Trump, Chinese leaders moving forward on deal to save ZTEMay 22, 2018
President Trump is moving closer to freeing the embattled Chinese company ZTE Corp. from severe penalties over export law violations, telling reporters that existing restrictions had harmed American firms that sell material to China.
But his willingness to release restrictions on ZTE just one month after his Commerce Department nearly put the giant telecommunications firm out of business ran into a torrent of opposition from Congress, with lawmakers from both parties accusing Trump of being outmaneuvered by Beijing and potentially putting U.S. national security at risk.
His senior advisers are working on the outlines of a deal with Chinese leaders that would allow ZTE to resume buying American parts for its telephones, something that had been banned by the Commerce Department’s restrictions last month.
The Commerce Department could instead replace that ban with new fines or other requirements, such as leadership changes at the company.
These specifics have not yet been finalized, but Trump suggested Tuesday that the fine could be around $1 billion.
“The objective was not to put ZTE out of business,” Treasury Secretary Steven Mnuchin told a Senate subcommittee on Tuesday. “The objective was to make sure they abide by our sanctions programs.”
Trump told reporters at the White House that he was discussing a number of scenarios with Chinese officials and that it was possible the whole process might fall apart, in which case he would impose sanctions on Chinese exports to the United States.
He remarked on the criticism he has received from Capitol Hill about going too easy on China. “For those who say maybe Trump is getting a little bit easy — ZTE, we closed it,” Trump said. “It wasn’t another administration. It was this administration that closed it.”
The talks about relaxing restrictions on the company remain fluid. It was unclear how quickly a resolution could be reached, though discussions will likely pick up when Commerce Secretary Wilbur Ross visits China early next month.
Amid reports of the bargaining, the Chinese government Tuesday said it was reducing its tariffs on imported cars to 15 percent from 25 percent, meeting a long-standing U.S. demand.
Some analysts said the president was abandoning his goal of a comprehensive overhaul of the U.S.-China trading relationship in return for minor Chinese commitments.
“The administration has done an about-face in its approach on trade with China,” said Scott Kennedy, an expert on Chinese business at the Center for Strategic and International Studies. He added: “China has been let off the hook, and although ‘reforms’ are coming, they are likely to be modest, gradual and incremental. All the while, the party-state will continue to fully draw on all of its industrial-policy tools to promote Chinese national champions at home and abroad.”
ZTE is partly owned by the Chinese government. In 2017, it pleaded guilty to criminal charges related to illegally shipping to Iran telecom equipment that contained U.S. parts. The company also settled civil charges with the Commerce and Treasury departments, agreeing to pay a combined fine of $1.19 billion and be subject to a court-appointed monitor for three years.
At the time, Justice Department officials said that ZTE had engaged in an “elaborate scheme” to outwit U.S. sanctions designed to keep Iran from acquiring sophisticated communications systems. Even after its cheating was detected, ZTE set up an in-house team charged with finding new ways around American law and with deleting incriminating material from its computers.
Last month, the Commerce Department prohibited U.S. companies from selling their materials to ZTE for seven years, a development that was widely seen as a death sentence for the company. Ross told reporters that ZTE had violated the terms of its settlement with the government by failing to discipline several executives who were responsible for misleading U.S. investigators.
Chinese leader Xi Jinping personally asked Trump to intercede, and Trump has directed Ross to make changes to help the company.
The president’s extraordinary intervention, kicked off by a tweet worrying about the impact of ZTE’s demise on Chinese employment, alarmed some trade experts. “This type of process has never been politicized,” said attorney Doug Jacobson, an export-law specialist. “This is really unprecedented.”
Under standard Commerce Department procedures, companies can appeal their penalties to the same enforcement officials who hand them down in the first place. Appeals are granted only in rare cases and usually involve shortening the length of a denial order like the one ZTE has been hit with, Jacobson said.
But shortening ZTE’s ban on acquiring U.S. equipment wouldn’t help. The company depends upon U.S. suppliers, from which it buys $2.6 billion worth of components each year.
This marked a major change in approach for the White House.
Trump has spent the past several months trying a variety of tactics to get China to reduce its trade surplus with the United States. He has threatened to impose tariffs on a variety of Chinese products, a move that angered Chinese leaders and led to warnings of retaliation. But in the past 10 days, he has tried to lure the Chinese into a broader trade agreement by expressing a willingness to free ZTE as part of a deal, even if it angered Republicans and Democrats who believe ZTE’s behavior poses a national-security risk.
On Tuesday, close to 30 senators — including leaders from both parties — sent a letter to Mnuchin and other senior White House officials calling for the Trump administration not to back down on ZTE.
“We urge you not to compromise lawful U.S. enforcement actions against serial and pre-meditated violators of U.S. law, such as ZTE,” the letter said. “This is particularly critical when the violators are state-owned and -influenced, part and parcel of China’s policies and practices designed to strengthen its own national security innovation base, and essential tools of efforts to spread China’s influence in other countries that pose national security threats to the United States.”
Last week, the House Appropriations Committee added language to a must-pass spending bill that barred the president from relaxing penalties on ZTE, in the first sign of congressional displeasure with Trump’s stance. The Senate Banking Committee advanced another version of the measure on Tuesday, written by Sen. Chris Van Hollen (D-Md.). The measure passed 23 to 2.
Mnuchin said the changes are being led by Commerce Department officials, though he has been brought into meetings about the matter.
“Whatever the Commerce Department decides — the [intelligence] community has been part of the briefings — and we will make sure that we enforce national-security issues,” he said.
The broad outlines of the deal were first reported by the Wall Street Journal.
Mnuchin, though, did appear to contradict Trump in terms of the scope of the ZTE talks. Mnuchin said the Commerce Department was looking at scaling back penalties on ZTE because of a request from Xi to Trump.
“This was not a quid pro quo or anything else,” Mnuchin said.
But Trump last week wrote on Twitter that ZTE was only being looked at for help as part of the trade discussions.
“Nothing has happened with ZTE except as it pertains to the larger trade deal,” Trump wrote.
Meanwhile, China’s decision to lower auto tariffs is unlikely to have a dramatic impact upon American carmakers. Companies like General Motors already produce millions of cars in China for customers there and thus may have little desire to ship additional vehicles across the Pacific.
The Chinese tariff cut is being welcomed by luxury carmakers, such as BMW. The German automaker’s Spartanburg, S.C., plant exports more than 270,000 vehicles annually, with China its top destination.
“We highly welcome the Chinese government’s announcement. It’s a strong signal that China will continue to open up,” said Kenn Sparks, a company spokesman. “This will certainly benefit the customer and boost the market to an even more dynamic level.”
Congressional leaders have expressed confusion in the past week at how much the ZTE talks have become entangled in the broader trade discussions with China. Ross said last week that ZTE would be handled separately as a regulatory matter, but Trump late last week suggested that he would allow ZTE to be freed of the restrictions only if China agreed to other concessions on trade.
“At the end of the day, the Trump administration needs to clarify to the American public how all of this reflects good policy that upholds the rule of law as enforcement actions should, and how any resulting trade deal with China will be good for American companies, workers and consumers,” said James Zimmerman, partner in the Beijing office of international law firm Perkins Coie LLP.
Chinese vice premier Liu He met with Mnuchin and other White House officials last week, and the Trump administration had suggested that they could reach a massive deal that would lead to a $200 billion reduction in the trade deficit between both countries. But the talks ended Saturday without any specific agreement or mention of ZTE.
Both sides agreed broadly to increase China’s purchases of agricultural products and other materials from the United States. But China did not give any ground on some of the structural changes that White House adviser Peter Navarro has long sought, things that would make it much harder for Chinese companies to steal intellectual property from U.S. companies.
Ross is scheduled to go to China in early June to try to pin down specific agreements from Chinese leaders related to new purchases of U.S. goods.
Trump has tried to spin the discussions with China as representing a huge breakthrough between both countries, but his advisers have been split, with Mnuchin seeking a quick deal and Navarro wanting the White House to hold out for more sweeping changes.
Emily Rauhala contributed to this report.