The detention of Meng Wanzhou in Vancouver is an early skirmish in what will probably be a 30- year war. It will not, mercifully, be a military conflict, or at least we should fervently hope so. But the fight between the US and China is for economic dominance, and it has begun now.
To explain, Wanzhou is Chinese business royalty. She is the daughter of Ren Zhengfei, founder of Huawei, and as its chief financial officer seems destined to succeed him. Huawei is the world’s second largest manufacturer of smartphones, having passed Apple earlier this year. It is also the second largest supplier of telecom equipment, having initially made its foreign expansion in the UK.
So it is a serious commercial challenger to the US. The particular issue leading to the request for extradition of Wanzhou to the US is apparently Huawei’s breaking of Iranian sanctions, but I think it is more helpful to see it in more general terms. This is about power. There are two elements here.
First, the US is making companies choose whether they really want to sell to the US, because if they do, they must accept US foreign policy objectives. So the Iranian order for up to 100 Airbus jets is on hold. Do you want to sell to Iran or the US? Bit of a no-brainer.
The same, by the way, goes for Canada. Do you accept a request by the US to detain someone transferring planes at one of your airports? Yes, because whatever the legal issues, 20 per cent of your GDP comes from exports to the US. Canadians of Chinese ethnicity have been protesting about the detention, and a legal challenge has been mounted. But meanwhile, the maths are pretty clear.
Second, there are concerns that Huawei equipment might be used to spy on the West. Such accusations have been denied, but US pressure has combined with European and UK concerns to put Huawei on the defensive.
Thus in the UK BT is actually removing Huawei’s kit from its 5G network.
There are similar concerns in Japan. So, quite suddenly, a key Chinese company is finding itself squeezed. Of course, it can sell to its domestic market, but if it wants to expand further, at least in the developed world, it is likely to find itself blocked.
Even if the US takes a softer line on Wanzhou as part of some trade accord with China – and Donald Trump has hinted that this might be the case – the US will have achieved a victory in the longer-term war. It will have severely damaged the export potential of one of China’s economic champions.
As for the present state of the wider conflict, there is no doubt that the US is winning on points. At a macro-economic level, the US is still growing reasonably solidly, whereas while China is still growing, there are considerable signs of strain.
For example this year, the Chinese market for cars will shrink for the first time for more than 20 years. That has nothing much to do with the trade war, and the decline is damaging US and European car manufacturers too. But it puts pressure on China to get a deal with the US.
It also highlights wider problems within the Chinese economy, including over-investment in a number of areas including housing, and a general loss of consumer confidence. I’m sure China will be alright in the end, but a trade war with the US comes at a bad time for it.
Meanwhile, other fronts are opening up. If you watched the testimony of the Google CEO Sundar Pichai to Congress you might have noticed one of the moments when he was caught off-foot was the reference as to whether Google was trying to get into the Chinese market with a censored search engine.
He said the company had “no plans” to do so, something that may currently be technically correct, but is hard to square with the fact that they recently have had up to 300 people working on its secret “Dragonfly” project. In this instance, the pressure stems from civil rights groups rather than the US Administration, and has been evident for several months.
But the common theme is that if US groups are to operate in China, they will have to fit in with US ethical standards. This is a war on many fronts, for these are tensions between two different views of the world, and how societies should be organised. They are not just about trade.
Three final points: The first is that war is too crude a word; this is a fight for dominance, to be sure, but it is being carried out within defined limits. The second is that it is as much about ideas as it is about trade. And the third is that it will continue for a very long time.