The US is looking like the dog that caught the car. It needs to decide what to do next.

Except that Wanzhou Meng is a person. She’s the chief financial officer of Huawei Technologies as well as deputy chairwoman and the daughter of its founder. She’s in Canadian custody awaiting extradition to the US, and China is outraged.

With Huawei finally being fingered for alleged sanctions-busting, a charge already leveled at compatriot ZTE, the US Department of Justice and the Trump administration have an important question to answer: What do we want out of this?

The ham-fisted approach to punishing, forgiving and then repunishing ZTE must not be repeated if the US wants to be taken seriously.

ZTE was caught breaching US sanctions on selling equipment to Iran. It apologized and was let off with a fine and a seven-year suspended sentence on the condition that it change its ways and fire some people.

It didn’t take long for ZTE to break that deal, and the US hit back by restricting the supply of components to the company. That threatened to cripple ZTE because US parts are crucial to the global technology supply chain.

In yet another example of the transactional nature of the current US administration, ZTE was able to wriggle out of that procurement ban by paying an even bigger fine. The message to the world was clear: The US rule of law is for sale.

It’s not clear what the US really got out of the ZTE case, beyond a few extra greenbacks. Congress was so incensed at this Trumpian deal that it threatened to reinstate the earlier, harsher penalties on its own. Lawmakers backed down before raising the possibility again.

So now it’s Huawei’s turn. We all knew this was coming. This is no ZTE, though. Huawei is China’s most important technology company and a national hero. This ups the stakes for both sides.

To date, the US has deployed a sledgehammer approach to its trade war with China. To fight against a perceived trade imbalance and infringement of intellectual property, President Donald Trump has thrown up tariffs on an eclectic mix of products. That might work for a trade imbalance, but is a poor way to tackle the ongoing theft of US technology.

If the US simply issues Huawei a very big invoice, then Beijing will be laughing. China is happy to spend money to achieve President Xi Jinping’s vision of a technologically independent superpower. A few pennies into US coffers will be money well spent. Such a move would also be a slap in the face to allies such as Australia and New Zealand, which have started to ban Huawei products from their networks citing that other great US bugbear: security.

Instead, the US should move forward with plans to set up stricter protocols on what it will allow China to buy. The Export Control Reform Act has similarities with the Wassenaar Arrangement, a multinational deal that restricts the flow of weapons and sensitive tools, such as semiconductor manufacturing equipment.

US companies such as Apple, IBM and Microsoft are worried about that law and have set their lobby groups to work, Bloomberg Law’s Alexei Alexis wrote. The regulations lack specificity, they argue. Valid point, but then these companies are desperate to sell as much of their wares to China as possible.

The Commerce Department, which administers the law, would do well to be more refined in its definition of what’s allowed and what’s not, but it should be sure not to water down the regulations so as to create loopholes. Provisions in the act could then be used to punish offenders with very clear penalties that don’t give the same kind of wiggle room that ZTE enjoyed.

In addition, to be truly effective, such regulations need the support of allies. And that will require Trump to spend more time being friendly to the US’ friends and less time being friendly to its enemies. It would also require the US to recognize that not every problem can be solved with a sledgehammer.

With the arrest of a senior Huawei executive, the US has a golden opportunity to change the way China steals technology. Doing anything less makes the chase little more than a charade.


Tim Culpan
Tim Culpan is a Bloomberg Opinion columnist covering technology. -- Ed.

(Bloomberg)