Trump administration may cut a deal for ZTE, despite heavy opposition

The saga of the fate of Chinese telecom equipment giant ZTE took a fresh turn over the weekend when US President Donald Trump apparently indicated that his administration would consider lifting US sanctions on the company. In a tweet posted late on May 25, Trump said that “high-level security guarantees” and “change of management and board” would be part of the conditions ZTE would be expected to fulfil in exchange for having the ban lifted:

According to reports in The New York Times, The Washington Post, and TechCrunch, sources on Capitol Hill confirmed the proposed deal. ZTE has been in bad shape since earlier this month when it announced that it was ceasing all business operations on May 10 because of a seven-year ban imposed on it by the US Department of Commerce. The ban – imposed after ZTE was found to have violated trade concerns by selling goods to Iran and North Korea – prohibited US companies from selling components and products to the Chinese company. About 65 percent of the components for ZTE’s devices come from US suppliers like Qualcomm; the ban then effectively crippled ZTE and threatened to put its almost 75,000-strong workforce out of jobs.

Since the ban’s imposition, Chinese leaders have made it clear that working out a deal to help ZTE is a necessary condition for trade talks to progress between the US and China. However, US Congress lawmakers have strongly opposed such a deal, in a rare display of bipartisan support under the current Trump administration. Republican as well Democrat lawmakers have strong concerns about the potential national security threat posed by ZTE, which has strong backing from the Chinese government. The ZTE deal has also faced strong opposition from the US Defense sector – in early May, a spokesman for the Department of Defense said the Pentagon was stopping the sale of phones made by ZTE and a Chinese competitor, Huawei, in stores on American military bases around the world because of security concerns.

Predictably, Trump’s announcement has come under a storm of criticism from US lawmakers. New York Senator Chuck Schumer said in a statement, “If the administration goes through with this reported deal, President Trump would be helping make China great again...Simply a fine and changing board members would not protect America’s economic or national security and would be a huge victory for President Xi, and a dramatic retreat by President Trump.” Florida Senator Marco Rubio also chimed in on Twitter, saying that this would be “a great deal...for #ZTE & China”:

US Commerce Secretary Wilbur Ross is scheduled to travel to China on June 2 to begin another round of trade talks with top Chinese officials. While there has been no official response yet from Chinese leaders to President Trump’s announcement, it will be interesting to see what kind of reception Ross gets in China during his visit. As bipartisan opposition to a deal grows in US Congress, ZTE’s fate hangs in the balance. The coming weeks will be crucial for the final future of the telecom giant, as well as the fate of trade talks between the US and China.