Trump’s bid to help Chinese telecom firm ZTE draws fire but raises hopes

WASHINGTON — 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.

Trump’s tweet May 13 that he was working with President Xi Jinping of China to put ZTE “back into business, fast” after US sanctions threatened ZTE’s existence and 70,000 Chinese jobs caught many trade-watchers by surprise.

“Too many jobs in China lost,” Trump tweeted. “Commerce Department has been instructed to get it done!”

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 US 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 US trade negotiator specializing in Asia and now vice-president at the Asia Society Policy Institute.

The US has proposed imposing tariffs on up to $150 billion in Chinese products to punish Beijing for forcing American companies to hand over technology in exchange for access to the Chinese markets. In retaliation, Beijing is threatening tariffs on $50 billion in US products.

“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 US Treasury Department.

The US 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 $1 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 US delegation – including Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, top American trade negotiator Robert Lighthizer and White House adviser Peter Navarro – travelled to Beijing to address the trade dispute. There, they heard an outcry about US 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 US 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 US products or take other steps to shrink America’s gaping trade deficit with China – $337 billion last year.

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

The ZTE case also drives home how entwined the US 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 May 14 in Maynard, Mass.-based optical components maker Acacia Communications, which last year collected 30 per cent of its revenue from ZTE; San Jose-based optical communications company Oclaro; and Sunnyvale, Calif.-based fibre 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 US,” 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 US government.”

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