It appears that the United States is backtracking on its decision to pummel Chinese electronics company ZTE into submission. In a tweet over the weekend, President Donald Trump revealed that he is working with Chinese President Xi Jinping to give ZTE some assistance in regaining the ability to purchase components from U.S. manufacturers.
In his tweet, Trump specifically calls attention to the fact that many jobs in China will be lost and that the company should have the ability to restart its operations as soon as possible. On the first front, ZTE employees around 70,000 people, mostly in China. On the second front, ZTE announced last week that it shuttered “major business operations” as a result of sanctions by the U.S. Commerce Department.
President Xi 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!
— Donald J. Trump (@realDonaldTrump) May 13, 2018
“We very much appreciate the positive statement from the US side on ZTE and maintain close communication with them on the issue,” said Lu Kang a spokesman for China’s Foreign Ministry.
So how did we get to this point? ZTE was already under fire for providing telecommunications equipment to Iran and North Korea, which was in violation of sanctions placed on those countries. The company agreed to pay $1.2 billion in penalties for its actions, which included making false statement and obstructing justice.
However, further nefarious actions taken by ZTE during its probationary period — after it paid the fine — led the Department of Commerce to levy a harsher penalty against the company.
“ZTE made false statements to the U.S. Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation,” said Secretary of Commerce Wilbur L. Ross in April. “ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”
The penalty for these transgressions was harsh: a seven-year ban on exporting components made by U.S. manufacturers. Given that ZTE relies on Qualcomm for the bulk of the processors used in its smartphones, this was a death-blow for the company. In addition, ZTE is surprisingly the fourth-best selling smartphone company in the U.S., mainly due to attractive, budget pricing.
President Trump’s latest statements via Twitter seemingly undercut the actions taken by the Department of Commerce and also appear to not exactly jive with his hardline stance on U.S.-China trade relations. And there’s also the fact that U.S. intelligence agencies have also expressed concerns over ZTE’s ties to the Chinese government, as Democratic U.S. Representative Adam Schiff (CA) and Republican U.S. Senator Marco Rubio (FL) pointed out in responses to President Trump’s tweet:
Our intelligence agencies have warned that ZTE technology and phones pose a major cyber security threat. You should care more about our national security than Chinese jobs. https://t.co/7Ygh7805jg
— Adam Schiff (@RepAdamSchiff) May 13, 2018
Problem with ZTE isn’t jobs & trade, it’s national security & espionage. Any telecomm firm in #China can be forced to act as tool of Chinese espionage without any court order or any other review process. We are crazy to allow them to operate in U.S. without tighter restrictions https://t.co/AXtTDgufc9
— Marco Rubio (@marcorubio) May 14, 2018
In fact, this recent turn of events seems even more peculiar given that China’s own State-owned Assets Supervision and Administration Commission (SASAC) blasted ZTE as being “stupid and passive” in dealing with U.S. regulators. The Chinese regulator even went so far as to say that ZTE lacked “social integrity”, that “our country’s diplomatic layout and image will inevitably be affected”, and that “[ZTE has] taken risks to engage in illegal operations numerous times.”
ZTE is definitely in a precarious position right now, it appears that there may be a light at the end of the tunnel thanks to an unlikely ally.