Manufacture This

The blog of the Alliance for American Manufacturing

What is the Dealmaker in Chief giving up by resuscitating a Chinese telecom giant?

A delegation from the Chinese government is due in Washington this week to continue the nascent trade negotiations begun last month when President Trump’s world class wreckin’ cru went to Beijing and laid out the administration’s positions. The discussions reportedly didn’t get very far.

Anyway, another round got underway Tuesday in Washington, D.C. But the president, erstwhile steak salesman, pre-empted it with a tweet about ZTE. He said he was cutting a deal with Chinese President Xi Jinping to ease sanctions facing the company out of a concern for Chinese jobs.

Wait, what?

O.K., so here’s the deal: ZTE is an enormous Chinese telecommunications company that sells a lot of smartphones in the United States (the No. 4 brand behind Apple, Samsung and LG), and is China’s second largest such firm. Last month the U.S. Commerce Department hit it with a seven-year U.S. export ban after ZTE was found to have violated a settlement it reached for selling products to North Korea and Iran, in spite of American trade embargos on those countries.

American-made tech goes into those phones, and the export ban Commerce doled out essentially crippled ZTE’s business.

What’s more, the Defense Department banned the sale of ZTE devices on U.S. military bases, and the American national security establishment has warned consumers against using them because it thinks the Chinese government uses them as backdoors for espionage activities. They’ve said that as recently as today.

So why is Trump tweeting stuff like this?

Oh, my bad, wrong tweet. This president tweets a lot. I meant this one. Why is Trump, right now, tweeting stuff like this?

Yes, that's right. The president of the United States advises everyone to be cool. Fair enough; this guy had a book called the "The Art of the Deal” ghostwritten for him 30 years ago. He knows what he’s doing.

It’s not clear if anyone in his administration knows, though. His chief economic adviser said this new ZTE deal was "principally an enforcement issue … It’s really divorced from the trade story.” His Commerce secretary, who will be tasked with easing these ZTE restrictions, said that too. But then Trump tweeted that, no, actually, it is about trade. And also his personal relationship with Xi:  

The Wall Street Journal has meanwhile reported that Trump is using ZTE as leverage to get China to ease off the agriculture tariffs it announced in retaliation for the recent U.S. steel and aluminum tariffs. 

With all due respect to the American agriculture sector, I hope that’s not the only return Trump is getting for reviving a Chinese tech giant with ties to the Chinese government that is viewed with suspicion by America's spy agencies.

Maybe it’s not. The Journal also noted that Trump’s tweet pre-empted a change in attitude from Chinese regulators about a merger between American microchip-maker Qualcomm and NXP Semiconductors, a deal that is seen as essential to Qualcomm’s future success – and Qualcomm’s success is essential to U.S. aspirations to remain dominant in future telecom technology.

But it’s hard to know for sure. And we’re left to hope the president won’t treat this as a one-off deal. If that’s what this is, it could seriously damage U.S. negotiators’ ability to actually rebalance the trade relationship with China. And that would make all of Trump's China rhetoric a wasted effort.

 

Tell Trump: Uphold Ban on ZTE

ZTE is a huge telecommunications company with direct ties to the Chinese government, has broken trade embargoes with Iran and North Korea. In response, the Commerce Department recently banned U.S. companies from providing exports to ZTE. Now President Trump tweeted that he is working with Chinese President Xi Jinping to help ZTE get back into business.

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