In a remarkable development, President Trump has thrown an olive branch to controversial Chinese telecom firm ZTE.
The company, which sells telcom network equipment and consumer devices including smartphones, said on Wednesday that it would cease its main business operations after the U.S. Department of Commerce announced a seven-year export restriction for the company, resulting in a ban on U.S. component makers selling to ZTE.
The company has been banned from selling equipment in the U.S., but shutting out supply chain partners like Intel, Qualcomm and Google is potentially catastrophic. (The fact ZTE postponed its earnings tells you all you need to know.)
Reports suggested that the Chinese government was working on ZTE’s behalf to find a compromise, and it looks like Chinese Premier Xi Jinping himself got in touch with the U.S. President, who said today in a tweet that is he “working[…]to give[…]ZTE a way back into business, fast.”
Somewhat bizarrely, Trump cited a loss of jobs in China as a motivating factor.
President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!
— Donald J. Trump (@realDonaldTrump) May 13, 2018
Given that U.S. sanctions were imposed on ZTE due to threats to national security and its violation of trade sanctions with Iran and North Korea, Trump’s desire to give the company another chance in the U.S. is truly unexpected.
It also doesn’t align with recent events.
The Trump administration has used the premise of national security to block a number of business deals that would see Chinese companies buying up American firms — including Alibaba’s proposed acquisition of MoneyGram and Broadcom’s effort to buy Qualcomm.
Then, of course, the President is involved in an aggressive trade dispute with China, which, on the U.S. side, included tariffs on about $60 billion of Chinese goods, the bulk of which were focused on the high-tech industry.
Granting a reprieve to ZTE — a firm with over 70,000 employees, over $17 billion in annual revenue and close ties to the government — doesn’t fit with the strategy to hurt China, but then Trump’s administration is hardly by the book and often times seemingly pragmatic. Well, the President’s Twitter account, at least.
Potentially, there may be pressure behind the scenes from U.S. suppliers who fear a loss of business as companies like Taiwan’s MediaTek plan to step up in a bid to work with ZTE in the event that it is blocked from U.S. partners.
Even with Trump’s unexpected backing, ZTE is up against it to roll back the sanctions. There’s clearly a gap of thinking between the President and the rest of government.
Trump has frequently lashed out at the House and the Senate, not to mention his own party, over differences of opinion and his frustration with politics. In this case, ZTE’s infringements are so major — trade violations and national security concerns — that it is hard to envisage the company getting a pass, even with support from the White House.
To recap, here’s what FBI Director Chris Wray told the Senate Intelligence Committee in February:
“We’re deeply concerned about the risks of allowing a company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks.”
And Commerce Secretary Wilbur Ross speaking in April about the violation of sanctions on Iran and North Korea, which ZTE pleaded guilty to:
“ZTE made false statements to the U.S. Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation. ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”
Just another day in Trump’s America.
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