Trump’s ZTE move opens up new possibilities in trade talks
But major challenges remain as economic envoy Liu He and his team head for Washington for round two
Vice-Premier Liu He will be made ‘an offer he can’t refuse’ when China’s trade team arrive in Washington, probably as early as Tuesday. In an unprecedented reversal of policy, President Donald Trump has promised to help crisis company ZTE “get back into business” after a US ban crippled the Chinese telecom giant.
His pledge came just days before trade talks resume after last month’s opening session in Beijing ended in deadlock.
Using his favorite communication media, Twitter, he confirmed he was working closely with President Xi Jinping to resolve the issue.
“Too many jobs in China lost,” he tweeted. “[US] Commerce Department has been instructed to get it done!”
While this sort of shock proposal is part of his The Art of the Deal philosophy, it also has shades of one of his favorite movies, The Godfather, in which Vito Corleone makes a business associate “an offer he can’t refuse.”
It is also part of Trump’s charm offensive with Xi, who he regards as someone he can do business with after building a strong working relationship.
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
“I believe President Trump’s frequent friendly remarks about General Secretary Xi are meant to indicate that US-China friction is not personal,” Derek Scissors, a resident scholar at the American Enterprise Institute, said in a South China Morning Post report. “It’s strictly business.”
Remarkably, that was another line from The Godfather.
Still, Trump’s move came straight out of left field, despite reports at the weekend that ZTE paid US$2.3 billion last year to US exporters, including Qualcomm, Broadcom, Intel and Texas Instruments.
More importantly, the news came less than a month after the US Commerce Department banned the Shenzhen-based group from buying US-made components, such as semiconductors, for seven years, effectively wrecking its supply chain.
Problems, in fact, started to pile up for ZTE as soon as the US ruling highlighted how the company had violated a sanctions settlement involving illegal exports to Iran. For those offenses, it was fined $892 million after pleading guilty to the original charges.
Then last week, the Chinese telecom giant confirmed it was shutting down “major operating activities” after a stark announcement to the Hong Kong Stock Exchange.
With more than 75,000 staff, ZTE operates in about 160 countries, while its telecom equipment runs through the “digital backbone of a great swath of the developing world.”
Before the US components ban, it was providing services for 100 million users in India, 300 million users in Indonesia and 29 million users in Italy, an unnamed official told the Reuters news agency.
“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,” Trump wrote in a second Twitter posted on Sunday. “But be cool, it will all work out!” he added.
Certainly, his ZTE statement will ease tensions between the world’s two biggest economies.
In a tit-for-tat trade dispute, which has been simmering since the start of the year, the US and China have already wheeled out proposed tariffs on a range of imported products, worth a combined $100 billion.
The White House has even threatened to raise the ante by proposing further duties on another $100 billion-worth of goods.
At the heart of the row has been China’s ballooning trade surplus with the US, which stood at a record $375.2 billion last year and $58 billion between January and March in 2018.
Xi’s core “Made in China 2025” policy, which aims to turn the country into a technological powerhouse, has also come under scrutiny.
“The threat of a full-fledged trade war between China and the US might have receded thanks to the recent Sino-US trade talks. But many still fear China would suffer a bigger blow if a trade war indeed breaks out,” Chen Haiming, the director of the Center for Global Governance at the Xiamen University of Technology, said in the state-owned China Daily.
“The facts are different. Since many US companies could lose access to the Chinese market and products in the event of a trade war, US citizens, in general, would have to not only pay more for consumer products but also face pay cuts or lose their jobs.”
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
Yet this opinion piece failed to mention the ZTE development and was probably written before Trump’s gesture, suggesting a communication breakdown between The Publicity Department of the Central Committee of the Communist Party of China, or Beijing’s propaganda department, and senior editors at China Daily.
Indeed, the White House’s dramatic intervention appears to have caught the ruling Communist Party off guard, as well as the Washington media.
“President Trump’s decision couldn’t have arrived at a better time,” the normally hardline, state-run Global Times reported in an editorial. “Many Chinese saw ZTE’s ordeal as the result of evil wrongdoing carried out by the US as was the speculation among international businesses. This latest development offers a new angle for analyzing US intentions.”
Maybe, but it is still looking unlikely that when Liu’s delegation finally sit down with US Treasury Secretary Steven Mnuchin’s team an all-encompassing deal will be hammered out.
What will be on the table is a ‘shopping list’ of American goods and products that Beijing is willing to buy in a move to bring down the US trade deficit.
“Liu He’s upcoming visit to Washington indicates that a negotiated settlement remains the most likely eventual outcome, despite uncertainty on the path to reaching it,” said a report from Everbright Sun Hung Kai, a financial services company.
Figuring out the White House’s next move might prove more difficult for Liu than navigating the labyrinth of Beijing bureaucracy. At least, he has had plenty of experience in that.