US President Donald Trump announced on Sunday 13 May that he would be working with his Chinese counterpart to help Chinese telecommunications giant ZTE, after the US Commerce Department’s recent move to block the company from purchasing American-made components for seven years.
“President Xi [Jinping] of China, and I, 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!” Trump wrote in a Twitter post.
After Trump’s tweet, White House principal deputy secretary Raj Shah commented on the issue, saying that the ZTE ban is only “part of a very complex relationship between the United States and China that involves economic issues, national security issues, and the like.”
He added that Trump asked US Commerce Secretary Wilbur Ross to “look into it consistent with applicable laws and regulations,” without elaborating further.
Chinese officials publicly welcomed the comments from the US leader. “We highly appreciate these positive remarks on the ZTE issue, and we are currently in close communication with them on how exactly to implement it,” said China’s Foreign Ministry Spokesperson Lu Kang.
Background
Last month, the US Department of Commerce issueda “denial order” requiring US companies to stop exporting parts or providing services to ZTE through 2025.
The US government agency claimed that the move was necessary in light of ZTE’s alleged violations of a prior agreement, in which the company agreed to pay a US$1.19 billion penalty for shipping ZTE equipment with US-made components to Iran and North Korea, despite existing American sanctions on those countries.
According to the Commerce Department, the problem was compounded by ZTE allegedly issuing “false statements” and taking other steps that breached the 2017 deal, “including through preventing disclosure to and affirmatively misleading the US Government.”
Following the denial order in April, Gao Feng, the spokesman of the Chinese Ministry of Commerce (MOFCOM), saidthat Beijing officials will “follow the situation closely” and “take necessary measures anytime to protect the rights of Chinese companies.”
In a separate statement, a MOFCOM spokesperson notedthat ZTE carries out “extensive trade and investment cooperation with hundreds of American enterprises, providing tens of thousands of jobs to the US.”
“China hopes the US would handle it properly according to the laws and policies, and create a fair, [just], and stable environment of laws and policies for the enterprises,” the statement added.
Management officials from ZTE claim that the company was working to meet the terms of the Commerce Department deal, including building a team of export control compliance experts and investing considerable resources, and has made significant progress in recent years.
“It is unacceptable that BIS (US Bureau of Industry and Security ) insists on unfairly imposing the most severe penalty on ZTE even before the completion of investigation of facts, ignoring the continuous diligent work of ZTE and the progress we have made on export compliance,” saysthe company’s statement. BIS refers to a branch of the Commerce Department.
The company claims that the US ban on exporting components for ZTE use have significantly hampered company operations. An inside information note from the ZTE’s board of directors announcedthat, after the US measures were enacted, “major operating activities” of the company “have ceased.”
Industry players
ZTE ranks among the largest telecommunications companies worldwide, responsible for 75,000 jobs, along with being a major provider of smartphones in the United States.
As a result of the denial order, the Chinese tech giant cannot buy electronic chips produced by US-based companies such as Intel and Qualcomm and optical components from Lumentum, nor from smaller companies that produce other telecommunications equipment.
Some officials, including Trump, have suggested that the ban may be having an adverse effect on US producers who provide these inputs. “ZTE, the large Chinese phone company, buys a big percentage of individual parts from US companies,” saidTrump on Twitter.
The ZTE statement after the denial order warnsthat the policy “will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of US companies.”
Huawei, another Chinese company that plays a significant role in the global telecommunications market, is also reportedly under investigation by the US government, on similar grounds.
Bilateral tensions between the US and China on technology products are not new. As early as 2012, a US congressional investigative report claimedthat “Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems” – a charge that both companies have countered.
Wider negotiations in the background
The ZTE situation comes amid a wider range of escalating trade tensions between the world’s two largest economies, which have grown in the past several months.
The two sides have publicly sparred over the US’ “Section 232” duties on imported steel and aluminium exports, which are almost global in application, barring a few country exceptions. The US has also threatened action in response to allegations of forced transfer of American technology to Chinese companies. Meanwhile, China has imposed duties on a list of goods imported from the US, in response to these actions. (See Bridges Weekly, 9 May 2018)
More broadly, US officials have been openly critical of the US$375 billion goods trade deficit with China, as well as some of the Asian economy’s commercial practices. (See Bridges Weekly, 6 April 2017)
The two sides have been negotiating on how to address the deficit and other topics, offering competing lists of requests to address their respective trade concerns.
China’s Vice Premier Liu He is visiting the US this week to discuss bilateral trade issues with US officials, including reportedly Treasury Secretary Steven Mnuchin.
“At the invitation of the US government, Vice Premier Liu He will travel to the US from May 15 to 19 for more consultations with the US economic team on bilateral economic and trade issues. China is willing to work with the US to ensure positive and constructive outcomes from this upcoming round of trade talks,” saida spokesperson for China’s MOFCOM.
ICTSD reporting; “Huawei Is Under Investigation for Violating Iran Sanctions: Report,” FORTUNE, 25 April 2018; “One of the World’s Biggest Phone Firms Is Stopping Operations Because of a Ban on Buying U.S. Parts” FORTUNE, 10 May 2018; “Trump throws ZTE curveball as big week for US-China trade begins,” CNN, 14 May 2018; “President Trump says he's working with China to save ZTE,” CNN, 14 May 2018; “China's vice premier to visit US May 15-19 to discuss trade: gov't,” THE MAINICHI, 14 May 2018; “U.S., China Discussing Deal on ZTE, Agricultural Tariffs,” THE WALL STREET JOURNAL, 14 May 2018.
