Richard Holwill  |  +1-202-285-3570  |  rnh@holwillandcompany.com

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Averting a Corporate Crisis with China

The trade dispute between the United States and China just reached a particularly dangerous stage. The arrest of Meng Wanzhou, CFO of Huawei, will very likely drive countermeasures by the Chinese government against U.S. business interests.

Huawei is a particular problem for two reasons. The Chinese government considers it to be a corporate national champion and suspect that the action reflects U.S. concerns that Huawei recently passed Apple as the world’s second-largest cellphone maker. The U.S. complaint against Huawei is based on its alleged violation of U.S. export controls. Huawei is said to have transferred U.S. technology to Iran in violation of the terms under which the technology was licensed to Huawei.

In what may be an initial response, a Chinese court banned the sale of older iPhones in China in a patent dispute with another U.S. firm, Qualcomm. Officially, the decision was dated on November 30, the day before Madam Meng was arrested. It was announced on December 9, which means that the decision might have been back-dated. U.S. companies doing business in China cannot afford to be naive and must view the two actions as linked.

The Chinese government has used U.S. corporations to influence U.S. policies for decades. In fact, when U.S. sanctions were slapped on China after the Tiananmen Square protests and crackdown in 1989, the Chinese government dangled huge contracts in front of Boeing, GM, GE, and other U.S. companies in order to induce them to press for changes in U.S. policies. The success of that effort established a pattern that continues to this day.

In recent months, Beijing has worked to enlist American corporate executives in a campaign to push back against President Trump’s trade policies.  The message here is clear: This could get worse, and your company could be next. 

There was a time when a company could speak in China’s defense by asking that it be given time to adapt to WTO rules. That time has passed. China openly defies those rules and other international conventions. It forces technology transfers and ignores the restrictions placed on products licensed to the various Chinese entities. One cannot be intellectually honest and say that China needs time to adapt.

Companies must find a way to take the high road amid this dispute. The simple fact is that the Trump administration has also flouted international trade agreements. Many of Trump’s tariffs are based on a U.S. law that was superseded by the dispute resolution mechanism created through the World Trade Organization. Other actions could be described as done for national security reasons simply do not rise to the accepted standards for these exemptions.

The message, then, should be: “To have a rules-based trading system, the United States must follow the rules. Only then can we ask the same of China.”

It may not be the exact message that China wants to hear but it is one that all should heed.