Trump, Chinese leaders moving forward on deal to save ZTE

Trump, Chinese leaders moving forward on deal to save ZTE

President Trump is moving closer to freeing the embattled Chinese company ZTE Corp. from severe regulatory restrictions, with his advisers reaching the outline of an agreement with leaders in Beijing, according to two people familiar with the discussions.

But the speed in which Trump is working to cut this deal has drawn loud protests from some congressional Republicans, who have warned that Trump is capitulating too quickly without getting any concrete concessions from the Chinese.

Under the broad outlines of the deal, which hasn’t been finalized, the Commerce Department would lift its recent ban that prohibits U.S. companies from selling material to ZTE, China’s second-largest telecommunications firm. The Commerce Department could instead replace that ban with new fines or other requirements, such as leadership changes at the company. These specifics have not yet been nailed down.

The people familiar with the agreement outline warned that the talks between U.S. and Chinese leaders remain extremely fluid and have already been marred by false-starts and missteps. It was unclear how quickly a resolution could be reached.

ZTE is partly owned by the Chinese government. It faced severe scrutiny by both the Obama and Trump administrations for violating U.S. sanctions by selling phones to North Korea and Iran. It was then found to have misled U.S. investigators about its behavior.

Last month, the Commerce Department prohibited U.S. companies from selling their materials to ZTE, a development that was widely seen in the U.S. and China as a death sentence for the company.

Trump has spent the past several months trying a variety of tactics with China to get it to reduce its trade surplus with the United States. He has threatened to impose tariffs on a range of Chinese products, a move that angered Chinese leaders and led to warnings of retaliation. But in the past 10 days he has tried to lure Chinese into a broader trade agreement by expressing a willingness to free ZTE as part of a deal, even if it angered Republicans and Democrats who believe ZTE’s behavior poses a national security risk.

“If this is true, then administration has surrendered to #China on #ZTE Making changes to their board & a fine won’t stop them from spying & stealing from us. But this is too important to be over,” Sen. Marco Rubio (R-Fla.) wrote on Twitter Tuesday. “We will begin working on veto-proof congressional action.”

The broad outlines of the deal were first reported by the Wall Street Journal.

Congressional leaders have expressed confusion in the past week at how much the ZTE talks have become entangled in the broader trade discussions with China. Commerce Secretary Wilbur Ross said last week ZTE would be handled separately as a regulatory matter, but Trump late last week suggested he would only allow ZTE to be freed of the restrictions if China agreed to other concessions on trade.

“At the end of the day, the Trump Administration needs to clarify to the American public how all of this reflects good policy that upholds the rule of law as enforcement actions should, and how any resulting trade deal with China will be good for American companies, workers, and consumers,” said James Zimmerman, partner in the Beijing office of international law firm Perkins Coie LLP.

Chinese vice premier Liu He met with Treasury Secretary Steven Mnuchin and other White House officials last week, and the Trump administration had suggested that they could reach a massive deal that would lead to a $200 billion reduction in the trade deficit between both countries. But the talks ended on Saturday without any specific agreement or mention of ZTE.

Both sides agreed broadly to increase China’s purchases of agricultural products and other materials from the United States. But China did not give any ground on some of the structural changes that White House adviser Peter Navarro has long sought, things that would make it much harder for Chinese companies to steal intellectual property from U.S. companies.

Ross is scheduled to go to China in early June to try to pin down specific agreements from Chinese leaders related to new purchases of U.S. goods.

Trump has tried to spin the discussions with China as representing a huge breakthrough between both countries, but his advisers have been split, with Mnuchin seeking a quick deal and Navarro wanting the White House to hold out for more sweeping changes.

Emily Rauhala contributed to this report.

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