ZTE … Annotated

It generally serves little purpose to regurgitate information available via a brief internet search, but since many people are living their lives without delving into the gory details of every policy disagreement in Washington, it’s worth calling out the current dispute between the White House and just about everybody else in Washington (Democrats, Republicans, and our U.S. security apparatus) over whether to continue sanctions imposed on Chinese telecommunications manufacturer ZTE by – ironically — the Trump Administration.

ZTE has been involved in our telecom industry for years.  It both supplies equipment to some of our small (mostly rural) telecom companies and buys parts (including fiber) from American companies to make its equipment.  These companies are obviously adversely impacted by governmental limitation on their ability to transact with ZTE.  Additionally, ZTE issues have a potential impact on (1) our agriculture industry and (2) Chinese approval of an acquisition by U.S. company Qualcomm deemed critical to Qualcomm’s growth.

ZTE is also reportedly one of China’s key players in the battle for future strategic telecommunications dominance being waged between the U.S. and China.  I understand that 5G is the new horizon; ZTE is one of the companies striving for a foothold in the technology.

Our government has considered ZTE to be a security threat for some time, and banned purchase of its equipment by NASA, the Justice and Commerce Departments in 2013.  In February, our security agencies warned consumers about buying Chinese-manufactured phones.  In early May, the Pentagon banned the purchase of ZTE and Huawei (another Chinese telecom manufacturer) phones near military bases.  The overall concern is that China could utilize the equipment to conduct electronic spying on Americans.  ZTE denies that the equipment could be so utilized, and both China and ZTE deny that the government places any pressure on ZTE.  (Given what even we lay people know about telecommunications technology, it’s hard to believe that ZTE equipment couldn’t be so utilized, or that China, even if it places no pressure on ZTE today, couldn’t start doing so tomorrow.)

If the e-surveillance issue wasn’t enough, ZTE is a bad actor; the Trump Commerce Department placed its ban on American companies’ sales of parts to ZTE because it determined (and is apparently undisputed) that ZTE skirted sanctions in selling equipment to North Korea and Iran.

Our ban has apparently crippled ZTE, a matter of sufficient import to China that President Xi personally raised the ban with President Trump, prompting this tweet by the President:

“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! [My emphasis]”

Despite almost unanimous bipartisan concern, the Administration is now seeking to lift its sanctions on ZTE – allowing it to remain in business – provided that it pay a fine in excess of $1 billion, submit to U.S. inspectors, and make changes to its management team.   China would agree to remove billions of dollars of tariffs on our agricultural products as part of the deal.

Aside from the obvious – that neither the President’s supporters nor detractors in this country care about protecting Chinese jobs – I would submit that the President’s actions in trying to resuscitate ZTE are troubling from two perspectives:

  • Defective strategic thinking. Acknowledging that the impact to certain of our companies could be severe if we hold fast on the ZTE sanctions, the President (as noted most articulately by Sen. Marco Rubio) is mixing trade with national security.  The two don’t mix.  I fear that the President is exhibiting the attitude sometimes evident among people with business backgrounds:  believing dollars justify means.  Even putting aside potential security issues and what should be our goal of limiting China’s strategic technological advancement, letting ZTE off the sanctions sends the message that no matter how bad an actor performs, we can be bought off.  I would rather see us temporarily assist the telecoms and farmers adversely impacted by the sanctions than let ZTE off the hook.  (Qualcomm might just be out of luck.)

 

  • The appearance of self-enrichment. I assume that even the President’s most fervent supporters will concede that his sudden reversal on his own administration’s sanctions on ZTE – with a tweet expressing concern for Chinese jobs – was bizarre.  Coming at about the same time as the Chinese government approved a number of trademarks for Ivanka Trump and the Chinese government  granted a $500 million loan to a Chinese construction company for work on an Indonesian theme park (the loan is reportedly the majority of the entire park project’s funding) featuring Trump properties (called park “flagships” by National Review), there is the obvious suspicion that the President’s reversal on ZTE is a quid pro quo for China’s assistance to his family business.

Right now, there are a number of bipartisan moves in Congress to bar the Administration from lifting its bans on ZTE.  Although I generally believe that a President needs to have a fairly free hand in conducting foreign policy – nothing can be achieved when s/he has to deal with 535 Congressional kibitzers – since his discussion with President Xi, he has been – at the very least — sufficiently tone deaf to the ramifications and appearances of his approach that that Congressional interjection is not only warranted – it’s vital.

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