Trump defends decision to revisit action on telecom giant ZTE

President Donald Trump defended his efforts to help a Chinese telecommunications company that violated U.S. sanctions “get back into business, fast,” despite criticism from Democrats and Republicans that the company poses a national security risk.

“ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies,” Trump tweeted yesterday [Macau time]. “This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.”

Trump over the weekend unexpectedly tweeted that he and Chinese President Xi Jinping were “working together” to give ZTE “a way to get back into business, fast,” saying too many jobs in China were at stake after the U.S. government cut off access to its American suppliers.

The surprising overture to China marked a dramatic departure from Trump’s rhetoric toward China during the campaign, when he said he would no longer allow China of “rape our country” and steal U.S. jobs.

The U.S. Commerce Department last month blocked ZTE Corp., a major supplier of telecom networks and smartphones based in southern China, from importing American components for seven years. The U.S. accused ZTE of misleading American regulators over sanctions against North Korea and Iran.

Commerce Secretary Wilbur Ross said during an appearance at the National Press Club in Washington that “ZTE did do some inappropriate things. They’ve admitted to that.”

But he added: “The question is: Are there alternative remedies to the one that we had originally put forward? And that’s the area we will be exploring very, very promptly.” He did not say what other options were being discussed.

Trump’s unexpected announcement came as the two countries prepared for additional trade talks in Washington this week. Given past vows to stop the flow of U.S. jobs to China and what he’s called unfair trade practices, Trump’s seeming concern about Chinese jobs was something of a backflip.

The move was panned by lawmakers on both sides of the aisle. Sen. Marco Rubio, R-Fla., tweeted that it would be “crazy” to allow ZTE to operate in the U.S. without tighter restrictions.

“Problem with ZTE isn’t jobs & trade, it’s national security & espionage,” he wrote earlier this week.

Top Senate Democrat Chuck Schumer accused Trump of “backing off” and “doing a 180 on China.”

“What about jobs in America, Mr. President? What about the millions of jobs that are lost because of what China has done?” he asked, adding: “Why on earth would President Trump promise to help a Chinese telecom company that has flouted U.S. sanctions and whose practices are a risk to our national security?”

At the White House, spokesman Raj Shah said Trump’s request for Ross to re-examine the issue was part of a “give and take” with the Chinese.

“It’s a significant issue of concern to the Chinese government, you know, and in our bilateral relationship there’s a give and take and we discuss these issues,” he said. “Obviously this is part of a very complex relationship between the United States and China that involves economic issues, national security issues and the like.”

Shah also pushed back on the idea that Trump was retreating from his campaign promise to be tough on China.

“This president has taken China to task for its unfair trade practices,” he said.

ZTE, a company with more than 70,000 employees that has supplied some of the world’s biggest telecom companies, said in early May that it had halted its main operations as a result of U.S. action.

The widening trade dispute between the world’s two biggest economies has taken a toll on both sides. U.S. companies that export to China have had goods held up in China’s ports. The block on ZTE was a heavy blow for the company but also hurt the U.S. companies it buys from. According to IDC data, ZTE sources more than 40 percent of its components from the U.S., creating a multibillion-dollar revenue stream for suppliers like Qualcomm and Intel.

China objected to ZTE’s punishment at trade talks in Beijing this month, and the American delegation agreed to report them to Trump. ZTE has asked the department to suspend the seven-year ban on doing business with U.S. exporters. By cutting off access to U.S. suppliers of essential components such as microchips, the ban threatens ZTE’s existence, the company has said.

China welcomed Trump’s comments. MDT/AP

Analysis | Bid to help Chinese firm draws fire but raises hopes

A long-running dispute between American regulators and Chinese telecom company ZTE may have handed President Donald Trump some unexpected leverage in avoiding a trade war with Beijing.

The overture came just as Vice Premier Liu He is flying to Washington for talks aimed at heading off a mutually harmful battle between the world’s two biggest economies and just before U.S. companies plan to plead during three days of hearings for a resolution to the dispute.

Trade analysts say it is highly unusual for a president to intercede in a case brought by the Commerce Department and to mix regulatory sanctions with trade negotiations. But they also note that Trump’s offer to rescue ZTE, which makes cellphones and other telecommunications equipment, has the potential to clear the way for progress.

“It’s a way to unlock negotiations,” said Wendy Cutler, a former U.S. trade negotiator specializing in Asia and now vice president at the Asia Society Policy Institute.

“Trump’s tweet creates an atmosphere where there’s more hope for reaching an agreement on trade,” said David Dollar, senior fellow at the Brookings Institution and a former official at the World Bank and the U.S. Treasury Department.

The United States also needs China’s support as it prepares for talks with North Korea that are intended to persuade the Pyongyang regime to abandon nuclear weapons.

Commerce and ZTE last year settled charges that the Chinese company sold sensitive telecommunications equipment to Iran and North Korea in violation of U.S. sanctions. ZTE agreed to plead guilty and pay about USD1 billion in fines.

Last month, Commerce accused ZTE of violating the agreement and blocked ZTE from importing American components for seven years. The department said ZTE had misled regulators: Instead of disciplining all employees involved in the sanctions violations, Commerce said, ZTE paid some of them full bonuses and then lied about it.

The seven-year ban was tantamount to a death sentence for ZTE.

“It was basically going to put them out of business,” Dollar said. “They rely on American technology.”

Last week, the company announced that it was halting operations.

Early this month, a high-level U.S. delegation — including Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, top American trade negotiator Robert Lighthizer and White House adviser Peter Navarro — traveled to Beijing to address the trade dispute. There, they heard an outcry about U.S. regulators putting ZTE out of business.

“They were a little bit blindsided,” said Paul Triolo, a technology specialist at the Eurasia Group consultancy. “The Chinese reaction was pretty vociferous. … The U.S. government shooting down the No. 2 telecommunications supplier in China at this sensitive time — it didn’t look good.”

Now, analysts see the outlines of a potential deal: In return for Trump’s lifeline to ZTE, Beijing might agree to buy more U.S. products or take other steps to shrink America’s gaping trade deficit with China — $337 billion last year.

The Wall Street Journal reported Monday that the two countries were in talks about such a potential swap: The U.S. would spare ZTE, and Beijing would drop plans to impose tariffs on U.S. farm products. Neither the White House nor the Commerce Department would comment.

The ZTE case also drives home how entwined the U.S. and Chinese economies are. The Commerce sanctions didn’t just imperil ZTE; they also hurt the American companies that sell components to the Chinese company.

And so investors breathed a sigh of relief after Trump’s tweet, buying stock Monday in Maynard, Massachusetts-based optical components maker Acacia Communications, which last year collected 30 percent of its revenue from ZTE; San Jose-based optical communications company Oclaro; and Sunnyvale, California-based fiber optic cable manufacturer Finisar.

Still, critics charged that Trump shouldn’t have intervened in the legal case against ZTE.

“This would be a truly awful deal for the U.S,” Derek Scissors, a China specialist at the conservative American Enterprise Institute, wrote in a blog post. “If the accusations last year and last month are accurate, ZTE violated Iran sanctions, then further attempted to deceive the U.S. government.”

Xi “would be using barriers against American agriculture to blackmail the Trump administration into accepting ZTE’s behavior,” Scissors said.

Trump has thrust trade policy to the center of his agenda. In addition to sparring with China, his team is in talks to rewrite the North America Free Trade Agreement with Mexico and Canada.

The timing of the NAFTA negotiations is tight: House Speaker Paul Ryan has said Congress must have an agreement by Thursday to have any hope of approving it this year. Paul Wiseman, Washington, AP