Panic as the US-China trade war truce lasts less than a week
Investors were already confused about where the great US-China trade war was going next, not least because President Trump is capable of sending contradictory signals in the space of two tweets. Now they’re seriously alarmed.
The arrest in Canada of Huawei’s chief financial officer, Meng Wanzhou, who faces extradition to the US, is a diplomatic incident. And it has arrived just as the US and China have given themselves 90 days to negotiate a major trade deal.
In China, there was outrage. Huawei is a national champion, a supposed symbol of the country’s technological prowess and a demonstration of how leadership in artificial intelligence will belong to China.
Meng Wanzhou is also the daughter of Huawei’s founder. Arresting her would be like Beijing detaining Apple’s Tim Cook, some excited voices suggested.
That’s an exaggeration since action against Huawei, or in this case one of its senior officials, has not arrived out of a clear sky. The company has been distrusted in the US for years and seen as a security risk.
The arrest relates to sanctions against Iran, but, viewed from Beijing, you can see why the development could be seen as part a US-led international effort to disrupt or shut down a Chinese technology titan.
New Zealand and Australia have blocked the company’s products from 5G networks in recent weeks and months. In Britain, the head of MI6 has spoken out and BT said on Thursday it will remove Huawei products from parts of its 5G network. The arrest massively raises the stakes.
Few investors attached a high probability to a US-China trade deal happening before next March, but the outline of a way towards peace had emerged at the G20 summit in Buenos Aries last week.
The core ingredient would be Chinese willingness to buy much larger quantities of US goods, allowing Trump to declare victory in his campaign to reduce the trade imbalance (still growing, on the latest data).
But the focus on Huawei may suggest theft of intellectual property, trade espionage and technology spread are deeper concerns for the US.
In that context, a speech last month by former US Treasury secretary Hank Paulson is relevant. Paulson argued that a consensus has emerged in the US that engagement has failed to change China’s behaviour and that the country’s “digital silk road” initiative, which seeks to impose China’s cyber standards elsewhere, would drive further confrontation. He warned of “an economic iron curtain” dividing the world as some in the US advocate a “cold warstyle technology denial regime”.
It’s still a leap to tie the arrest of Meng Wanzhou to those global themes. Beijing, notably, said it would go ahead with the “truce” measures agreed in Argentina, which may or may not have been an attempt to lower the diplomatic temperature. Equally, though, it is hard to see how the two countries can make negotiating progress until the Huawei case is resolved.
All the US stock market gains for the year – and the UK market’s – have evaporated, and one can understand why. In January, US-China trade tensions looked minor and manageable; now truces last a week.
Chance for deeper investigation at Ted Baker
Ted Baker’s board has taken the right action – in fact, the only credible action – in hiring an outside law firm, Herbert Smith Freehills, to investigate complaints of inappropriate behaviour against chief executive Ray Kelvin. It is also right that former Microsoft executive Sharon Baylay, as the most recently arrived director, leads the board’s response.
But Baylay should extend the scope of this inquiry to the make-up of Ted Baker’s board and the company’s governance.
Non-executive chairman David Bernstein, 75, is not considered independent for the purposes of the UK corporate governance code because he’s been on the board since 2003, even if he assumed the chairmanship only in 2013.
Ron Stewart, 70, senior independent director, has been on the board since February 2009, which means he’s within months of passing the 10-year milestone at which he can no longer be officially regarded as independent.
“Hugs have become part of Ted Baker’s culture, but are absolutely not insisted upon,” said the company when the allegations first surfaced. One must not pre-judge the inquiry. But it would be fair for Baylay to ask if two longserving directors should have spotted potential trouble ahead.
It is understood that Kelvin was formally warned about his behaviour after an incident in 2016 in which he allegedly pushed an employee against a wall after not being invited to his wedding. That, you might think, would prompt the two senior non-executives to look more closely at the everyday hugging culture. Did they?