Trump Denies Reaching Deal With China on ZTE

Posted May 22, 2018 8:13 p.m. EDT

President Donald Trump declared on Tuesday that he was not happy with how recent trade talks with China had gone, and said the United States had not reached a deal to suspend penalties on the Chinese telecom firm ZTE, disputing reports that the administration had decided to go easy on the company in return for trade concessions.

“There is no deal. We will see what happens,” Trump said in response to reporters' questions about ZTE during a meeting with President Moon Jae-in of South Korea. Trump, when asked if he was happy with how recent trade meetings with China went, responded, “No, not really. I think that they're a start.”

“China has made a fortune,” Trump said, just hours after his closest advisers had last gone on television to promote the success of the recent trade talks. “I’m not satisfied, but we have a long way to go," he said.

It was the latest turn in a bewildering negotiating process that has sent the president vacillating between taking a tough stance on China and saying he would try to help the country recover lost jobs. There has been no greater source of confusion than the future of ZTE. The company’s fate hangs in the balance as long as penalties levied by the Trump administration prevent it from buying much-needed U.S. components for its phones.

ZTE’s fate has quickly become a sticking point in negotiations with China. Lawmakers and national security officials have been concerned that the administration would ease restrictions on the company after Trump’s suggestion in a Twitter message on May 13 that he was working with China’s president, Xi Jinping, to give ZTE “a way to get back into business, fast.” Recent reports from people familiar with the trade negotiations also indicated that an informal pact of some sort had been struck.

Although he denied a deal had been reached, Trump still left the door open for a potential future agreement on ZTE, saying on Tuesday that he envisioned an outcome in which the company would be able to buy U.S. products again in return for a fine of more than $1 billion, strict security rules and replacing its board.

“As a favor to the president, I am absolutely taking a look at it,” Trump said, referring to Xi.

The idea of pardoning ZTE, which was punished for breaking U.S. sanctions against countries including Iran and North Korea, has prompted a backlash from many within Trump’s own administration, as well as lawmakers from across the political spectrum. On Tuesday, senators took steps to limit Trump’s ability to ease restrictions on ZTE, approving an amendment offered by Sen. Chris Van Hollen, D-Md., that would block the president from pardoning the company without first confirming to Congress that it was no longer violating the law.

The amendment, approved by the Senate Banking Committee in a 23-2 vote, will now be included in a bill related to foreign investment controls that is expected to come up for a vote this summer. The amendment would require the president to certify that the company was no longer violating U.S. law, had not done so for a year and was fully cooperating with investigators before changing its penalties.

Also on Tuesday, a bipartisan group of senators sent a letter to key trade officials in the administration urging them to protect national security interests during the China trade negotiations, including by rejecting China’s requests to open up transfers of military technologies and not lifting penalties on ZTE.

“Export control and sanctions laws should not be negotiable, because fidelity to the rule of law is a key part of what distinguishes the U.S. from a country like China that is ruled by a Communist dictatorship,” the letter said. Sen. Marco Rubio, R-Fla., blasted the idea of a deal with ZTE, saying on Twitter: “Here is #ZTE timeline: Violated U.S. sanction laws & got caught lying & covering up. Paid $1 billion fine & agreed to discipline employees. But then lied again & instead of discipline gave those employees bonuses. Now we are offering same deal of fine & employee discipline?”

Trump’s plans to aggressively challenge China on its unfair trade practices initially won the support of senators like Rubio; John Cornyn, R-Texas; and Chuck Schumer, D-N.Y., all of whom signed the letter. But that confidence turned to questioning last week as Trump’s negotiators appeared to back away from their toughest demands for economic reform, instead asking China to make more modest changes to open up its economy to U.S. companies and purchase more U.S. products.

That shift may have as much to do with North Korea as with China itself. Trump has enlisted Beijing’s help in preparing for a historic summit with North Korea’s leader, Kim Jong Un, in Singapore next month. On Tuesday, he said it was unclear whether the meeting would actually happen.

“There are certain conditions that we want, and I think we’ll get those conditions,” Trump said. “And if we don’t, we don’t have the meeting.”

ZTE, one of the world’s largest suppliers of telecommunications equipment, has been facing ruin ever since the U.S. Department of Commerce cut it off from American-made components last month. The department ordered a seven-year ban after the company admitted to lying about punishing employees who broke sanctions against Iran and North Korea.

The company had already agreed to a $1.2 billion fine for the violations last year. But without access to U.S. software, microchips and other parts, its ability to manufacture smartphones and network gear is seriously crippled. Soon after the Commerce Department’s order, ZTE shut its factory lines.

After three days of talks, the Trump administration said it was holding off on imposing new tariffs on China. But ZTE’s fate remained unclear.

Treasury Secretary Steven Mnuchin said that the United States was not willing to revisit the penalties on ZTE. But Larry Kudlow, Trump’s top economic adviser, said the company’s path to revival existed, although it ran through “very, very tough” punitive measures, including fines, compliance measures, and changes in management and board membership.