Trump offers US aid to penalized Chinese telecom company

The U.S. Commerce Department last month blocked the ZTE Corp., a major supplier of telecom networks and smartphones based in southern China, from importing American components for seven years. (testing / Shutterstock.com)

WASHINGTON — In a surprising overture to China, President Donald Trump says he would help a Chinese telecommunications company get “back into business,” saying too many jobs in China are at stake after the U.S.government cut off access to its American suppliers.

The U.S. Commerce Department last month blocked the 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 after it settled charges of violating sanctions against North Korea and Iran.

The dispute predates Trump’s arrival in the Oval Office and the Commerce sanction was issued amid worsening trade tensions between the U.S. and China.

Trump’s unexpected announcement Sunday comes as the two countries prepare 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.

“A reversal of the ZTE decision could temporarily tamp down trade tensions by allowing the Chinese to make concessions to the U.S. without losing face,” said Eswar Prasad, a professor of trade policy at Cornell University. “Trump may have recognized that backing off on ZTE clears the path for him to claim at least a partial victory in the US-China trade dispute based on the concessions the Chinese seem prepared to offer.”

ZTE, a company with more than 70,000 employees that has supplied some of the world’s biggest telecoms companies, said in early May that it had halted its main operations as a result of the department’s “denial order.”

Trump tweeted that he and Chinese leader Xi Jinping “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!”

It is not exactly clear what Trump has in mind for ZTE, if he is seeking a rollback of the Commerce decision.

“The President’s tweet underscores the importance of a free, fair, balanced, and mutually beneficial economic, trade and investment relationship between the United States and China,” said White House deputy press secretary Lindsay Walters in a prepared statement.

The White House deferred to the Commerce Department on any specific questions relating to sanctions.

In a later tweet, Trump suggested the U.S. and China were moving forward on trade negotiations, but it was not clear how the ZTE case would fit into the bigger picture.

“I’ve never seen a president step in and reverse an agency decision like this. It’s not clear, of course, if he’s planning to really reverse it or think of a solution in a larger context, but it is something that is just out of the norm,” said Amanda DeBusk, the chair of the international trade and government regulations practice at the firm Dechert LLP.

DeBusk, a former Commerce Department assistant secretary for export enforcement, said Trump’s announcement indicates “he is looking to accomplish his objectives on trade with China on a much larger level.”

The tactic caught experts on international relations off guard.

“At a minimum, the optics of the decision are terrible. Although the recent step to ban sales of American components to ZTE for seven years may have been going overboard, the manner in which this reversal is being made cheapens the value of the national security and legal foundations of executive branch actions,” said Scott Kennedy, of the Center for Strategic & International Studies. “It makes it appear as if the Trump administration is willing to trade protecting American national security for promoting some US agricultural exports and Chinese jobs.”

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 per cent 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.

At the Beijing talks, the Trump administration handed China a list of hard-line demands that trade experts said could make it even more difficult to resolve the trade disputes.

But Trump set a more reassuring tone in a separate tweet Sunday, saying the two economic giants were “working well together on trade, but past negotiations have been so one sided in favour of China, for so many years, that it is hard for them to make a deal that benefits both countries. But be cool, it will all work out!”

China on Monday welcomed Trump’s comments.

“We think highly of the U.S. statement regarding ZTE’s case,” said Lu Kang, a spokesman for China’s foreign ministry. “We are currently in close communication over details of the implementation.”

The foreign ministry said Vice Premier Liu He will visit the U.S. from Tuesday to Saturday for consultations with U.S. Treasury Secretary Steve Mnuchin.

Trump is seeking to cut U.S. trade deficit by $100 billion and to garner new concessions related to sharing technology, a precondition to doing business in China that many companies have complained about.

The U.S. imposed the penalty on Shenzhen-based ZTE after finding that the company, which had already paid a $1.2 billion fine, not only failed to discipline employees that were involved, but paid them bonuses.

Commerce Secretary Wilbur Ross last month accused ZTE of misleading the department and warned, “This egregious behaviour cannot be ignored.”

California Rep. Adam Schiff, the top Democrat on the intelligence committee, criticized Trump for softening his stance on ZTE.

“Our intelligence agencies have warned that ZTE technology and phones pose a major cyber security threat. You should care more about our national security than Chinese jobs,” Schiff said in a tweet directed at Trump.

Support for ZTE from Trump rippled through U.S. markets at the opening bell Monday as tech ompanies that do business with ZTE reversed some of their losses from last month.

Optical components maker Acacia Communications jumped 11 per cent and optical communications company Oclaro rose 6.8 per cent. Fiber optic component supplier Finisar gained 2.3 per cent and chipmaker Xilinx added 3.8 per cent.