US President Donald Trump’s conciliatory move to help Chinese telecommunications equipment maker ZTE stoked bipartisan condemnation in Washington on Monday, as lawmakers warned the US president’s concession could endanger national security.
Trump shocked many in Washington with a tweet on Sunday that he was working with Chinese President Xi Jinping to give ZTE “a way to get back into business, fast”. Trump said “too many jobs in China” had been lost and that his commerce department “has been instructed to get it done”.
It was an abrupt shift from the campaign Trump has mounted against Chinese technology companies, which he regularly accuses of stealing American intellectual property and exploiting unfair trade rules. The US commerce department cut off ZTE from American suppliers last month, saying it violated a 2017 sanctions settlement related to trading with Iran and North Korea and then lied about the violations.
Commerce secretary Wilbur Ross told reporters on Monday at the National Press Club in Washington that the department is now considering “alternative remedies” for ZTE’s sanctions violations and will seek to resolve the issue “very, very promptly”.
In a sign that both sides are trying to avoid a trade war, Chinese regulators restarted their review of Qualcomm’s application to acquire NXP Semiconductors, according to people familiar with the process. The work had been shelved earlier in response to growing trade tensions with the US. San Diego-based Qualcomm supplies semiconductors to ZTE.
Both Republican and Democratic lawmakers have expressed concerns that Chinese telecoms companies, such as ZTE, have ties to the Chinese government and pose a cyber-espionage threat as they move into the US market.
Senator Marco Rubio, a Florida Republican, tweeted on Monday that the US would be “crazy” to allow ZTE to operate in the country “without tighter restrictions”.
“Any telecomm firm in #China can be forced to act as a tool of Chinese espionage without a court order or other review process,” Rubio said.
Those concerns were echoed by senate Democratic leader Chuck Schumer, who said in a statement on Monday that the plan was “a bad deal if there ever was one”.
“The toughest thing we could do, the thing that will move China the most, is taking tough action against actors like ZTE,” Schumer said. “But before it’s even implemented, the president backs off. This leads to the greatest worry, which is that the president will back off on what China fears most — a crackdown on intellectual property theft — in exchange for buying some goods in the short run.”
And representative Tim Ryan, an Ohio Democrat, noted that Trump’s tweets had highlighted layoffs in China even as autoworkers were losing their job in his home state.
“On top of that, the NSA, FBI and CIA all have cybersecurity concerns with ZTE,” Ryan said. “The Pentagon even stopped selling its phones in its bases. Your willingness to throw a lifeline to ZTE and China puts our national security at risk. What happened to America First?”
Members of the president’s own national security team have expressed concerns over Chinese telecoms manufacturers in recent months. In February, director of national intelligence Dan Coats told the US senate intelligence committee that he believed Chinese cyber-espionage capabilities would “continue to support China’s national security and economic priorities”.
Gina Haspel, nominated by Trump to lead the CIA, said during her confirmation hearing last week that she wouldn’t use a phone manufactured by Chinese telecoms manufacturer Huawei.
“I don’t even have a social media account, but I wouldn’t — I wouldn’t use Huawei products,” Haspel said.
Even as some lawmakers levelled criticism at the administration’s move, analysts said it still wasn’t clear what impact the president’s tweet would have. The White House has refused to explain what specific direction was provided to the commerce department, but said in a statement that the ultimate decision on how to handle the restrictions imposed against ZTE would reside there.
“It certainly sends a bad signal about sanctions on companies that do business with Iran and for the normal procedures at commerce,” in terms of “the consistency with US sanctions and follow-through,” said Adam Segal, director of the Digital and Cyberspace Policy Programme at the Council on Foreign Relations in New York.
The US retreat from penalising ZTE may also be determined by talks on Tuesday between treasury secretary Steven Mnuchin and Chinese vice Premier Liu He.
“I don’t think this tweet tells us that the US is going to relax its suspicion of ZTE products sold in the US,” said Stewart Baker, a partner at Steptoe & Johnson and a former assistant secretary for policy at the department of homeland security. “This was about whether to cut ZTE off entirely from US products that it needs as components for the systems it sells around the world. The US can and probably will work to keep ZTE out of the US; the tweet is about whether the US is going to put ZTE out of business entirely.”
The US blockade forced the suspension of most operations at ZTE, which employs about 75 000 people. The firm’s shares were suspended from trading in Hong Kong last month.
ZTE faces two likely scenarios, according to analysts Edison Lee and Timothy Chau at Jefferies: the commerce department may conclude ZTE’s violation is a careless mistake and will lift the ban without additional penalty, or the agency could suspend the ban temporarily, subject to further investigations and negotiations. Lee and Chau said the second scenario is much more likely, which would make it harder for ZTE to sign up new, overseas customers because of the uncertainty over its future. — Reported by Justin Sink, with assistance from Yuan Gao, Nafeesa Syeed and Todd Shields, (c) 2018 Bloomberg LP