The Strategic Considerations for U.S.-China Trade following the arrest of Huawei CFO.

The detainment of Huawei CFO Meng Wanzhou. The announcement of the "provisional detainment" of Huawei CFO came suddenly following the footsteps of a seemingly positive announcement of U.S.-China trade ties post G20 summit in Buenos Aires. Many U.S.-China trade observers are already estimating the potential derailment of the trade talks. However, if executed correctly and managed from a U.S. side, this may not derail the prospect of a negotiation as others contend.

Domestic Audiences can stomach an arrest over a sanction. The arrest of an individual is more common for Chinese audience than the sanctioning of a company. By targeting individuals for detainment or arrest, the U.S. is not targeting a national industry leader itself, and therefore may (key word "may") avoid public backlash from the Chinese side and garner support by the U.S. audience. Populations are more likely to understand an arrest IF there is a clear and discernible reason for it. It will be incumbent on U.S. law enforcement to make that case.

Huawei needs to offer their full support. If Huawei offers their full support and doesn't turn the arrest into a personal vendetta or slight against the company, they will be able to better manage their public perception in the U.S. Instead of making it about U.S.-China relations, or that the U.S. is targeting a Chinese firm, Huawei can make this about the individual. Even if it offers support to Meng, that narrative can be managed. The success of this crisis management will be contingent on how the story plays out in U.S.-China media and its relation to the trade disputes. However, Huawei is still under investigation for violating sanctions with Iran and this news does not help it's case.

Strategic Communication will be key. If the U.S. and China are serious about improving trade relations (assuming this is a cohesive effort between law enforcement, the administration, and the U.S. Trade Representative) they both must manage the TONE and NATURE of the narrative surrounding these events. If the public discourse shifts from "the U.S. is enforcing a law and doing the right thing" to "China really is the enemy! See the arrest proves it!" then the U.S. administration under President Donald Trump will be hard pressed to go easy in subsequent negotiations.

President Trump and President Xi influence the direction. The U.S. and China trade dynamic is largely influenced by the two people representing their respective countries. Both sides have complex political interests at stake and different goals. The release of disparate reports on the outcome of the G20 summit by the Chinese and U.S. delegations highlights this. However, collaboration and a compromise is possible, and both leaders tend to set the tone of negotiations.

Managing Expectations. It may be months or years before the story about Huawei's CFO is complete, but don't expect the arrest to trigger large scale overhauls of the company. This is a targeted blow that has limited recourse for China. Coincidentally, this arrest comes after the news broke of Georgetown Sophmore Victor Liu (COL ’21) being held from leaving China due to his parents legal issues. While there may not be a direct correlation, the two situations may cross paths during the diplomatic negations between the U.S. State Department, Department of Justice, and China's Ministry of Foreign Affairs. In the world of international relations, nothing is off the table.

Outlook for 2019 and Indicators. The arrest/detention and potential extradition of Meng Wanzhou to the United States creates the potential for strain, but if managed correctly the outcome of the U.S.-China trade could be positive. If the Chinese and the U.S. leadership seek to achieve positive outcomes towards a reduction in tariffs and trade tensions, then both sides (including Huawei) should characterize the arrest in terms of an isolated incident and not in any part related to U.S.-China trade relations. Substantive improvements are still far off, but small meaningful advances are possible. Look for indicators of political rhetoric supporting trade relations or demonizing Chinese practices. Look for support from President Trump directly, and buy in from GOP constituents if things are to improve.

About the Author. Brandon Hughes is the founder of FAO Global, a boutique Data-Analytics and Consulting firm focused on China and Emerging Markets. Brandon has served as Captain in the U.S. Army, and has worked for the Carnegie-Tsinghua Center for Global Policy in Beijing, Asia Society, and served as the Senior Regional Analyst for Asia for Planet Risk. He is a combat veteran and has worked projects in countries as diverse as China, Myanmar, Afghanistan, and Kosovo. Brandon holds a L.L.M in International Relations from Tsinghua University, Beijing and a B.S. in International Business from UNLC and has studied at Johns Hopkins University, Beijing Language & Culture University, and Rangsit University, Thailand. He has extensive overseas experience focused on international business, international security and U.S.-China relations.