Trump Mulls Options on ZTE as Congress Tries to Force Tough Penalty

The Trump administration, over the objections of lawmakers, is continuing to try to soften its punishment of ZTE, the Chinese telecommunications firm that has emerged as a key sticking point in trade negotiations between China and the United States.

The company is on the verge of shutting down after the United States barred it from buying American components and has become a bargaining chip between President Donald Trump and his Chinese counterpart, Xi Jinping, as the two leaders work to resolve a brewing trade war. Xi asked Trump to revisit the ZTE decision because thousands of Chinese jobs could be lost if the company is shuttered.

On Thursday, Wilbur Ross, the commerce secretary, said the administration was considering placing an American compliance team inside ZTE to ensure the company was meeting its requirements and not violating sanctions. The company was punished for violating U.S. sanctions against Iran and North Korea and then lying about it.

“We’re developing a matrix of things, and while we haven’t come quite to a final decision yet, we think there may very well be an alternative that will be quite punitive to them, but really modify behavior,” Ross said in an interview with CNBC on Thursday.

It is not clear if China would allow the United States to exert such a high level of control over a company that is controlled by the Chinese state, but Ross insisted the Trump administration had substantial leverage.

ZTE buys many of its components from American companies, including the San Diego-based chipmaker Qualcomm. In return for lifting the ban on purchasing American components, the administration could be considering a substantial fine, changes to ZTE’s management and other limits on its ability to operate in the United States.

“I envision a very large fine,” the president said Tuesday, as he remarked that ZTE’s purchases supported American jobs. “I envision, perhaps, new management, new board of directors, very tight security rules.”

Trump’s willingness to reconsider the company’s penalty has drawn bipartisan backlash in Congress, and lawmakers fear the administration is unwisely linking national security and trade.

“How is China supposed to think about what it is the United States is trying to accomplish with respect to China right now?” said Sen. Michael Bennet, D-Colo. “First he says he’s going to sanction them, then he doesn’t sanction them.”

On Thursday, the House took steps to hamstring the Trump administration’s flexibility to maneuver on ZTE. As part of a defense measure that passed the House with overwhelming bipartisan support, the Defense Department would be prohibited from renewing contracts that do business with ZTE.

On Tuesday, the Senate Banking Committee voted to approve an amendment to a bill on foreign investment controls that 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.

In an attempt to assuage concerns on Capitol Hill, Ross and Steven Mnuchin, the Treasury secretary, met with a group of Senate Republicans Wednesday afternoon. According to an administration official, the intent of the meeting was to explain the Commerce Department’s thinking on ZTE as an enforcement matter and to answer questions.

However, a person briefed on the discussions said the administration officials encouraged Republicans to stand down on their criticism of ZTE. The administration is seeking to make a deal soon with China because ZTE most likely has just weeks left in operation as a result of the penalty, and the Chinese have made it clear they will not deliver trade-related concessions, like buying more agricultural goods and energy from the United States, without an agreement that lifts the denial order, the person said. American tech firms in China may also face retaliation from the Chinese government if ZTE does shut down.

After the meeting, Sen. Marco Rubio, R-Fla., said the Trump administration was listening to the concerns of lawmakers, but he did not appear to be completely reassured.

“I think they would prefer us not to act on it, but I think Congress is going to do what it needs to do,” Rubio said. “This is a national security issue.”