In concession, Trump will help China

Technology


WASHINGTON (Reuters) – U.S. President Donald Trump said on Sunday he will help Chinese technology company ZTE Corp “get back into business, fast,” after being crippled by a U.S. ban, a concession to Beijing ahead of high-stakes trade talks this week.

FILE PHOTO: The logo of ZTE Corp is seen on its building in Beijing, China April 19, 2018. REUTERS/Stringer

ZTE suspended its main operations after the U.S. Commerce Department banned American companies from selling to the firm for seven years as punishment for ZTE breaking an agreement reached after it was caught illegally shipping U.S. goods to Iran.

Trump’s instructions to the Commerce Department, stated in a tweet, come as Chinese and U.S. officials prepare for talks in Washington with China’s top trade official Liu He to resolve an escalating trade dispute between the world’s two largest economies.

Trump’s proposed reversal will likely ease relations between the United States and China. The world’s two biggest economies have already proposed tens of billions of dollars in tariffs in recent weeks, fanning worries of a full-blown trade war that could hurt global supply chains as well as business investment plans.

In trade talks in Beijing earlier this month, China asked the United States to ease crushing sanctions on ZTE, one of the world’s largest telecom equipment makers, according to people with knowledge of the matter.

Trump’s reversal could have a significant impact on shares of American optical components makers such as Acacia Communications Inc and Oclaro Inc which saw their stock prices fall when U.S. companies were banned from exporting goods to ZTE.

ZTE paid over $2.3 billion to 211 U.S. exporters in 2017, a senior ZTE official said on Friday.

“Too many jobs in China lost. Commerce Department has been instructed to get it done!” Trump wrote on Twitter, saying he is working with Chinese President Xi Jinping on a solution.

The U.S. Commerce Department, ZTE and the Chinese Embassy could not immediately be reached for comment.

The U.S. government launched an investigation into ZTE after Reuters reported in 2012 the company had signed contracts to ship millions of dollars’ worth of hardware and software from some of the best known U.S. technology companies to Iran. (Reuters report that exposed the practise: reut.rs/2GbpCmO)

ZTE pleaded guilty last year to conspiring to violate U.S. sanctions by illegally shipping U.S. goods and technology to Iran and entered into an agreement with the U.S. government. The ban is the result of ZTE’s failure to comply with that agreement, the Commerce Department said.

FILE PHOTO: A ZTE smart phone is pictured in this illustration taken April 17, 2018. REUTERS/Carlo Allegri/Illustration/File Photo

The ban came two months after two Republican senators introduced legislation to block the U.S. government from buying or leasing telecommunications equipment from ZTE or Huawei [HWT.UL], citing concern the companies would use their access to spy on U.S. officials.

Without specifying companies or countries, Federal Communications Commission Chairman Ajit Pai, recently said “hidden ‘backdoors’ to our networks in routers, switches, and other network equipment can allow hostile foreign powers to inject viruses and other malware, steal Americans’ private data, spy on U.S. businesses, and more.”

ZTE relies on U.S. companies such as Qualcomm Inc, Intel Corp and Alphabet Inc’s Google. American companies are estimated to provide 25 percent to 30 percent of the components used in ZTE’s equipment, which includes smartphones and gear to build telecommunications networks.

Claire Reade, a Washington-based trade lawyer and former assistant U.S. Trade Representative for China affairs, said that the ZTE ban was a shocking blow to China’s leadership and may have caused more alarm in Beijing than Trump’s threats to impose tariffs on $50 billion in Chinese goods.

“Imagine how the United States would feel if China had the power to crush one of our major corporations and make it go out of business,” Reade said. “China may now have strengthened its desire to get out from a under a scenario where the United States can do that again.”

Even though ZTE was probably “foolish” in not understanding the consequences of violating a Commerce Department monitoring agreement, she said the episode makes it less likely that China would make concessions on U.S. demands that it stop subsidizing efforts to develop its own advanced technology, she said.

Other experts said Trump’s policy reversal was unprecedented.

“This is a fascinating development in a highly unusual case that has gone from a sanctions and export control case to a geopolitical one,” said Washington lawyer Douglas Jacobson, who represents some of ZTE’s suppliers.

Trump’s announcement drew sharp criticism from a Democratic lawmaker on Sunday who said the move was jeopardizing U.S. national security.

“Our intelligence agencies have warned that ZTE technology and phones pose a major cyber security threat,” Representative Adam Schiff, a Democrat, said on Twitter. “You should care more about our national security than Chinese jobs.”

ZTE suppliers including Acacia, Oclaro, Lumentum Holdings Inc, Finisar Corp, Inphi Corp and Fabrinet, all fell sharply after the ban was announced.

Shares of Acacia, which got 30 percent of its total revenue in 2017 from ZTE, hit a record low after the ban was announced. Oclaro, which earned 18 percent of its fiscal 2017 revenue from ZTE, fell 17 percent.

Reporting by Valerie Volcovici and Karen Freifield; Additional reporting by David Lawder and Chris Sanders; Editing by Lisa Shumaker



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