criminal regime?
The US has a beef with the company, but why would they have any jurisdiction for criminal charges?
This could cause significant problems.
The irony is strong .
How would the US react if China requested the arrest of the head of General Dynamics or Boeing as they passed through a third country, basing it on the fact that their products had been sold to Taiwan?
Supposedly over “security concerns”, but critics are saying that it’s really just to support the American ban.
In the past, US and China typically avoided arresting each others citizens due to the threat of political revenge, but it seems the trade war has reached a new phase.
https://www.theglobeandmail.com/news/politics/justin-trudeau-defends-extradition-treaty-talks-with-china/article31997509/
That's fair question. I don't have any special authority or expertise. It's just a common sense assessment based on total trade between the countries and our deep economic ties. We total nearly $700b in total trade between us. The tariffs that have been imposed don't cover the lion's share of the $500 billion or so we import from China. They are on certain categories of products. I'm not saying they don't have an effect or that the effect is entirely positive...that's another debate. But a "war" is pretty strong. I suppose reasonable people can differ on whether it's a "war" or not, but stating it as a fact is inappropriate. That's an opinion.
"Meng is also the daughter of ex-Chinese army officer and founder Ren Zhengfei"
What most people do not realize about Huawei is really a military company started by the Chinese government that turned into a "private public company" The Us/Canada just arrested someone in the Chinese ruling class the untouchables. As we are seeing this is not going to sit well with China.