TORONTO — As the global battle for economic supremacy plays out between the United States and China, Canadian officials, business leaders and ordinary residents fears they are caught in the crossfire.

The legal tug of war over the arrest of a senior Chinese business executive in Vancouver this month — at the request of the U.S. government — has many fearing they will be forced to pick sides between an American president with low popularity ratings here and a communist regime in Beijing that has detained two prominent Canadians on nebulous charges to advertise its unhappiness with Ottawa.

While strongly denouncing the detentions, Prime Minister Justin Trudeau expressed the frustration of many here that his country was caught up in a brawl not of its own making.

“This is one of the situations you get in when the two largest economies in the world, China and the United States, start picking a fight with each other,” Mr. Trudeau told City TV in Toronto. “The escalating trade war between them is going to have all sorts of unintended consequences on Canada, potentially on the entire global economy. We’re very worried about that.”

The Dec. 1 arrest of Meng Wanzhou, a top executive of Chinese telecommunications giant Huawei Technologies Corp., set into motion an escalating string of events in which Canada sees itself increasingly as collateral damage. Ms. Meng, the daughter of one of China’s richest high-tech executives, was detained at the request of the U.S. government on charges that her firm violated international sanctions against trading with Iran.

She has been granted bail as the fight over extraditing her to the U.S. — or letting her go home — grinds on in courts.

Canadian officials insist the case has been handled strictly in accordance with Canadian and international law, but the Chinese government isn’t buying it. Since Ms. Meng was first detained, China has arrested two Canadian nationals working in China and its state-run media has encouraged a boycott of the popular Canadian luxury clothing company Canada Goose. On Friday, the South China Morning Post reported that the company has delayed opening its flagship store in Beijing because of “construction” issues. Separately, Canadian Tourism Minister Melanie Joly on Friday scrubbed plans for an official visit to China this week.

Fred McMahon, chairman of economic freedom at the Fraser Institute, a Canadian think tank, said China is inflaming extreme nationalism among its people, a phenomenon in the past has often spiraled out of the authorities’ control.

China’s leadership simply discounts Canadian arguments that politics played no role in the decision to detail Ms. Meng, he said.

Huawei, he noted, is a world-class technology company but one that is deeply entwined with the ruling Communist Party and the military. All companies in China, including U.S. giants such as Apple and IBM, are required to have a communist cadre inside. “Anyone who claims Chinese companies are not at the beck and call of the Communist Party is living in a fantasy,” he said.

That gulf in understanding was underscored by an extraordinarily blunt op-ed last week in the Toronto-based Globe and Mail by Chinese Ambassador Lu Shaye questioning whether Canadians had “lost their sense of justice.”

Dismissing Ottawa’s legal arguments, the envoy wrote: “The Chinese people used to have a favorable impression of Canada. But Canada’s behavior this time has chilled their feelings.”

Guy Saint-Jacques, Canada’s ambassador to China from 2014 to 2017, described the dilemma for Canada as a replay of events he witnessed in 2014. At that time, Su Bin, a Chinese national and Canadian resident, was arrested in Canada at the request of the FBI on charges that he hacked into computers of U.S. defense contractors and attempted to sell that information to state-owned Chinese companies.

In retaliation, China arrested Canadian missionaries Kevin and Jukia Garrat on charges of espionage. A year later, President Obama met privately with Chinese Premier Xi Jinping and announced that the Chinese leader had agreed to end state-sponsored cybertheft. Soon afterward, Mr. Su admitted his crimes and served 42 months in a California prison, Mr. Saint Jacques said.

Tensions with Trump

The tensions here are not just with China.

Having just emerged from a prickly and at times abrasive renegotiation of NAFTA, Mr. Trump appeared to undercut a key Canadian argument in the Meng dispute last week when he declared himself ready to intervene in the legal case if Mr. Xi agreed to end cyberespionage and other bilateral trade irritants.

Roland Paris, a University of Ottawa professor and former policy adviser to the prime minister, said on Twitter that offer undermined Ottawa’s argument that it was strictly a legal issue.

“Canada is fulfilling the terms of its treaty obligations and upholding the rule of law in good faith, and paying a price to do so,” Mr. Paris said. “If the U.S. is not equally committed to the rule of law in this case, the extradition request should be withdrawn immediately.”

Canadian Foreign Minister Chrystia Freeland, who met with Secretary of State Mike Pompeo on a previously scheduled trip to Washington on Friday, was at pains to insist politics was playing no part in how the Meng case was being handled.

“The rule of law and extradition issues ought not ever be politicized or used as tools to resolve other issues,” she told reporters. “That is the very clear position which Canada expresses to all its partners.”

“These kinds of issues ought not to be confused with each other,” she said.

Mr. Pompeo called on Beijing to release the two Canadians and called their detention “unacceptable.”

But Mr. Saint-Jacques said Mr. Trump’s comments sent the message to China — that bullying gets results.

Although it is not clear whether Mr. Trump even has the authority to halt the judicial process, the outcome in Canada is also murky.

A Canadian judge last week granted Ms. Meng bail on a $7.5 million bond with travel restrictions and an order she return to court in February. But the schedule going forward is full of questions.

“If the judge approves the extradition request, Canada’s justice minister can overrule it. Then the minister’s decision can be appealed. So the process could take years,” said Hugh Stephens, a distinguished fellow with the Asia Pacific Foundation of Canada and former executive with Time Warner Corp. in Hong Kong.

There are three outcomes, he said. Meng “could be extradited to the U.S. and then this becomes a U.S.-China issue. The extradition request could be refused and she goes back to China. Or the U.S. drops the charges and China takes from this the lesson that bullying works.”

Lynette Ong, a professor of political science at the University of Toronto, expects a resolution through a combination of behind-the-scenes diplomacy and the Canadian legal system. Ms. Meng’s next court date and the end of the 90-day trade truce between the U.S. and China are both scheduled for early next year.

But China has threatened Canada with further sanctions, and the escalating tensions have sent a chill through Canada’s business community.

Canadian business executives are worried about China and “postponing planned trips. Some Canadians in China are thinking they’d better come back,” Mr. Saint-Jacques said.

But China’s aggressive actions are alienating Canadian public opinion and strengthening Canadian resolve, he said.

Despite these concerns, Canadian manufacturer Bombardier Inc. announced on Thursday that it won a $453 million contract to supply 168 high-speed train cars to state-owned China Railway Corp.

Canadian trade with China has grown rapidly over the past decade, said Pedro Antunes, chief economist with the Conference Board of Canada. It now accounts for about 4 percent of Canadian exports, and two-way trade totals about $55 billion.

Michael Copeland, president of the Canada China Friendship Association, believes the judge in Ms. Meng’s case has doubts about the U.S. extradition request. In part, the U.S. claims Huawei facilitated trade with Iran in violation of U.S. law.

However, Canada allows for extradition only if the foreign charge is valid under Canadian law. Canada resumed trade with Iran in 2015 after it signed the international nuclear deal subsequently repudiated by Mr. Trump. The U.S. has also accused Ms. Meng of fraud for not revealing the Iran connection to American banks.

• Guy Taylor in Washington contributed to this report.

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