Trump’s ZTE threats of little worry for company
Plan to rescue Chinese phone maker criticized
President Trump’s plan to impose a billion-dollar-plus fine on a major Chinese telecom for violating sanctions is unlikely to have much impact on the firm, analysts said, adding fuel to bipartisan criticism of the proposal to rescue the company.
Trump floated the idea this week of fining Chinese phone maker ZTE as much as $1.3 billion and forcing a management purge in exchange for easing a crippling, seven-year ban that prohibited U.S. companies from selling parts to the tech giant.
While those measures may appear punitive, experts said Beijing will ultimately pay the fine and noted many members of ZTE’s board of directors would be selected by the same Chinese government apparatus that installed the last group of managers.
In April, ZTE replaced three senior executives who were involved in the effort to dodge U.S. sanctions, part of a routine management shuffling that outside analysts nevertheless read as a response to U.S. pressure. The company has also already paid hundreds of millions of dollars in U.S. fines.
“The whole thing is fake,” said Derek Scissors, a China expert at the conservative American Enterprise Institute in Washington. “The fine will be paid by a Chinese bank that will never expect to see the money again.”
U.S. policy toward ZTE is changing in the context of broader trade negotiations with China the president characterized as successful over the weekend but by midweek was describing as disappointing. The U.S. has agreed to “suspend” tough tariffs on China in exchange for China agreeing to purchase more American-made products.
“Our Trade Deal with China is moving along nicely, but in the end we will probably have to use a different structure in that this will be too hard to get done and to verify results after completion,” Trump tweeted Wednesday, casting new doubt on the talks.
ZTE pleaded guilty early last year to illegally shipping items made in the U.S. to Iran and agreed to pay nearly
$900 million to the federal government. Federal court records in Dallas show the company has paid at least
$430 million of that.
Months later, the Commerce Department said it discovered the company had made false statements to U.S. officials in 2016 as part of the negotiations to settle the dispute. In response, Commerce tacked on the seven-year ban on April 16.
Trump surprised observers with a May 13 tweet that called on the Commerce Department to ease the ban on U.S. companies selling parts to ZTE.
Trump said Chinese President Xi Jinping had asked him to reverse the ban as a “favor” as the two countries scrambled to back down from a potential trade war. ZTE, hobbled by the ban, announced that it was ceasing “major operating activities.”
“President Xi of China, and I are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast,” Trump wrote on Twitter last week. “Too many jobs in China lost. Commerce Department has been instructed to get it done!”
From the beginning, Trump has also noted the ban had an impact on U.S. tech companies that sell parts to ZTE.
But the move drew fire on Capitol Hill, including from Sen. Marco Rubio, R-Fla., who questioned the shift in rhetoric for a president who often criticizes his predecessors for making concessions to China for little in return.
In a rare show of bipartisan discontent, the Senate Banking Committee voted 23-2 to block Trump from lifting the ban on sales to ZTE unless the administration certified to Congress that the company adheres to U.S. law.
Speaking to reporters in the Oval Office ahead of a meeting with South Korean President Moon Jae-in, Trump defended his stance by outlining the steps that could lead to a deal.
“We caught them doing bad things, and we essentially made it so difficult that it was shutdown,” Trump said. “So what I envision is a very large fine of more than a billion dollars — could be a billion-three. I envision a new management, a new board and very, very strict security rules.”
On the one hand, less punitive measures for ZTE may make sense if adopted as part of a broader trade agreement — a small concession toward a bigger goal, analysts said. But the slap-on-the-wrist approach may also raise questions about how far the U.S. is willing to go to punish other companies that violate its sanctions.