On December 1, Meng Wanzhou, the CFO of China’s largest private company, Huawei, and the daughter of Ren Zhengfei, the founder of Huawei, was arrested in Canada. Due to alleged defrauding charges, she faces extradition in the United States. Incidentally, Wanzhou’s arrest took place on the same day that US President Donald Trump and Xi Jinping (the president of China) met in Buenos Aires and agreed to a trade ceasefire for 90 days during which time, both parties would negotiate. On December 14, Wanzhou was released on bail; the stir her arrest has created is larger than one could have anticipated and according to CNBC, “it immediately hit US stocks and sent global markets into a tailspin. The dollar weakened against major currencies.”

Meng has been accused of violating US sanctions against Iran between 2009 and 2014 through the use of Huawei’s subsidiary, Skycom, a telecom equipment company which was conducting business with Iran. As Iran and the United States have not had any formal diplomatic relations since 1980, trade between China and Iran has made the US more wary of the already delicate relations they have with China.

US prosecutors believe Wanzhou had misrepresented the relationship between Huawei and Skycom by portraying them as separate entities in order to avoid sanctions on Huawei to conduct business with Iran, as well as deceiving banks about the true association between the two companies. Wanzhou denies these allegations and any wrongdoing.

In addition to affecting the US stock exchange, Wanzhou’s arrest caused Asian indices to plummet – Nikkei, Hang Seng, Shanghai; Europe’s Stoxx600 also saw a drop in their stocks as a result of the arrest. Others like Pegatron and Foxconn have reported to be planning on opening more factories outside China in order to avoid the impact of tariffs.

Earlier this year, in October, news broke that the Five Eyes (Australia, Canada, New Zealand, the United Kingdom and the United States) the leading intelligence-sharing network had been exchanging information on China’s foreign activities with other countries since the beginning of 2018, and there are speculations that these countries were gaining allies to ensure that China’s economic growth is halted. Meanwhile, China condemns any accusations that it seeks to influence foreign governments and is making politically-driven investments.

In addition to affecting the US stock exchange, Wanzhou’s arrest caused Asian indices to plummet – Nikkei, Hang Seng, Shanghai; Europe’s Stoxx600 also saw a drop in their stocks as a result of the arrest. Others like Pegatron and Foxconn have reported to be planning on opening more factories outside China in order to avoid the impact of tariffs.

Further complicating the matter is that the US government is believed to have been putting pressure on US and foreign telecom and internet providers to discontinue the use of Huawei’s telecom equipment as they believed Beijing could at any time ask the company to hand over personal information, making their products default spyware. Despite this, Huawei thrived and has become the world’s second largest maker of smartphones after Samsung.

The United States holds its place as the world’s largest economy, followed by China, although the latter has a larger GDP when measured by PPP. The relationship between the two has been a complex one; however, for the most part it has remained strong and somewhat positive, although chances are that it may become even more complicated as the scandal unfolds. Although trade talks between China and the US will continue as scheduled in January, 2019, what remains to be seen is how Wanzhou’s arrest will affect Huawei’s position as the second-largest manufacturer of smartphones in the world and one of the largest telecommunications-equipment manufacturers in the world.