Outside the Beltway

Donald Trump Wants To Help Make A Controversial Chinese Company Great Again

For some reason, the President wants to help a Chinese company that has been accused of being a security risk by American intelligence services.

Doug Mataconis · Monday, May 14, 2018 · 22 comments

President Trump, who campaigned in no small part on his complaints about the American trade deficit with China and his (incorrect) claims that China is a currency manipulator, is now saying he wants to help a controversial Chinese telecommunications company regain access to American markets:

In a surprising overture to China, President Donald Trump says he would help a Chinese telecommunications company get “back into business,” saying too many jobs in China are at stake after the U.S. government cut off access to its American suppliers.

The U.S. Commerce Department last month blocked the ZTE Corp., a major supplier of telecom networks and smartphones based in southern China, from importing American components for seven years. The U.S. accused ZTE of misleading American regulators after it settled charges of violating sanctions against North Korea and Iran.

The dispute predates Trump’s arrival in the Oval Office and the Commerce sanction was issued amid worsening trade tensions between the U.S. and China.

Trump’s unexpected announcement Sunday comes as the two countries prepare for additional trade talks in Washington this week. Given past vows to stop the flow of U.S. jobs to China and what he’s called unfair trade practices, Trump’s seeming concern about Chinese jobs was something of a backflip.

“A reversal of the ZTE decision could temporarily tamp down trade tensions by allowing the Chinese to make concessions to the U.S. without losing face,” said Eswar Prasad, a professor of trade policy at Cornell University. “Trump may have recognized that backing off on ZTE clears the path for him to claim at least a partial victory in the US-China trade dispute based on the concessions the Chinese seem prepared to offer.”

(…)

“The President’s tweet underscores the importance of a free, fair, balanced, and mutually beneficial economic, trade and investment relationship between the United States and China,” said White House deputy press secretary Lindsay Walters in a prepared statement.

The White House deferred to the Commerce Department on any specific questions relating to sanctions.

In a later tweet, Trump suggested the U.S. and China were moving forward on trade negotiations, but it was not clear how the ZTE case would fit into the bigger picture.

“I’ve never seen a president step in and reverse an agency decision like this. It’s not clear, of course, if he’s planning to really reverse it or think of a solution in a larger context, but it is something that is just out of the norm,” said Amanda DeBusk, the chair of the international trade and government regulations practice at the firm Dechert LLP.

DeBusk, a former Commerce Department assistant secretary for export enforcement, said Trump’s announcement indicates “he is looking to accomplish his objectives on trade with China on a much larger level.”

The tactic caught experts on international relations off guard.

“At a minimum, the optics of the decision are terrible. Although the recent step to ban sales of American components to ZTE for seven years may have been going overboard, the manner in which this reversal is being made cheapens the value of the national security and legal foundations of executive branch actions,” said Scott Kennedy, of the Center for Strategic & International Studies. “It makes it appear as if the Trump administration is willing to trade protecting American national security for promoting some US agricultural exports and Chinese jobs.”

(…)

China on Monday welcomed Trump’s comments.

“We think highly of the U.S. statement regarding ZTE’s case,” said Lu Kang, a spokesman for China’s foreign ministry. “We are currently in close communication over details of the implementation.”

The foreign ministry said Vice Premier Liu He will visit the U.S. from Tuesday to Saturday for consultations with U.S. Treasury Secretary Steve Mnuchin.

Here are President Trump’s tweets on the issue:

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

China and the United States are working well together on trade, but past negotiations have been so one sided in favor of China, for so many years, that it is hard for them to make a deal that benefits both countries. But be cool, it will all work out!

— Donald J. Trump (@realDonaldTrump) May 13, 2018

As noted, the President’s unexplained reversal of a policy put in place by his own Administration just recently has also raised some criticism from Congressional Democrats such as Congressman Adam Schiff and Senator Chuck Schumer as well as Republican Senator Marco Rubio:

INSERT SCHIFF AND RUBIO AND SCHUMER TWEETS

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

How about helping some American companies first? https://t.co/S1t2cQ4dwJ

— Chuck Schumer (@SenSchumer) 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

— Marvco Rubio (@marcorubio) May 14, 2018

I hope this isn’t the beginning of backing down to China. While Chinese companies have unrestricted access to U.S. market & protection of our laws many U.S. companies have been ruined after #China blocked market access or stole their intellectual property https://t.co/zUFmiul786

— Marco Rubio (@marcorubio) May 14, 2018

As Congressman Schiff and Senator Rubio make clear, the issue with ZTE isn’t simply one of American jobs or international trade, although that certainly is part of the issue, but concerns national security as well, as has been noted for several years now. As far back as 2012, for example, The New York Times reported that the House Intelligence Committee had cited ZTE and Huawei reported that, another Chinese telecommunications company that has sought to make inroads into the American market in recent years, as potential security risks due to their ties to the Chinese government. In mid-April of this year, officials in the United Kingdom declared ZTE a security risk. This move came at roughly the same time that the Commerce Department imposed sanctions against the companies that both impacted their ability to sell their products in the American market and to access technology from American companies that were necessary for the operation of their devices. Finally, and most recently, the Pentagon issued an order barring American military bases from selling phones made by ZTE and Huawei, although the order fell short of banning the use of such devices on those bases:

U.S. service members will no longer be able to purchase ZTE and Huawei phones on military bases, according to a new Defense Department directive that cites security risks posed by the devices.

“Huawei and ZTE devices may pose an unacceptable risk to Department’s personnel, information and mission,” Pentagon spokesman Major Dave Eastburn said in a statement. “In light of this information, it was not prudent for the Department’s exchanges to continue selling them to DoD personnel.”

The Pentagon declined to provide the technical details of potential threats.

The order to halt the sale of Huawei and ZTE phones and remove them from the military exchanges was given last Friday, the Pentagon said. Mobile Internet modems and other wireless products are also included in the ban. The order was reported earlier by Stars and Stripes and the Wall Street Journal Wednesday.

Ostensibly, the action by the Commerce Department was based on evidence that ZTE and Huawei had both violated American sanctions regarding business dealings with North Korea, but this announcement by the Defense Department raises the question of whether there may be more to the underlying actions. Specifically, there have been unspecified allegations from several sources that cybersecurity experts and American intelligence agencies are concerned that the companies could represent national security threats to the extent that they may contain backdoors or other security threats that could be exploited by the Chinese government. Indeed, the fact that the Pentagon has taken the somewhat unusual step of banning the sale of ZTE and Huawei products from being sold on base would seem to be a strong indication that there is, at the least, a reason to be concerned about the advisability of giving these companies access to the American market.

The oddest thing about the President’s tweet, of course, is his reference to helping the Chinese save jobs in China. This is, of course, the same President who has spent the better part of the past three years as a both a candidate and as President accusing the Chinese of adversely impacting the American economy due to the size of the trade deficit with China and accusing the Chinese government of being a currency manipulator, and promising he would label China as such when he became President. As it turned out, of course, the President’s claims about China being a currency manipulator are largely unfounded and he has never proceeded down this path despite his campaign promises. As for the trade issue,

Although it’s hard to tell for sure, it appears that the Chinese are insisting on some solution to the sanctions imposed against one the nation’s major companies as part of ongoing trade negotiations between the U.S. and China routed in the tit-for-tat trade sanctions that have been imposed by the two companies over the past several months. If this were just a simple matter of the issue of ZTE doing business in North Korea, then perhaps it makes sense for the United States to give up some ground with regard to these sanctions directed at the company. However, as Senator Rubio and Congressman Schiff noted, there are also apparently some national security issues involved here that the President’s tweet doesn’t address at all. Indeed, taken in context with those warnings, the President’s tweets make no sense whatsoever.

Update: President Trump tweeted about the ZTE issue this afternoon:

ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.

— Donald J. Trump (@realDonaldTrump) May 14, 2018

Of course none of this answers the security issues noted above.