A big bone is thrown to the Chinese government and one of its big telecom companies, but for what?
The Trump administration said on Thursday that it cut a deal with the Chinese government to rescue ZTE, the giant telecommunications firm that has become an important sideshow in the ongoing trade dispute between Washington and Beijing.
Commerce Secretary Wilbur Ross announced its details: A $1 billion fine (with another $400 million held in escrow). A team of export-control compliance officers chosen by the U.S. government will embed in the company (at ZTE’s expense), and ZTE’s entire board of directors and senior leadership must be replaced within a month.
Does this sound good? Not everyone in America is so sure!
As of this morning, the Alliance for American Manufacturing (AAM) is on the record: We don’t think this is a good idea. AAM President Scott Paul said, “A Chinese state-owned firm that has repeatedly violated sanctions protocols shouldn't be part of the telecommunications architecture of the United States, period.”
Kinda hard to argue with that. Lawmakers on Capitol Hill, including Sen. Marco Rubio (R-Fla.) and Minority Leader Chuck Schumer (D-N.Y.) are making similar observations. (Schumer said the president is "shooting blanks." Ouch!) And media observers are having a hard time wrapping their heads around this move too – because it’s not exactly clear what the payoff is here for the United States:
Notable: There is no US “win” or “get” in the ZTE deal. https://t.co/J37ZqwZlNh— Heather Long (@byHeatherLong) June 7, 2018
But there's certainly more to it. The New York Times put it thusly:
It is not clear what the United States received in return. ZTE had been a bargaining chip in negotiations between the two countries, which have been striving to reach a trade deal that would prevent tit-for-tat tariffs from going into effect.
But the company’s fate has gotten caught up in a bigger web, including an upcoming summit between President Trump and North Korea’s leader and the success of an American telecom company, Qualcomm, which sells a large amount of semiconductors to ZTE and is awaiting Chinese approval of a deal to acquire a Dutch telecom firm that will help it build the next generation of wireless technology, known as 5G.
Indeed, the CEO of San Diego-based Qualcomm said he hoped the ZTE deal would clear the path for his company to acquire a Dutch semiconductor firm – a move which has been held up by Chinese regulators – and keep it competitive in the burgeoning 5G telecommunications market.
A ZTE revival has reportedly been among the firmest demands from the Chinese side in the ongoing trade talks, even though Secretary Ross said the announcement is not part of a larger deal (despite what our, uhh, voluble president has said). What’s more, U.S. regulators have taken an interest in keeping Qualcomm in the 5G race – and American owned and operated.
That seems to be the case – that ZTE is being saved so an American chipmaker can expand, and the president can make some headway on his currently disappointing bilateral trade talks. Well, O.K. … That’s a lot of high-stakes horse-trading taking place halfway in the public sphere. And it’s throwing a lifeline to a company that basically the entire American intelligence community views with deep suspicion.
And if the result from this is China simply increasing its purchases of American soybeans and coal while making none of the market reforms to its government-dominated market, then Trump will be labeled as Soft On China. He won't like it. And lord only knows what kinda moves he will make after that.