US and China feud. Canada pays the price

It must have been one of the most humiliating moments in the life of the so-called "Princess of Huawei" when...

Posted: Dec 17, 2018 1:18 PM
Updated: Dec 17, 2018 1:18 PM

It must have been one of the most humiliating moments in the life of the so-called "Princess of Huawei" when Canadian authorities arrested Meng Wanzhou, chief financial officer of the Chinese telecommunications giant, on December 1 at Vancouver International Airport.

Canadian agents detained Meng at the request of the US, which claims Huawei, through the use of the Hong Kong company Skycom Tech, dodged sanctions on Iran. After 10 days in a corrections center and an unusually long bail hearing, Meng is under house arrest in Vancouver on $10 million Canadian bail ($7.5 million US). She faces extradition to the US, as well as a possible 30-year prison sentence if found guilty of defrauding banks to circumvent American sanctions.

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Canada chose to abide by the rules when it arrested Meng. But it easily could have looked the other way and allowed the CFO to slip through Vancouver on her way from Hong Kong to Mexico. Instead, Canada chose to abide by a "rules-based international order," and for that it is paying a hefty price.

Arresting Meng is no small matter -- imagine if China detained Apple CEO Tim Cook. Huawei, the world's second-largest smartphone manufacturer after Samsung, is the poster child for China's commercial might, and Meng is the daughter of the company's founder Ren Zhengfei.

Canada simply may have honored a routine extradition warrant, but it finds itself in an unenviable tug of war between the US and China amid a trade war between the two superpowers. Canada reportedly reached a "new level of frustration" with US President Donald Trump after he expressed a willingness to politicize Meng's case and use it as a bargaining chip to protect his country's economic and national security interests. Ottawa is also bearing the brunt of Meng's arrest after China detained two Canadians in apparent retaliation.

The consequences for Canada could be painful. The situation threatens to turn into yet another long-term foreign policy disaster for the relatively young and inexperienced government of Prime Minister Justin Trudeau. It is still bruising from Saudi Arabia's harsh retaliation after Canada criticized its human rights record in August.

To make matters worse, the imbroglio comes when the Trudeau government is trying to rev up trade and investment with China, partially to benefit from Beijing's deteriorating economic relationship with the US.

Before Meng was even released Tuesday, Chinese officials detained former Canadian diplomat Michael Kovrig, who is also an adviser for the International Crisis Group. Michael Spavor, a Canadian writer and businessman who founded an organization that promotes trips to North Korea, was also detained Monday. China's Foreign Ministry said the two cases are being handled separately.

Canadians should be asking why China is picking on Canada when it should be directing retaliation at the US, which initiated the legal proceedings against Meng.

And it might just get worse from here. China is Canada's second-biggest trading partner after the US. With two-way trade clocking in at almost $73 billion Canadian in the first nine months of 2018, the potential for Beijing to harm the Canadian economy is huge.

Victoria Pelletier, an executive at IBM Global Services, told me, "This has put us in a terrible position...The next steps are going to be very, very important. We need to separate the politics around the legal extradition requirements we are bound by and the highly political situation around trade that may have a significant impact on the Canadian economy."

Commercial activity has already been impacted, with British Columbia -- the province with the most to lose from cooling ties with China -- announcing on Sunday the government will suspend a planned trade mission to the country.

If Beijing continues to punish Canada, one option is to suspend talks for its free trade agreement with China, especially if it continues to detain Canadians. "We've got to make clear that there [are] going to be costs to this kind of lawless behavior," said Canadian columnist Andrew Coyne.

Canada also can side with most of the so-called Five Eyes intelligence countries (which include the US and Australia) and finally decide whether Huawei should be given access to Canada's 5G network.

Finally, resentment is growing toward China over everything from its aggressive actions in the South China Sea to mounting unease surrounding its aggressive Belt and Road Initiative. Canada should diversify its trade and investment portfolio with other Southeast Asian nations -- and in the process lessen dependence on China. And seeking sage counsel from elder statesmen such as Malaysia's Prime Minister Mahathir Mohamad, who has no qualms about standing up to China, could up Canada's tactical game.

Whatever the outcome of the current foreign policy dispute, the US has poked the Chinese dragon, and Canada stands to be burned badly in the process.

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