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Trump's ZTE tweet sows confusion before trade talks with China

Washington Post

Senior U.S. officials struggled Monday to explain and act on President Donald Trump's abrupt decision to rescue Chinese telecom giant ZTE - a move that caught many of them by surprise.

ZTE said last week that it would shutter major operations after the United States announced punitive measures in response to the company's failure to comply with a settlement of charges for violating sanctions on Iran and North Korea.

But Sunday, in a stunning reversal that officials said came without a formal policy process at the White House, Trump tweeted that he had ordered Commerce Secretary Wilbur Ross to save ZTE from collapse, saying the company's failure would cost too many jobs in China.

The rapidly changing U.S. position highlights the stakes - and the confusion - ahead of crucial negotiations Tuesday between Trump's senior economic team and a Chinese delegation led by Vice Premier Liu He.

Liu and other Chinese officials have demanded that the Commerce Department ease restrictions on ZTE, but until Trump's Sunday tweet, the administration had resisted.

The president has now greenlighted a fast-moving negotiation that could affect a number of U.S. industries and companies.

In exchange for easing restrictions on ZTE, U.S. officials are pressing China to relax tariffs on agricultural products and allow a U.S. technology company, Qualcomm, to acquire NXP Semiconductors. Chinese officials had effectively blocked that deal by imposing regulatory hurdles, U.S. officials familiar with the matter said. Qualcomm and NXP Semiconductors stock prices soared Monday amid talk of a potential U.S.-China deal.

After Trump's Sunday tweet, White House officials spent much of the next 24 hours attempting to walk back his statement, saying ZTE's fate would ultimately be left up to a review by Ross. And Monday afternoon, Ross insisted in a speech at the National Press Club in Washington, D.C., that ZTE would not be a factor in the trade talks, saying, "Our position has been that that's an enforcement action separate from trade."

Just three hours later, Trump tweeted again, contradicting Ross' statement that the issues would be kept apart.

"ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies," he wrote on Twitter. "This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi."

The president does not view easing penalties on ZTE as a major concession, according to one current and one former administration official, both of whom spoke on the condition of anonymity given the sensitivity of the subject.

However, lawmakers from both parties Monday warned that the action would undermine U.S. national security and erode the U.S. position at the outset of high-stakes trade talks with China.

Senior Republicans said they were caught off guard by the president's ZTE tweet, with neither congressional leaders nor the heads of the Senate Finance and Foreign Relations committees receiving warning that the administration was contemplating lifting restrictions on the Chinese tech giant.

"I'm kind of surprised, considering the decisions that were made previously on national security; it kind of surprises me, and I haven't figured it out," said Sen. Chuck Grassley, R-Iowa, a senior member of the Finance Committee. "The two opinions are kind of in conflict with each other."

Senate Majority Whip John Cornyn, R-Texas, said the issue of relaxing penalties against ZTE could arise when Trump lunches with senators Tuesday.

The original March 2017 settlement with ZTE, in which the company paid a record combined civil and criminal penalty of $1.19 billion after illegally shipping telecom gear to Iran and North Korea, was celebrated by Trump's attorney general and commerce secretary as a landmark move against a brazen corporate actor.

In the criminal proceeding, ZTE pleaded guilty to violating U.S. export controls over its shipments to Iran, obstructing justice and making a material false statement.

At the time, Ross said ZTE was guilty of an "egregious scheme" to violate U.S. law, adding, "Under President Trump's leadership, we will be aggressively enforcing strong trade policies with the dual purpose of protecting American national security and protecting American workers."

The Commerce Department last month banned U.S. firms from selling components to ZTE for seven years.

Ross said Monday that officials would consider scaling back restrictions on ZTE because of prodding from Trump, but he also offered a lengthy description of the company's past missteps and said the classified briefings he has received on the company have revealed startling facts.

The episode shows how much Trump is personally directing the China negotiations, even though officials from multiple agencies are involved in trying to force China to buy more U.S. products. Trump believes that Beijing has for years ripped off American companies and workers by devaluing its currency and flooding the United States with cheap goods, while making it hard for American companies to sell their products there.

But talks with China had bogged down in recent days, a potential problem for Trump because he needs Chinese help with the upcoming North Korea summit.

The president has asked several White House advisers recently what the Chinese want and what must be done to advance the trade talks, according to two people briefed on the discussions, who spoke on the condition of anonymity to talk about sensitive matters.

Trump is determined to make a deal with China and has been told in recent days that relaxing restrictions on ZTE was a "prerequisite" to get the Chinese to engage in substantive discussions.

Two weeks ago, Ross, Treasury Secretary Steven Mnuchin and several other advisers flew to Beijing to try to pressure Chinese officials to boost U.S. imports. Those talks made little progress.

Trump and Chinese leader Xi Jinping spoke by phone on May 8, and then senior Chinese officials led by Vice Minister of Commerce Wang Shouwen met at the Treasury Department on Friday, where the ZTE issue was again raised.

Trump's first statement of public support for the company came Sunday.

"President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast," he wrote in the Twitter post. "Too many jobs in China lost. Commerce Department has been instructed to get it done!"

Within hours of that Twitter post, Liu's arrival was confirmed for Tuesday morning.

Chinese officials were furious over ZTE's latest punishment, believing it was excessive given the nature of the company's violation of the settlement terms, according to Dennis Wilder, a former China specialist at the CIA.

"The Chinese were clearly shocked by the ZTE decision," said Wilder, who just returned from meetings in Beijing with Chinese government officials and academics.

Wilder said he was told that Liu, who was embarrassed by being denied a meeting with Trump during a visit in March, would not have returned to Washington this week without an indication that ZTE would be spared. "Liu He represents, and is very close to, Xi Jinping," said Wilder. "They're not going to have him humiliated a second time."

China's state-run press applauded Trump's about-face.

"We highly appreciate these positive remarks on the ZTE issue, and we are currently in close communication with them on how exactly to implement it," said Lu Kang, spokesman for China's Foreign Ministry. "As for the specific issues over which the U.S. side has voiced its concerns, our two sides also maintain close communication."

Trump has tried to make clear to Chinese officials that he isn't promising blanket relief for ZTE, and White House officials have stressed that Ross will keep some restrictions as part of any deal. But Trump hopes that even the gesture of saying he will help the company can signal that the White House is willing to make sacrifices.

"To him, it shows: I'm trying to make something happen for you," one of the people briefed on Trump's strategy said.

There were signs, though, of bipartisan alarm on Capitol Hill about Trump's approach.

"I hope this isn't the beginning of backing down to China," Sen. Marco Rubio, R-Fla., tweeted.

The Washington Post's Karoun Demirjian, Steven Mufson and Ellen Nakashima contributed to this report.

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