JUST HOURS before opening a flagship store in Beijing in December, Canada Goose, a maker of expensive parkas, cancelled the event. The proudly Canadian firm, based in Toronto, blamed delays in construction. More likely, it wanted to avoid protests against the arrest in Vancouver on December 1st of Meng Wanzhou, the chief financial officer of Huawei, a Chinese maker of telecoms equipment. She is also the daughter of the firm’s founder, Ren Zhengfei. Shares in Canada Goose have fallen by more than 20% since news of Ms Meng’s arrest.
Like the company, Canada itself is caught in a fight between the United States and China. Canadian police arrested Ms Meng on her way to Mexico under the terms of an extradition treaty between Canada and the United States. An American judge sought her arrest, alleging that Ms Meng committed fraud in order to violate American sanctions against Iran. China (and Ms Meng) claim the charges themselves are fraudulent. The United States fears Huawei, a hugely successful supplier of the equipment needed to build “fifth-generation” mobile-telecoms networks. It is suspicious of its ties with China’s government. (No Chinese company as big as Huawei is free of Communist Party influence.) China contends that Ms Meng’s arrest is meant to undermine the company.
Rather than retaliate against the United States, which is waging a trade war against it, China is punishing Canada. Citing national security, it has detained two Canadians, Michael Kovrig, a diplomat on leave who is advising the International Crisis Group, an NGO that tries to prevent conflict, and Michael Spavor, a businessman. According to a person familiar with the situation, Mr Kovrig is being questioned “morning, afternoon and evening” and is not allowed to turn the lights off when he sleeps. David Mulroney, a former Canadian ambassador to China, said in a television interview that China is using an established tactic of “kill the chicken [Canada], scare the monkey [United States]”.
The row comes at a bad time. Donald Trump bludgeoned Canada (and Mexico) into renegotiating the North American Free Trade Agreement. The new United States-Mexico-Canada Agreement was signed in November. Mr Trump has yet to lift heavy tariffs on Canadian (and other countries’) aluminium and steel. Justin Trudeau, Canada’s prime minister, had hoped to reduce the country’s dependence on the United States, which buys three-quarters of Canadian goods exports and supplies half of Canada’s imports. China had looked the most promising alternative partner. The Huawei dust-up has put that relationship in jeopardy. Talks about a possible free-trade agreement, which began in 2016, face “new obstacles”, said Lu Shaye, China’s ambassador in Ottawa, on December 14th.
Seeking to cool China’s ire, Canada points out that Ms Meng’s arrest was not political. An independent court issued the order (and released her on bail of C$10m, or $7.5m). But Mr Trump undermined that argument by saying he would intervene if that would help secure a good trade deal with China. Chrystia Freeland, Canada’s foreign minister, begged Mr Trump not to politicise the extradition process.
More perils lie ahead. One is a final decision on whether to extradite Ms Meng, which will be made by the attorney-general, a member of Mr Trudeau’s cabinet (and thus a politician). That will come after the United States files a formal extradition request. Canada’s government has been debating whether to ban the use of equipment from Huawei to build Canada’s 5G networks, as the United States, Australia and New Zealand have already done. That would provoke China even more. Canadian executives in China now fear joining Mr Kovrig and Mr Spavor in detention.
In happier times the two governments designated 2018 the year of tourism; Canada had hoped to double the number of Chinese visitors to 1.2m by 2021. Its tourism minister cancelled a trip to China for the closing ceremony. If the spat continues, it will not just disrupt holidays.