Trump Willing to Give a China a Break on Sanctions Against ZTE Electronics. What Gives?

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The financial press is all agog about this Trump tweet on Sunday:

What is the ZTE Fracas About?

The 50,000 foot version: ZTE is China’s biggest publicly traded telecommunications supplier, with roughly $17 billion in revenues and 75,000 employees. It makes smartphones and other electronic stuff and buys a lot of parts from US companies including Qualcomm and Micron Technology. Even Australia’s Telstra sold ZTE phones under Telstra’s brand name.

The US had fined ZTE $1.2 billion for violating US sanctions by selling product to North Korea and Iran and also imposed a seven-year ban sales by US companies to ZTE, but had suspended the ban based on ZTE paying most of the fine plus agreeing to punish the employees who hid the sales to Iran. The US found out that ZTE was defying the sanctions and gave managers who had been involved in the Iranian-related operations bonuses. In April, the Administration reversed its suspension of the US sales ban. ZTE halted production last week as a result.

Puzzling Out the Trump Move

The theorizing on what Trump’s tweet signifies is over the map. But we’ll try to narrow down the possibilities, if nothing else, because it might give some early clues as to what if anything will come of Trump’s trade threats against China. Given that the English language reporting has been at its usual less than stellar level, please pipe up with information and considerations we may have missed.

Hoever, keep one thing in mind: Trump likes to think of himself as above all a dealmaker. One of the basic rules of negotiating is never never never give a free concession. You always get something when you give something up.

That is one reason for Trump’s “Oh, I’m helping Xi out,” to make Trump not look like the weak party, since he sure looks like one with this action.

So the implication is that either there is another side to this trade that Trump has not gotten yet and hopes to get by this gambit (remember, this is still an offer of sorts) or Trump wants to back out of the ban on ZTE because it is going to do too much damage to American suppliers to ZTE. Also bear in mind that if Trump’s main motivation for reversing the ban is to alleviate damage to US companies, he’d still like to pretend he got something out of Xi whether he did or not.

Here is some other potentially relevant background information in trying to fathom what if anything Trump might be trying to get and what it might be worth to the Chinese:

Analysts expected a ban on ZTE to be reversed in three to five months, at least per the South China Morning Post. ZTE would have to cough up more dough and get spanked some more. So what appears to be in play is an accelerated and awfully high profile new round of sanctions.

Mind you, that is not necessarily to say that getting the ban reversed pronto might not be important to China. For instance, Telstra has had to halt sales of ZTE products. Other private-label sellers will probably think about reducing their exposure. So getting ZTE out of the penalty box quickly could have disproportionate value.

Trump has a much weaker hand with his tariff threat than he likes to pretend. In the long run, as Marshall Auerback has pointed out, China would fare worse in a trade war because creditor countries take the bigger hits. But how far beyond a dust-up would this get?

Bear in mind that everyone from the Financial Times to even The Real News Network (which is as much as I like them generally is a place you go for commentary, not for breaking news) has been saying China has been refusing to negotiate with the Administration over its tariff threat. The US basically announced that Mnuchin was showing up in Beijing for talks, which is remarkably presumptuous, particularly since the timing was so fast there couldn’t have been any ground work even if the Trump team understood the concept. And we apparently presented outrageous demands, tantamount to “stop doing industrial policy”.

Other relevant factors:

Trump probably can’t take the impact of a stocks nosediving. Recall how fast Mnuchin and others started making conciliatory noises as soon as Mr. Market had a hissy fit. Trump has put this trade matter in play with midterms coming up. One thing that televised focus group of Trump v. Clinton supporters found was that the biggest reason the Trump fans said they liked him was their portfolios had gone up in a big way since he’d been elected.

And even though the Chinese are probably not willing to bet the ranch on Trump not following through with his tariff threat (or at least not all the way), they have probably noticed that the financial markets look like his glass jaw.

China has started whacking the US over its tariff threat. China not only threatened to impose tariffs on goods like soyabeans as well as US aircraft in a tit-for-tat manner, buy Chinese buyers are reportedly already shifting agricultural product orders away from the US. From Reuters on April 25:

China’s purchases of U.S. soybeans have come to a grinding halt, trade and industry sources say, as fears of further action by Beijing to curb imports of U.S. crops following last week’s anti-dumping move on sorghum rattles the agriculture industry.

Buyers from China, which takes 60 percent of soybeans traded worldwide, have not signed any new deals to take U.S. beans in the last two weeks, according to a Reuters review of data published by the United States Department of Agriculture (USDA).

At stake are 3 million tonnes of soybeans – estimated worth about $1.3 billion – for which deals have been signed but cargoes have yet to leave U.S. ports, traders say. Soybeans, crushed to make cooking oil and protein-rich animal feed ingredient soymeal, were the biggest U.S. agriculture export to China last year at a value of $12.3 billion, according to the USDA.

Several ships carrying U.S. sorghum originally bound for China have changed course since Beijing imposed hefty anti-dumping deposits on U.S. imports as trade tensions grow between the world’s top two economies.

Given Trump’s vulnerability to bad market reactions, he has incentives to drag things out past the midterms. That may suit the Chinese too. Trump just needs optical, not actual wins. His bluster about ZTE via Twitter is a version of that, to create the impression that he’s dented China so much that Xi is crying uncle. The Chinese may reckon that Trump will probably be no better off after the midterms and could be seriously dented, so time is on their side.

So one possible explanation for Trump’s tweet is that China has said, “We aren’t negotiating with a gun to our head” and a concession on ZTE is a way to acknowledge that without taking the tariffs out of play.

China also has leverage via North Korea. The press has weirdly underplayed China’s role in bringing North Korea to the negotiating table. The media did dutifully report that Kim Jong Un was basically told to appear in China (no previously scheduled visit, not a state visit) and from Beijing announced he’d be willing to denuclearize if he got adequate security guarantees. Mind you, this was his existing position but having him say it from Beijing appears to have had different implications.

This visit also happened after Trump’s tariff threat, and Trump has also made clear that he isn’t putting trade in a separate box, that he wants to negotiate across domains.

The Chinese thus may feel they already gave Trump a concession, and a bigger one than they might have thought, given that Trump’s bounce in the polls appears to be the result of the appearance that he’s Done Something about North Korea (Lambert has separately and regularly pointed out that South Korea has a lot to do with the progress so far as well).

Given that (as many experts have pointed out), the US has started negotiations under previous Administrations with North Korea, only to see them fizzle, there’s no particularly reason to expect these to produce better results (and with John Bolton now in the mix and the Iran deal having just been yanked, it’s hard to see why the North Korea should trust the US at all). So again, can Trump keep the illusion of a possible big deal alive through mid-terms? One would think the Chinese could throw a spanner in the works if they wanted to.

Even if Trump does manage to create some momentum with China via the ZTE gambit, it’s at a cost with Europe. The Chinese and Russians have to be laughing out loud. European leaders and businesses were already upset about Trump exiting the Iran deal, since that also results in sanctions against companies doing business with Iran. That move was seen as further alienating Europe against the US, to the advantage of Russia and China. The hypocrisy of Trump cutting a big Chinese company a break on recidivist behavior in violating US sanctions on Iran, versus about to make life miserable for a lot of European firms who want to trade with Iran and have governments that want them to trade with Iran, will not be lost.

A Washington Post story indicates that talks with China have not been going well:

With Trump’s tweet, some officials familiar with the ZTE issue believe a compromise is possible. “A mini-deal is in sight,” said a person familiar with the matter. “China gets relief for ZTE, and in exchange agrees to return to the status quo for U.S. agriculture,” easing tariffs and implementing other non-tariff remedies.

But the talks have not been amicable. Chinese President Xi Jinping has been irate about the sanctions on ZTE, and his top economic adviser, Liu He, has told U.S. negotiators that there is no chance of a deal without the United States removing the seven-year ban on ZTE, said the person, who spoke on condition of anonymity to discuss a sensitive matter.

As so often happens, members of Team Trump were blindsided. And this again reveals Trump wanting to run the US like a personal fiefdom when he can. Again from the Washington Post:

It’s highly unusual for a president to personally intervene in a way that undercuts the leverage of Treasury and Commerce officials seeking to enforce sanctions and trade rules. A former senior Obama administration official said Trump’s tweet set “a horrible precedent” and violates the basic principle that the White House avoid involvement in law enforcement matters.

This quote came from a source that the Post presented as having to remain anonymous. An apparently different Obama Administration made the same point at the Financial Times:

The reversal marks an unusual intervention by the US president in what the administration had previously portrayed as a legal and procedural rather than political case. US officials insisted when they announced the ban last month that it was not related to broader US-China trade tensions.

“I am speechless,” said Kevin Wolf, who oversaw the launch of the ZTE case as assistant secretary of commerce in the Obama administration. “I’m highly confident that a [US] president has never intervened in a law-enforcement matter like this before . . . It’s so outside the way the rules were set up.”

So buckle up for yet more of a wild ride. Trump is good at generating a lot of motion. Will he be able to persuade enough people that it is progress?

Update 4:30 AM: Lambert just sent this tweet:

This is from a foreign ministry spokesman. Perhaps I am being reflexively contrary, but given that China so far has been unwilling to do more than go through the motions of negotiating with the US, these talks may be at most a hostage exchange: ZTE for something to be determined from China.

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  1. HotFlash

    Not qualified to comment on subject, but seems to be a missing “close strong” command somewhere. Also (as a result?) all the sidebar elements showing up below the post.

  2. The Rev Kev

    It would be good if we had some Chinese sources to see what they say but we don’t so I will just take a few guesses here. With the negotiations between Trump and China, it looks like two new boxers who are throwing a few jabs at each other to see what the other has got. When China stopped the world using it for its trash pile that was a nasty shock. When China also refused entry for US sorghum loaded ships a few weeks ago that was an even nastier one.

    Trump must be nervous about the mid-terms and must know that China can be a key factor here. They can make him look great with Mr. Market and help solidify his dominance in power or they can cause colossal damage and job loss which would make for a lot of unhappy voters. Treasury and Commerce officials seem to be in the lead with punishing a weak point for China, namely ZTE. It may be that it was sold to Trump by them saying that it would serve to put China in a box between now and the midterms. If that ban reversal goes on for up to five months as Yves says, then that would be not long before the midterms are held which I find too much of coincidence.

    Using sales to Iran by ZTE as an excuse to shut them down is weak tea as the US never did that with banks that did transactions with Colombian drug cartels knowingly. I would say that China let it be known that if Trump carried through with this that China would go all Godzilla on him leading up to the mid-terms which Trump never thought they would, hence the reversals. If true, he may even be feeling betrayed which explains why he was not worried about the law enforcement angle. For China, Trump crossed a red line which his advisors should have warned him about but this is all a just guess. We may simply have to wait for more information to leak out hear. After all, the ship of state is the only ship that leaks from the top.

    1. Yves Smith Post author

      Gotta tell you, you are wrong about banks and Iran. The US (admittedly starting down this path thanks to Benjamin Lawsky going hard after Standard Chartered doctoring records to hide its non-compliance with money laundering sanctions for its dealing with Iran and Sudan) has come down very hard on banks that deal with Iran. The US sanctioned Paribas nearly $9 billion for defying sanctions against Iran, Cuba, and Sudan, see:

      That is why the European are worried about US sanctions v. European companies doing business with Iran. The US means it. Merkel and Macron can want to encourage Iran to comply with the nuclear deal and reward it via continued trade, but the US can end run that intent by punishing European companies that also do business in the US.

      1. The Rev Kev

        That was me writing poorly. What I was trying to get at was that banks like Wachovia and HSBC were caught laundering money for the big drug cartels but only received relatively small fines and no executives went to prison as far as I know. Here a foreign company, ZTE, was caught doing business with Iran and the threat is to destroy the company altogether. It was the contrast in treatments that I was getting at. Dealing with Iran may be hazardous to your finances but then again, it may eventually lead you to being elected to head the National Rifle Association.

        1. tc10021

          The drug war is symbolic theater – too many make alot of money to shut it down. Here’s an example, NYPD talks all the time about fighting drug wars,yet with limited success. But, they win every day at enforcing alternate side parking. Seems odd.

          When I’ve talked to folks in South America who are kinda ‘in the know’ crowd, their view is if the US wanted to stop drug flow into the US, it would happen tomorrow.

          Iran and those who support it are a threat in many ways to our senior government and corporate leadership, so, Iran get real deterrents thrown at them.

    2. RBHoughton

      “It would be good if we had some Chinese sources” … Western ability to know the inside track in China has been diminished by Xi’s crack-down on corruption.

  3. Synoia

    You always get something when you give something up.

    And what’s “got” is not disclosed?

    Must be the US got the NSA backdoor into ZTE phones.

    1. Reini Urban

      They already have that. This is done via the baseband provider Qualcomm, and on top of that also via the user facing OS: Android/Google Play Services.

  4. AbateMagicThinking but Not Money

    Other threats?:

    Since the Chinese are seemingly ceasing to buy certain US agricultural commodities shows that they are prepared to target action against tariffs, could they perhaps have made veiled threats against the export of products made in China, but sold to the world as products of USA? I’m thinking Apple.


  5. AbateMagicThinking but Not Money

    Alternatively could it be…

    If the ZTE thing was initiated Obama’s watch is it doomed like the Iran deal and fitting into the emerging pattern?

    A fairly simple calculus?

    There is a game called ‘Reversi’. Is it anything like this?


  6. Michael O

    The theory that the embargo will hurt US chip makers doesn’t really make sense because a different phone maker will buy the chips, manufacture phones, and sell to ZTE customers. If ZTE goes away the demand for whatever market they sold into still exists and somebody else will fill it, probably fast. It’s not like ZTE disappears and the millions of people who would buy their phones don’t buy a phone. As long as they purchase an alternative the component makers are OK.

    It makes more sense that there is some sort of back-channel communication going on about another trade; the ag products make the most sense but it could be anything. Except that if that were the case you’d think Trump would be jumping up and down and saying how he won, which he isn’t doing. Trump being Trump that doesn’t make sense.

    At this point I’d insert some alternative brilliant theory but I have none. It’s impossible to believe that Trump cares about Chinese job losses. Somebody will sell those phones. Maybe China has threatened to simply ignore US patents and dump cheap compatible chips onto the world market? That’d definitely perk up everybody’s attention but the retaliation would be so fierce it’s impossible to believe.

    1. Yves Smith Post author

      Non-US chip makers compete with the chip makers for ZTE, such as Samsung, Taiwan’s MediaTek Inc and China’s Spreadtrum. If you were a foreign buyer, the sanctions by Trump versus ZTE would be enough to make one rethink US suppliers. And China will encourage Chinese firms to start thinking harder about that. It was already part of their 2025 plan.

      1. oliverks

        Yves I think line of thinking should be examined more closely. Qualcomm has lots to lose here. If foreign companies suddenly realize having American suppliers is dangerous, they will move to non-US suppliers.

        The bottom line is that the US semis don’t offer much advantage over foreign rivals. Android could be a point of weakness, but a seller could continue to use it, even if the US government banned it (at least over the short run). A new OS wouldn’t be as hard to create as you might think, for example, MIUI could be ported to run on something other than Android.

        I have got to believe there have been more than a few angry phone calls to the White House from US companies over these actions, as it threatens US corporations short term profits.

        1. The Rev Kev

          ‘If foreign companies suddenly realize having American suppliers is dangerous, they will move to non-US suppliers.’

          Good point that. Airbus is being banned from selling their planes to Iran because they contain US parts. This could lead to a massive knock-on effect as countries realize that having US parts mean that you would be always vulnerable to being boycotted from having them due to political reasons. I would guess that it would be a gradual process as US companies slowly find themselves losing contracts to other countries’s companies.

      2. Michael O

        But the non-US chipmakers all need their patent licenses to (legally) produce the chips. Assuming that the patent licensing falls under sanctions switching chip fabs won’t make a difference. It’s the IP that matters, not who actually makes the chips. What China needs, to avoid this, is their own portfolio of vital IP to use in an IP fight. That’s what their long-term plan is but it takes awhile for the patents to expire (20 years in the US and different times in other countries).

        1. Yves Smith Post author

          No, please do more homework. These companies are direct competitors. They have their own chip designs. Yes, a phone might have to be redesigned somewhat to take a competing chip, but that’s not insurmountable.

          1. oliverks

            Some networks are hard to access due to IP issues, such as AT&T. That really restricts which chipsets you can use. AT&T pretty much forces you to go to Qualcomm (with the exception of Apple). In many ways they are giving a big favor to Qualcomm, but I assume they are getting something back for it.

            However, most of the worlds networks are much more open, so for an operator such as ZTE, they could easily offer designs based on MediaTek in the future (which is pretty easy to work with). In terms of mobile chipsets, I wouldn’t be surprised to see AllWinner or Rockchip enter the market at some point in time either.

            1. nervos belli

              AT&T is pure GSM, so no Qualcomm needed. They changed to GSM many many years ago. GSM is what the rest of the world uses, so you can use any phone basically.
              Sprint with its CDMA/EVDO , they need Qualcomm IP since Qualcomm is the only IP holder for that basically.

              1. oliverks

                When I was working on a project, we found that AT&T has some “special” IP to access their fastest part of the network. It was not stock. They may now be allowing people to join their network with full performance on any GSM phone.

                The only supplier at that time was Qualcomm.

          2. nervos belli

            This is very wrong. Qualcomm and Apple have their own designs but only up to a degree: they are typically still based on the ARM standard design. All the others use straight ARM chips usually. No actual changes but straight A-53 oder A-72 cores or whatever. They of course all use the same ISA which is specified by ARM every time. Yes ZTE could change chips from Qualcomm as a supplier to Mediatek as the most common choice.

            Where Qualcomm has real IP is in the cellular standards. 3G, LTE, 5G. Tho they are all licensed via FRAND. No clue if they fall under any sanctions. However if they do, ZTE is not capable of selling any phone ever, anymore, no matter where they buy chips.
            For producing ARM chips you need a license/contract from ARM obviously, but not really a patent license tho I’m sure there are a few things ARM has patented. You do need a patent license for mobile protocols.

        2. visitor

          1) Yes, several companies from the USA (most notably Qualcomm) and Europe (most notably Nokia), and also Japan (e.g. NTT DoCoMo) or South Korea (e.g. Samsung) have truly massive patent portfolios that cover the entire telecom domain. Implementing a mobile phone, say, or a base station, or components thereof generally requires the utilization of many such patents.

          2) But, many of those patents relate to technologies that are normalized (GSM, UMTS, LTE), and, if determined to be essential, must be licensed to every manufacturer — typically on FRAND (Fair, Reasonable And Non-Discriminatory) conditions.

          3) The real issue is that those IP giants are also manufacturers of components (e.g. SoC, CPU, modems) and products (e.g. switches, base stations, mobile phones). They are therefore competitors. Hence, it is not just the IP, but also who actually makes the chips that matters. Besides, what good does it to you to have IP if you cannot manufacture chips and foreign manufacturers are prohibited to sell to you or produce your designs?

          A counter-example: ARM — which is a pure IP and design player, and does not manufacture anything. But everybody licenses its CPU architectures and instruction sets.

          4) China has been building its own portfolio of essential IP, and it is already significant. Where is China regarding data- and telecommunications patents? There is a recent report from 2016 showing that

          a) The top dogs are still, measured by Standards Essential Patents, by far, the USA, Europe and Korea (1: Qualcomm 20678 SEP; 2: Nokia 13393; 3: InterDigital — essentially a patent troll at 12522 SEP; 4: LGE 10772, 5: Samsung 10618; 6: Ericsson 9396). Huawei is the first Chinese at position 7 with 6500 SEP. ZTE is much weaker, at position 18 with 1640 SEP.

          b) But, as the report states:

          the analysis on the age of SEP portfolios owned by companies reflects a shift from US, Japanese and European rights holders to Chinese, Korean and Taiwanese rights holders

          Thus, the average patent age at Qualcomm is 12.24 years, at Nokia 13.65, at Ericsson 13.86, at Google 12.61, at Sony 14.50. But at Huawei it is 8.33, at ZTE 5.64, at Datang (another Chinese telecom equipment manufacturer) 6.91 years.

          China’s IP position and its production capabilities in high-tech are already significant enough that the USA is worried about a possible predominance of Chinese firms when it will come to specify and then implement 5G. Which explains the moves that I describe below re: Qualcomm, Lattice, Aixtron.

          The ZTE case shows that China is still critically dependent on other parties for technology (as IP and as material products) and terribly vulnerable to such sanctions and legal boycotts enforced by the USA. On the other hand, the recent actions of Obama and Trump in the IT/telecom sector strike me as a belated defensive action — after decades of letting technology and manufacturing flow unimpeded to China.

          1. Yves Smith Post author

            While all of this detail is useful it is still wide of my point. The US is the only place choosing to cut off chips to ZTE, and conceivably others, based on Iran sanctions.

            I said there were competitors to US companies that made chips that were potential substitutes. I also said it might require some redesign.

            You have not disproven that point despite taking the tone that you were disagreeing. You completely straw-manned my argument by depicting it as being about ZTE being dependent on certain US chipmakers, v. being able to buy chips from other chipmakers and I specifically mentioned Samsung.

            This is dishonest argumentation, which is a violation of our written site Policies.

            1. nervos belli

              He has actually.
              The US tells ZTE: if you want to trade with Iran you cannot trade with us at the same time. No selling your product here, no buying materials here.
              So if ZTE suddenly buys Mediatek chips to put into their phones, then the US simply goes to Mediatek and does the same as it did to ZTE: don’t make your chips end up in Iran or else.
              If ZTE can transitively violate such a sanction, anyone can violate it in the eyes of the US and be under a death penalty.

    2. visitor

      One important point that should be emphasized: the spat with ZTE is not about mobile phones, it is about network equipment.

      Out of sales amounting to $17bn in 2017, 32% came from consumer products; 59% resulted from the sale of the gear necessary to set up communication networks (telecommunication operators are the usual customers) — the remaining revenue originated from a variety of cloud/IT offerings. The last two business areas are what interests Iran and North Korea, and what would reasonably bring the wrath of the USA upon ZTE.

      There are basically only four manufacturers providing the complete set of equipment and services needed to set up and manage wide area wireless networks: Ericsson and Nokia in Europe, ZTE and Huawei in China. Would ZTE really disappear, this would have a greater impact than having one amongst many mobile phone manufacturers leave the market.

      1. visitor

        I forgot to add that regarding electronics, the USA has been increasingly taking aggressive defensive measures to prevent China or corporations with strong Chinese connections to acquire chip manufacturers.

        The most spectacular example was the recent blocking of the acquisition of Qualcomm by Broadcom (was legally headquartered in Singapore before the acquisition attempt). Earlier, Trump also prohibited the acquisition of Lattice Semiconductor (programmable chips) by a Chinese firm, and Obama the acquisition of German firm Aixtron (manufacturing equipment for the semi-conductor industry) by another Chinese firm.

        So not only does the USA government object when the Chinese sell equipment to some specific customers, it also refuses that China acquires essential technology to build that equipment. This is more than preventing “enemies” to get fancy communication gear; there is an industrial war going on here.

      2. Pete

        Is US chip level hardware part of the supply chain for the wireless infrastructure business?

        1. visitor

          Yes it is. And it affects not just wireless, but also wireline products of ZTE, as well as the backbone part of wireless networks (elements such as switches, gateways, routers, which are typically interconnected via fast optical fiber).

          The situation is complicated (figuring out which component is included in base stations, switches or gateways requires delving into proprietary BOMs — which are not really available — or digging up press releases), but in the case of ZTE for instance, its base stations rely upon components from firms such as Xilinx and Analog Devices for the radio part (RF, transceivers, modems), while Qualcomm provides the modems and chips for its wireless terminals, its broadband products and backbone elements on components from Oclaro, Lumentum Holdings, Acacia Communications, NeoPhotonics, Inphi, Finisar (transceivers, optical interconnects, cables, DSP, etc)… Yes, the list of US suppliers is substantial.

          I understand that Huawei, which has its own silicon fabs, is further than ZTE in reducing its dependence on foreign components.


    My first thought is that, as is so often the case, someone in Trumpworld has a financial tie to ZTE and so Trump is looking to carve out a special deal as to protect that someone’s investments.

    1. Michael O

      Duh! Occam’s razor in Trumpville. I hadn’t thought of that but, of course, it makes the most sense.

      1. Conrad

        Trump’s law:
        Never attribute to deep strategy that which can be explained by naked greed?

        1. Oregoncharles

          A good general rule, not just for Trump. Follow the money.

          Visitor laid out the details just above. Lots of US parts, from lots of companies, in ZTE network equipment.

          Trump may actually have been thinking strategy (it’s implausible he’s really as dumb as he sounds), got hung up in the financial interests.

    2. RUKidding

      I wondered about that, as well, but have no information that proves or disproves. Just something that crossed my mind.

      Maybe we’ll find out; maybe not.

  8. Pete

    Uneducated guess: Apple and Google (and therefore anyone with us stock holdings) nervous about where this is going, in the chinese and theglobal (third world) market, which is still up for grabs.

    One of the ZTE items banned is the Android software suite. Much of that besides the “app ecosystem” is open source anyway, and China doesn’t actually want the US “app ecosystem” for control reasons, whereas the US wants worldwide adoption of us Apps with no viable alternative, if possible.

    So on that level, the ZTE ban just gives apple and google another zero-selling-price, infinite-development-budget competitor, while doing the Chinese censorship machine a favor.

    On the level of locking Chinese business out of the U.S. market, it obv. invites retaliation.

  9. rc

    The U.S. holds way more cards than China in this trade negotiation. The numbers are absurd. The U.S. runs an $800+ billion goods deficit with the rest of the world and nearly $400 bn with China. Most of those products can be manufactured in the US where total factor costs may not be that much greater and could be less than this labor and regulatory arbitrage occurring now.

    Why aren’t environmental activists more focused on how this environmental regulation arbitrage where China pollutes the world with state subsidized countries hurts us all?

  10. MyLessThanPrimeBeef

    The US had fined ZTE $1.2 billion for violating US sanctions by selling product to North Korea and Iran and also imposed a seven-year ban sales by US companies to ZTE, but had suspended the ban based on ZTE paying most of the fine plus agreeing to punish the employees who hid the sales to Iran. The US found out that ZTE was defying the sanctions and gave managers who had been involved in the Iranian-related operations bonuses. In April, the Administration reversed its suspension of the US sales ban. ZTE halted production last week as a result.

    Talk about ‘not agreement capable’

    It’s positively contagious. Or maybe no one is so special at that. Everyone is innately able to achieve not-agreement capable.

  11. Reini Urban

    The good thing is that Xi called him by phone and Trump reacted promptly.
    Like in the good old times.

    But now state dpmt. has to clean up the mess, but they’ll see what offers they get over this. Rebranding ZTE to a new company with all the new contracts certainly will need some time, and China wants to cut that short.

    1. Yves Smith Post author

      There is no evidence that Xi called Trump. I’ve searched. Provide a link. The news reports state consistently that the request for a break for ZTE was on a laundry list provided by Chinese negotiators.

  12. AbateMagicThinking but Not Money

    This, but not that. Oh I forgot, we broke the seal way back.

    Wasn’t it Nixon who broke the seal? As soon as China ‘opened up’ and was able to make stuff cheaply for the US and others the ‘communism is bad’ light started to dim.

    If governments admit that the seal is no longer in place, they will not sweat the small stuff like ZTE. The internal politics* of the US does not seem to allow for the fact that all Chinese companies are ultimately Borg like. Selectivity is not an option in the long run.

    Perhaps Trump has decided to accept reality, and I might add that deal making opportunities with North Korea and Iran are on the table.


    ps Instead of asking in visa applications, ‘Are you or have you ever been a communist?’ the US should ask: Have you cooked, or are you thinking of cooking the books? It would give visa applicants a different question to laugh at.

    *See restrictions on Cuba?

  13. Maurice

    It was reported here in the Netherlands that China is suddenly stepping up its review of the NXP merger with Qualcomm. That merger only needs the Chinese approval but China has been basically non-responsive for months now. And today they decided to really ramp it up. The issue alone seems too small to me to rescue ZTE (although NXP is nothing to sneeze at), but given the timing it is almost certainly related.

  14. jim

    DT is more worried about jobs for Chinese workers than US workers. Where is his concern for the unemplyoyed in the US heartland? Are any of his supporters upset about this?

  15. RBHoughton

    “It would be good if we had some Chinese sources” … Western ability to know the inside track in China has been diminished by Xi’s crack-down on corruption.

  16. Henry

    So what’s the problem here? Zte f-ed up and they are paying for it. Pity trump is more willling to take action and assert the rule of law than Some of the previous administrations would have.

  17. bassmule

    If this is true, we can all stop scratching our heads about chips, patents, etc. It’s a real estate deal.

    Trump Orders Help For Chinese Phone-Maker After China Approves Money For Trump Project

    From the story:

    “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast,” Trump announced on Twitter Sunday morning. “Too many jobs in China lost. Commerce Department has been instructed to get it done!”

    Trump did not mention in that tweet or its follow-ups that on Thursday, the developer of a theme park resort outside of Jakarta had signed a deal to receive as much as $500 million in Chinese government loans, as well as another $500 million from Chinese banks. Trump’s family business, the Trump Organization, has a deal to license the Trump name to the resort, which includes a golf course and hotels.

    Trump, despite his promises to do so during the campaign, has not divested himself of his businesses, and continues to profit from them.

    More from the South China Morning Post:

    “Trump Indonesia project is latest stop on China’s Belt and Road Project is part of the Lido City development in Jakarta and is the first to link the US president’s business interests to Beijing’s epic infrastructure plan”

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