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COMMENTARY: Trump's Lifeline to ZTE Represents Transactional Dealmaking at Its Worst

President, defying the wishes of many in his own party, chooses expedience over taking the long-term view.

Mark Melnicoe
    Jun 09, 2018 4:15 AM  PT
COMMENTARY: Trump's Lifeline to ZTE Represents Transactional Dealmaking at Its Worst

In making a deal to extend a lifeline to Chinese telecom maker ZTE, President Trump ignored pleas from a bipartisan group in Congress, his own experts on national security, and many longtime observers and participants in U.S.-China trade.

Instead, he placated Chinese President Xi Jinping ahead of next week's summit with North Korea – a meeting in which China will help determine success or failure. The deal also is a key part of U.S.-China trade negotiations after Xi insisted on a reversal of the export ban on ZTE before he would even send his top economic adviser to Washington for talks last month.

Trump's turn on ZTE culminates a tumultuous two months during which his Commerce department first announced a seven-year ban on any American exports to the company, then he reversed the decision in mid-May and said he was working on a fix, which finally led to an agreement announced Thursday that levies a second heavy fine on ZTE and imposes other requirements but lifts the trade ban.

Commerce Secretary Wilbur Ross touts the new deal as the "strictest and largest settlement fine that has ever been brought by the Commerce Department against any violator of export controls."

The New Deal

ZTE will pay a second $1 billion fine (after an initial one in 2016 after it was caught sending its phones - with their American components - to Iran, North Korea and other countries in violation of U.S. sanctions).

Under the deal, ZTE is replacing its entire board of directors and executive team while allowing the U.S. to embed officials into the Shenzhen-based company to assure compliance. The company's also putting up a $400 billion escrow fund to cover any future violations.

The reaction came fast and furious, especially from members of Congress who are blasting the deal as a sellout of national security.

"I assure you with 100% confidence that ZTE is a much greater national security threat than steel from Argentina or Europe," said Florida Sen. Marco Rubio, a Florida Republican, in a post on Twitter. "Very bad deal," he wrote.

"Donald Trump should be aiming his trade fire at China, but instead he inexplicably aims it at allies like Canada, Mexico and Europe," tweeted Sen. Charles Schumer of New York, a Democrat. "When it comes to China, despite his tough talk, this deal with ZTE proves the president just shoots blanks."

Another Republican, Sen. John Kennedy of Louisiana, said, "I'm sure ZTE makes a fine cell phone, but they're a little too close to the Communist Party of China for my tastes."

The True Target

Most members of Congress aimed their fire at Trump for capitulating to China on trade, but the president may have his eye more on the summit with North Korean leader Kim Jong Un. Trump has already twice reversed himself on the summit itself, saying he would meet with Kim, then canceling the summit, then putting it back on the calendar less than three weeks before it was to occur.

It's obvious that Trump badly wants the summit. One could argue that despite the national security concerns about ZTE, making peace with North Korea and getting it to denuclearize would represent a huge national-security triumph.

Yes, the Pentagon has determined that ZTE and another Chinese smartphone maker, Huawei, may be putting devices into their phones that could spy on American companies and the government. But how does that compare with a peace agreement on the Korean peninsula and the banishment of nuclear-tipped ICBMs aimed at the U.S. mainland?

A plausible argument? Sure, but that presumes two things. The first is that the Defense Department is right about the spyware, a contention strongly disputed by the companies and by several technology observers. The second is that a foolproof agreement with North Korea, with a long history of breaking deals, can actually be made.

The first assumption is certainly not out of line and may well be true. But the second defies logic and is unlikely to be carried out. Few experts think that Kim, who has risen to global stature purely through building nuclear weapons and threatening to annihilate America, will simply give them up – no matter the enticements.

So far, Trump has gotten little from China or North Korea in exchange for easing up on ZTE and saving the company. Trade talks seem to be stalled for the moment as Trump imposes tariffs on China and U.S. allies alike, and they reciprocate.

Almost no one expects a major breakthrough at the Singapore summit, set for June 12. At best, it could provide the basis for longer-term negotiations over Kim's nuclear stockpile and the easing of sanctions targeting the world's most isolated nation.