In Concession, Trump Says He Will Help China’s ZTE ‘Get Back Into Business’

Chinese delegation to visit U.S. this week for more trade talks
May 14, 2018 Updated: May 14, 2018

WASHINGTON/BEIJING—U.S. President Donald Trump has pledged to help ZTE “get back into business, fast” after a recent U.S. ban crippled the Chinese telecoms company, offering a job-saving concession to Beijing ahead of high-stakes trade talks this week.

Trump made the unexpected announcement via Twitter on May 13. It was a stunning reversal, given Washington’s tough stance in recent weeks on Chinese trade practices that have increased tensions between the world’s two largest economies.

Sources briefed on the matter said Beijing had demanded the ZTE issue be resolved as a prerequisite for broader trade negotiations.

“Too many jobs in China lost. Commerce Department has been instructed to get it done!” Trump wrote on Twitter, saying he and Chinese leader Xi Jinping were working together on a solution for ZTE.

Last month, the U.S. Commerce Department banned American companies from selling to the firm for seven years, as punishment for ZTE breaking a 2017 agreement after it was caught illegally shipping U.S. goods to Iran and North Korea. The U.S. investigation into ZTE began long before Trump took office.

The penalty cut off ZTE’s access to key tech components such as semiconductors, prompting China’s second-largest maker of telecommunications equipment to say last week that it had suspended its main operations.

During trade talks in Beijing earlier this month, Chinese vice premier Liu He told U.S. Treasury Secretary Steven Mnuchin that China would not continue talks on broader bilateral trade disputes unless Washington agreed to ease the crushing sanctions on ZTE, two people briefed on those meetings said.

“The message was, ‘we have to deal with ZTE before we continue talks’,” one of the people said.

Both sources, who declined to be identified given the sensitivity of the matter, said China was willing in principle to import more U.S. agricultural products in return for Washington smoothing out penalties against ZTE, but they did not offer details.

Chinese Foreign Ministry spokesman Lu Kang told a regularly scheduled news briefing on May 14 that China “greatly appreciates the positive U.S. position on the ZTE issue.”

He said that Liu would travel to Washington from Tuesday to Saturday (May 15 to 19) to continue trade talks. A U.S. delegation traveled to Beijing last week, but a definitive compromise hadn’t been reached.

For U.S. chipmaker Qualcomm, which has seen its $44 billion takeover of Dutch chipmaker NXP Semiconductors delayed by a lengthy antitrust review by China’s Ministry of Commerce, reconsideration of the ZTE penalty could smooth the way for the deal to move forward.

Bloomberg reported on May 14 that China’s Commerce Ministry had been asked to speed up the review of the deal and Qualcomm’s proposed remedies to protect local companies, after previously shelving the review process amid the trade tensions. It cited people familiar with the matter as its sources. Bloomberg did not say who had asked the ministry to speed up the review.

Trade Dispute

Within the Commerce Department, and in U.S. business circles, the U.S. penalty against ZTE was widely seen as based on clear evidence of a company knowingly flouting U.S. regulations—separate from the highly politicized trade row, the sources said.

But Trump’s reversal surprised many U.S. officials, who had viewed the penalty on ZTE as final and not open to appeal, the sources said.

ZTE, whose shares remain suspended, did not have immediate comment.

The U.S. Commerce Department did not have immediate comment and China’s Commerce Ministry did not reply to a request for comment.

White House spokeswoman Lindsay Walters confirmed that U.S. officials were in contact with Beijing about ZTE. She said Trump’s tweet underscored the importance of “free, fair, balanced and mutually beneficial” relations between the United States and China on issues involving the economy, trade, and investment.

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,” Walters said.

Washington and Beijing have proposed tens of billions of dollars in tariffs in recent weeks. Officials from both countries have hence engaged in negotiations to address trade tensions.

In a second tweet on May 13, Trump said past U.S. trade talks with China posed a hurdle that he predicted the two countries would overcome.

“China and the United States are working well together on trade, but past negotiations have been so one sided in favor of China, for so many years, that it is hard for them to make a deal that benefits both countries,” Trump wrote on Twitter.

“But be cool, it will all work out!” he added.

Shortly after Trump’s tweet, a Democratic lawmaker, Representative Adam Schiff, on Twitter questioned the move to help the Chinese company, given numerous warnings about ZTE’s alleged threat to U.S. national security.

“Our intelligence agencies have warned that ZTE technology and phones pose a major cyber security threat,” Schiff said.

Shocking Blow

Trump’s comments on ZTE could have a significant impact on shares of American optical components makers such as Acacia Communications and Oclaro, which fell when U.S. companies were banned from exporting goods to ZTE.

ZTE paid over $2.3 billion to 211 U.S. exporters in 2017, a senior ZTE official said last week.

The U.S. government launched an investigation into ZTE after Reuters reported in 2012 the company had signed contracts to ship hardware and software worth millions of dollars to Iran from some of the best-known U.S. technology companies.

ZTE relies on U.S. companies such as Qualcomm, Intel, and Google for components and software. American companies are estimated to provide 25 percent to 30 percent of components in ZTE’s equipment, which includes smartphones and gear to build telecommunications networks.

Claire Reade, a Washington-based trade lawyer and former assistant U.S. Trade Representative for China affairs, said the ZTE ban may have caused more alarm in Beijing than Trump’s threats to impose tariffs on $50 billion in Chinese goods.

“Imagine how the United States would feel if China had the power to crush one of our major corporations and make it go out of business,” Reade said.

By Valerie Volcovici and Michael Martina. Epoch Times staff member Annie Wu contributed to this report.