June, 2018

Congress pushes back against Trump on lifting of ZTE ban

Original article: Politico

The US Senate voted last week to reimpose the ban on the sale of American telecoms equipment and software to Chinese firm ZTE, frustrating President Trump's efforts to prevent the company from collapsing. Without components made by U.S. companies and Google's Android operating system, ZTE cannot produce smartphones, which account for a large portion of its revenue.


On the ZTE ban, The Donald miscalculated. He often portrays international trade as a type of zero-sum negotiation. From that standpoint, to "win" the negotiation with China - and substantially reduce the U.S.'s trade deficit with Beijing - Washington needs leverage. The ZTE ban, which could hobble one of China's flagship tech companies, seemed ideal. Once confronted with that inconvenience, wouldn't China come to its senses - and agree to scrap its unfair trade policies?

No, it won't. To begin, Chinese President Xi Jinping is in the midst of consolidating his power after winning a second term and jettisoning term limits altogether. He cannot afford to waver in the face of U.S. bullying. That would give his opponents an opening to undermine him. Further, close observers of Chinese elite politics say that the ZTE ban personally infuriated Xi. That almost certainly wasn't Trump's goal; he often touts his "great friendship" with the Chinese president. 

Meanwhile, the Chinese leadership is now accelerating efforts to wean China off of foreign technology. In the long term, that may benefit U.S. tech firms overly dependent on China: They will better spread out risk as they diversify their export markets. In the short term though, they may find fewer opportunities for growth in China. 

To be sure, ZTE's sale of equipment containing U.S. technology to Iran and North Korea in defiance of U.S. sanctions, along with attempts to conceal its misdeeds, merit severe punishment. But the death sentence? It's a harsh punishment - if what ZTE says about needing US suppliers to survive is true. 

But now that the verdict has been pronounced, Congress isn't about to let The Donald blithely call off the ban. Indeed, Capitol Hill and the U.S. intelligence community both believe that ZTE, with its close ties to the Chinese state, is a national-security threat. They also know that backing off swiftly to appease Beijing will make the U.S. look like a paper tiger. Surely, President Trump knows that those optics won't help Washington "get a good deal" with Beijing on trade. 

"The senators have a genuine and well founded concern about ZTE's behavior," says Ross Feingold, a Taipei-based political risk consultant and close watcher of U.S. politics, citing the firm's violation of sanctions and alleged ties to China's security agencies.

Now that the National Defense Authorization Act with a provision to reinstate the ZTE ban cleared the Senate by a vote of 85-10, Trump will need to put his negotiation skills to the test with Congress. He may find some support in the House of Representatives, whose version of the bill does not call for a reimposition of the ban.  

However, "even if the President signs the bill into law we should watch for efforts by the Administration such as via signing statements or finding other legal basis to waive or otherwise modify the ZTE penalties," Feingold says.