January 28, 2019 / 11:54 PM / in 6 months

Breakingviews - U.S. Huawei charges test trade deal appetite

Logo of Huawei is seen in front of the local offices of Huawei in Warsaw, Poland January 11, 2019. REUTERS/Kacper Pempel

WASHINGTON (Reuters Breakingviews) - Sweeping U.S. charges against Huawei Technologies will test appetites in Washington and Beijing for a trade deal. The Chinese telecom firm was charged with bank fraud related to Iranian sanctions violations and the theft of trade secrets from T-Mobile US. The move comes just before U.S. and Chinese officials are due to hold critical negotiations aimed at ending their tit-for-tat tariffs.

The U.S. Justice Department dropped a hammer on Huawei on Monday. In two indictments involving a total of 23 counts, prosecutors said Huawei lied to banks about its ownership of Skycom Tech, which they allege was its Iranian affiliate. The same charges led to the arrest of Huawei Chief Financial Officer Meng Wanzhou in Canada in December. The DOJ is seeking her extradition. Another case alleged Huawei took advantage of its partnership with T-Mobile to steal information about a robot that tests mobile phones.

The charges could complicate high-level trade talks set to begin on Wednesday. China’s Vice Premier Liu He will meet with U.S. Trade Representative Robert Lighthizer and others. American officials want China to stop forced technology transfers and intellectual property theft, among other issues. The Chinese want the administration of President Donald Trump to lift tariffs, which they challenged at the World Trade Organization on Monday.

Uncertainty about the trade talks have roiled markets, which worries the American president. He has already said he may intervene in Meng’s case if it helps seal a trade deal. The Dow Jones Industrial Average fell by more than 200 points on Monday as Caterpillar and Nvidia became the latest U.S. companies to warn that China’s slowdown would hit profit.

China’s sluggishness has also fanned worries about global growth. The mainland economy expanded by 6.6 percent in 2018, the slowest pace since 1990. The headwinds facing China predate Trump, but his tariffs didn’t help. Chinese President Xi Jinping will also be under pressure to retaliate for the Huawei case. Meng’s arrest has already led to calls for a boycott of Apple products in China.

U.S. and Chinese officials have said the Huawei charges are separate from the trade talks, but they will be hard to ignore given the DOJ’s aggressive actions. The way Trump and Xi handle the case will show how badly they want to avert a trade war.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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