Trump Cuts a Great DealFor China

September 11, 2019

TORONTO—The Wall Street Journal is reporting that the Trump administration is close to a trade deal with China. Beijing’s delegation, headed by Vice Premier Liu He, is arriving for talks in Washington to be held later this week.

The White House looks like it is prepared to give relief to ZTE Corp., the embattled Chinese telecom-equipment maker, in exchange for Beijing lifting tariffs on, and easing non-tariff barriers against, U.S. agricultural products. Moreover, China’s Commerce Department will restart its long-stalled review of Qualcomm’s proposed acquisition of NXP Semiconductors, the Dutch firm.

In addition, The Daily Beast has learned there will be either no penalties or only light ones imposed on China for stealing U.S. intellectual property.

This is a great deal—for China. China gets relief for ZTE for doing nothing more than what it should have been doing all along. And its massive theft of U.S. technology and intellectual property—undoubtedly in the hundreds of billions of dollars a year—goes mostly unpunished.

If the reports of the outlines of the impending agreement are correct, the Trump administration, which prides itself on deal-making, will have accepted one of the worst trade arrangements this century.

Shenzhen-based ZTE is the key to the proposed trade agreement with China. The company, the world’s fourth-largest manufacturer of telecom equipment last year, had been caught, in violation of U.S. law, selling American products to sanctioned regimes. Last year, it agreed to pay a fine of $892 million and pled guilty to violating Iran sanctions and obstructing justice. As a part of its plea deal, ZTE agreed to discipline and dismiss employees involved in the matter.

ZTE, however, had repeatedly made untrue statements to U.S. officials and reneged on commitments to deal with employees involved in the criminal conduct. As a result, last month Commerce imposed a seven-year ban on the sale of U.S. products and the licensing of software to the Chinese company, essentially a death sentence. ZTE heavily relied on chips from Qualcomm, the San Diego-based communications giant, and Google’s Android operating system.

In response to the ban, ZTE announced on May 9 that “major operating activities of the Company have ceased.”

“President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast,” President Trump tweeted four days later. “Too many jobs in China lost. Commerce Department has been instructed to get it done!”

The tweet is objectionable on every level. Some have said the president is using ZTE as a lever on the Chinese, but the argument does not impress Washington-based trade analyst Alan Tonelson. “If President Trump’s decision to lift the ZTE ban is meant to create a trade bargaining chip with China, it’s the wrong chip,” he told The Daily Beast on Monday.

He’s right. First, as Tonelson points out, it is inappropriate for the president to involve himself in law enforcement matters so directly, something White House spokeswoman Lindsay Walters implicitly acknowledged when she issued a statement, just hours after the tweet, stating the president expected Commerce Secretary Wilbur Ross to exercise “his independent judgment” on the ZTE penalty.

Second, it was wrong for Trump to publicly express a greater sense of concern for the well-being of employees of a sanctions-busting Chinese company than the security of Americans. The sanctions ZTE evaded, after all, were designed to protect the U.S. from the Iranian and North Korean regimes.

Third, an obvious climbdown is not going to make Beijing easier to deal with. The Washington Post has reported that Liu He had warned the administration he would refuse to come to an agreement with Trump unless the ban on ZTE were lifted. If The Wall Street Journal reporting on the terms of the impending agreement is correct, Trump, who holds almost all the leverage, caved. Beijing, sensing weakness, is sure to press the advantage in further trade and other discussions.

Fourth, the president is helping a business identified as a threat to American security because its products can be used to surveil Americans. ZTE cannot sell its equipment in the U.S. for that reason, and even its smartphones—only three other companies make more of those devices for the American market—are now considered off limits for the Defense Department. Last month, the Pentagon stopped the sale of ZTE phones on military exchanges.

“Our intelligence agencies have warned that ZTE technology and phones pose a major cyber security threat,” Rep. Adam Schiff (D-CA), ranking member of the House Intelligence Committee, tweeted in response to the president. “You should care more about our national security than Chinese jobs.”

Fifth, letting ZTE off the hook sends the message to Huawei Technologies, the world’s largest maker of telecom equipment, that it can ignore the Justice Department’s criminal probe for the same general type of conduct that landed—temporarily—ZTE in hot water. Justice began its investigation just last month into Huawei’s ties with Iran.

Sixth, the ZTE debacle makes Trump’s withdrawal from the Joint Comprehensive Plan of Action, commonly known as the Iran nuclear deal, untenable. The withdrawal makes sense only if the U.S. is able to prevent European and other companies from doing business with Iran. Yet how can Trump sanction any entity after letting ZTE off the hook?

As Tonelson writes of the president’s misguided Sunday tweet, “Because many of ZTE’s transgressions involved exports to Iran, Mr. Trump’s move can only undermine the economic pressure he’s putting on allies to work harder to prevent Tehran’s development of nuclear weapons.”

“Mr. Trump’s tweet on ZTE is presumably part and parcel of his overall engagement with the Chinese president, designed to bring China into compliance with international norms of trade and security,” Brock University’s Charles Burton told me Monday. It would be nice to think, as Trump evidently does, that engagement can get the Chinese to cooperate with Washington. Unfortunately, that approach has been tried for decades and, for various reasons, has made the Communist Party even more arrogant, belligerent, and unhelpful. If nothing else, ZTE’s brazen criminal conduct confirms that engagement of China has been counterproductive.

“Don’t blame Trump,” Larry Kudlow, the president’s top economic adviser, says these days. “Blame China.”

After Sunday’s now-infamous tweet, it’s time to blame both, China for being a trade villain and the president for exceedingly bad China policy.

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