U.S., China Reportedly Working on Deal That Would Save ZTE

Less than a month ago, the U.S. Commerce Department sanctioned U.S. firms from supplying components to Chinese firm ZTE, claiming that the telecom equipment company had violated terms of a settlement regarding sales to Iran and North Korea. By last week, ZTE had closed its operations and, now, in a surprise intervention, President Donald Trump is stepping in to prevent ZTE’s bankruptcy, tweeting that he is working with Chinese President Xi Jinping. ZTE had made a request for a stay of the sanctions order, and the Commerce Department is reviewing it.

The two countries are reportedly now close to a deal that would give ZTE “a reprieve from potentially crippling U.S. sanctions in exchange for Beijing removing tariffs on billions of dollars of U.S. agricultural products,” reports The Wall Street Journal. “The negotiations also would ease roadblocks in China faced by a U.S. semiconductor company Qualcomm Inc., whose proposed acquisition of NXP Semiconductors NV of the Netherlands has been held up by Beijing.”

ZTE_Corporation

In an earlier article, The Wall Street Journal explained that, “Trump’s comments about the company and concern about Chinese jobs come as the U.S. and China are locked in high-stakes negotiations over trade and intellectual property,” and both countries are “threatening to slap tariffs on tens of billions of dollars of the other’s products.”

The U.S. has also long accused ZTE and Huawei Technologies of being a national security threat, essentially blocking them from selling telecom gear in the U.S. In the wake of Trump’s tweet on saving ZTE, Rep. Adam Schiff, “the top Democrat on the House Intelligence Committee,” tweeted in response that, “Our intelligence agencies have warned that ZTE technology and phones pose a major cybersecurity threat,” telling Trump that he “should care more about our national security than Chinese jobs.”

The White House later stated that, “the ZTE matter would be decided independently by the Commerce Department,” adding that Trump expects Commerce Secretary Wilbur Ross to “exercise his independent judgment, consistent with applicable laws and regulations, to resolve the regulatory action involving ZTE based on its facts.”

Some on Wall Street believe that “the administration hoped to use the ZTE sanctions as leverage to soften Chinese resistance in other trade negotiations,” with the Commerce Department “failure to impose about $300 million in fines” a possible “indication” of this interpretation.

The New York Times reports that Trump’s vow to help ZTE, “appeared to be off-key for an administration that has been reliably strident on what it has called unfair Chinese trade practices” and also “runs counter to his vows to restore American jobs lost to China.” But Trump’s move “took pressure off the American-Chinese relationship at a crucial moment,” when China will act as North Korea’s intermediary in upcoming talks with the U.S.

Eurasia Group practice head, geo-technology Paul Triolo noted that ZTE’s closing “has whipped up a lot of techno-nationalist fervor already, at a delicate time in the relationship.” “No one wants to see iPhones getting smashed in the streets of major Chinese cities,” he said.

Related:
To Sway Trump on Trade, Businesses Turn to Cable TV, The New York Times, 5/14/18