In concession, Trump will help China’s ZTE ‘get back into business’

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

“Too many jobs in China lost. Commerce Department has been instructed to get it done!” Trump wrote on Twitter in the first of two tweets about U.S. trade relations with China. It said he and Chinese President Xi Jinping are working together on a solution for ZTE.

Shortly after Trump’s tweet, a Democratic lawmaker questioned the move to help the Chinese company, given numerous warnings about ZTE’s alleged threat to U.S. national security.

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.

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

U.S. officials are preparing for talks in Washington with China’s top trade official Liu He, to resolve an escalating trade dispute.

Trump’s proposed reversal will likely ease relations between the world’s two biggest economies. Washington and Beijing have 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 and dent business investment plans.

In trade talks in Beijing 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.

In a second tweet on Sunday, Trump said past U.S. trade talks with China posed a hurdle that he predicted the two countries would overcome.

“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 on Twitter.

“But be cool, it will all work out!” he added.

Trump’s reversal on ZTE could have a significant impact on shares of American optical components makers such as Acacia Communications Inc and Oclaro Inc, which fell 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.

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

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 components 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 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, 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.