The arrest in Canada of the Chinese company Huawei’s Chief Financial Officer, Wanzchou Meng, on 1 December 2018 at the request of the United States authorities, signalled the opening of another front in the U.S. trade war with China.

Wanzchou Meng is accused of helping the Chinese company, Huawei, cover up violations of sanctions on Iran. Meng, as well as being Huawei’s Chief Financial Officer, is deputy chairwoman of the company’s board. She is the daughter of Huawei’s billionaire founder, Ren Zhengfei. The arrest came at the same time in December 2018 as Presidents Trump and Xi were meeting following the G20 summit in Buenos Aires. At that meeting they agreed to suspend further tariff increases for a 90 day period until 1 March 2019.

This arrest and the other actions against Huawei indicate that the trade war, which the U.S. began in 2018, is now going beyond the tariffs already imposed and is entering a new phase involving high-tech.

Trump promised in his election campaign to put “America first” including ending what he described as the “unfair trade relationship” with China. Trump began the trade war in early 2018 and since then, until the temporary suspension agreed in December, there has been a tit-for-tat imposition of sanctions by both countries (see timeline)

The new front in the trade war between the U.S and China is over domination of the information technology industry.

Huawei is the second big Chinese tech company to be accused of breaching sanctions against Iran – the first was ZTE Corp. in 2017. The United States punished ZTE by forbidding it from buying American components, most importantly telecom chips made by U.S. based Qualcomm. These purchasing restrictions were eventually lifted after ZTE paid a substantial fine and agreed to replace its senior management.

Huawei has just overtaken Apple becoming the world’s second largest smartphone maker (Samsung is first). U.S. moves against Huawei and ZTE may be intended to force China to remain a cheap supplier instead of a threatening competitor.

The impetus for the high-tech trade war goes far beyond the focus on tariffs and it seems likely that U.S. tech companies as well as the military intelligence communities are influencing U.S. government policy. More systematic efforts to block Chinese access to U.S. components, increasingly by blocking Chinese investments in U.S technology companies, are being made using “national security” as the reason.

However, as in the tit-for-tat tariff measures, China is not passive. The U.S. company Qualcomm, the world’s biggest smartphone chip maker, abandoned its bid last year to buy the Dutch semiconductor company NXP after failing to secure Chinese regulatory approval. Qualcomm had sought to buy NXP because of its market position as the dominant supplier to the automotive market as car makers add more chips to each vehicle each year. Qualcomm needed approval from China because the country accounts for nearly two-thirds of its revenue. The Chief Executive of Qualcomm commented, “We obviously got caught up in something that was above us”.

It is not easy to separate high-tech industrial and corporate dominance from military dominance so one needs to see this as perhaps the most significant and far-reaching part of the trade war.

In the U.S. it is now seen as a major threat if Chinese companies buy American companies and then transfer their intellectual property or have their employees train their Chinese replacements. By blocking these investments the Trump administration hopes to preserve U.S technological dominance for longer.

The EU, which has opposed Trump’s tariffs, is copying American investment restrictions, notably against Huawei. This may be another indication that the less-publicised high-tech trade war is actually the more important one. Losing the lead in the global technology race means lower profits and, most importantly, a disappearing military advantage.

China’s successful mission to land on the dark side of the Moon will be seen as another threat to U.S. domination.