What if the Real Trade War is Only Just Beginning?

I must be getting old because I’m starting to worry. Not about myself, but about the state of the world.

At the back of my mind there’s a story brewing that I can’t shake. We keep inching closer to an outcome that won’t end well.

I hope I’m wrong, but the signs aren’t looking good…

As you may be aware, the US and China aren’t on great terms right now. The two nations are having a bit of a spat. One that has led to the very controversial trade war we now have.

Now, if you read the headlines or follow the markets, then this trade war might seem like old news. A lot of ‘experts’ are expecting this whole mess to wrap up pretty soon.

Steven Mnuchin, the US Treasury Secretary has even alluded to lifting Chinese tariffs, or at least some of them. Read into this what you will though, until Trump has his say on the matter I wouldn’t commit one way or the other.

In fact, despite most peoples’ rosy outlook, I’m worried. See I believe the makings of a bigger war are coming to the fore. A conflict that could go far beyond trade.

My dilemma is: what if the real war is just beginning?

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Is the real war only just beginning?

Hear me out.

Right now, even if trade talks are positive, there is still one big problem: Huawei. The telecom equipment maker has had a bad couple of weeks…really bad.

Things really blew up with the detention and arrest of Meng Wanzhou late last year. Huawei’s CFO and daughter of founder Ren Zhengfei.

Today, Meng is still stuck in Canada awaiting her extradition to the US. A formal request and case will be made by the US later this month. And if history is anything to go by, odds are she will be extradited. The ultimate question though, is how long will it take?

Whether it takes weeks, months or even years — odds are she will end up in the US. That is, unless she escapes the country somehow.

And I can’t help but wonder if it will be the catalyst that sparks a new conflict.

I believe it’s important to note here that Meng is just one person. While she is a key player in this ongoing US-China mess, I don’t think she’s the real target. Instead, I’d wager it’s Huawei.

Ultimately, it may even be China’s ruling party, which may or may not have some form of control over Huawei. There is a lot of speculation about this matter, but few facts.

Either way, Huawei is the key.

We’ve already seen the US, Britain, Australia and New Zealand ban the company from planned 5G rollouts. Decisions that were made because of security concerns.

Germany could be next to make a call on Huawei as well. Their government is also weighing up a ban as the threat of security lingers. If they do, other European nations may follow their lead. The first domino to fall as it were.

Making matters worse, just over a week ago a Huawei executive was arrested in Poland. Weijing Wang has been accused of spying, a matter that could carry some grave consequences.

Huawei has been quick to distance themselves from the man as well. They noted that his ‘alleged actions have no relation to the company.’ Time will tell.

Back in the US though, matters are getting far more serious. Huawei is now the target of a full-blown US criminal probe for theft of trade secrets. As The New York Times reports:

The criminal investigation is related to a civil suit between Huawei, one of the world’s largest telecommunications equipment and smartphone makers, and the telecom provider T-Mobile.

In that civil case, filed in 2014, Huawei was accused of stealing intellectual property related to a robot that T-Mobile used to diagnose quality control issues in mobile phones. A jury found Huawei guilty in May 2017.

What outcome and ramifications we will see from this case will be pivotal. Not only for the US, but for the wider world.

Soon Huawei, may be an international pariah — more so than they currently are.

Huawei is just the pawn in a much larger game

For most people, I suppose this whole Huawei mess reads like an extension of the trade war. There certainly is a lot of overlap between the two.

Indiscriminate tariffs are one thing, targeting a specific company is another.

Ever since Meng’s arrest, Huawei has become a patriotic symbol for the Chinese. A symbol of defiance as tensions escalate on both sides.

Right now, in China, your smartphone has become a very polarising subject. Carry a Huawei phone and you might receive discounts, praise or even a promotion at work. Use an iPhone though, and you may be shunned, called out or even fined.

That’s a pretty crazy reality to think about, but it shows just how passionate people are about this mess. The problem is, we’re seeing a lot more passion from both sides.

Huawei is just the pawn in a much larger game. What has me worried is the stakes of this game keep escalating.

First it was meagre threats. Few people really thought Trump would actually start a trade war — but he did. Then it turned to national security, as Huawei was squeezed out of 5G plans. And now, it is becoming something more again.

Huawei is now the face of China, for better or worse. What that means for the future is as uncertain as it is troubling.

The grim reality is that like it or not, the US and China are in a conflict. Call it a new Cold War, a standoff — whatever you want; the fact is, these two powers are butting heads.

Fortunately, it’s been a fairly peaceful contest to date. My hope is that it can be resolved in peace as well. My fear, is that more direct conflict is inevitable.

Perhaps we will see the first proper cyberwar. A digital conflict with real causalities and real crises. Or, it could just end in a typical militarised fashion.

No one really knows.

Either way, hopefully future historians won’t be citing Huawei as the catalyst for what could be a devastating war. I wouldn’t be surprised if they did though…

Regards,

Ryan Clarkson-Ledward,
Analyst, Australian Small-Cap Investigator

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Ryan Clarkson-Ledward is one of Money Morning’s junior analysts. Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects. Ryan’s primary focus is assisting Sam Volkering with background research and insight for readers by dissecting the latest events affecting the world. Working closely with Sam, they explore the latest in small-cap and technology stocks as well as cryptocurrency opportunities. You can find Ryan’s contributing research, developments, and supporting information across several e-letters, including:


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