Trump's 'astonishing reversal' on a Chinese tech giant could signal a big shift in the trade battle
- President Donald Trump suggested the US would reverse sanctions against Chinese tech giant ZTE.
- The sanctions were slapped on ZTE because of its business with Iran and North Korea.
- ZTE effectively shut down after the sanctions went into place.
- The ZTE reversal could be a big clue that Trump may soften his stance on trade with China.
President Donald Trump shocked experts Sunday when he reversed course and said sanctions against Chinese tech giant ZTE would be reversed in a move that could show a shift in Trump's stance on trade.
"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 tweeted. "Too many jobs in China lost. Commerce Department has been instructed to get it done!"
The tweet came days after ZTE announced that it effectively shut down operations due to US sanctions and warned that the future of China's second-largest telecom equipment market was in jeopardy.
The ZTE move could also be a signal that Trump softened his stance on trade with China, said Greg Valliere, chief global strategist at Horizon Investments.
"Trump's astonishing reversal on ZTE (he wants to protect Chinese jobs, he tweeted) sent a signal to Beijing,and we expect progress when a high-level Chinese delegation visits Washington next week," Valliere wrote Monday.
'Make China Great Again'
The US Commerce Department slapped the sanctions on ZTE because of the tech giant's business in Iran, which was allegedly in violation of US sanctions against the country. The Commerce Department claimed that despite ZTE's assurance that it halted business in Iran, the company continued operations there.
In turn, the Commerce Department banned ZTE from using US-made parts in their phones and equipment. Since the company depends heavily on US parts, production at ZTE's manufacturing plants ground to a halt over the past few weeks, and employees were barely working.
Derek Scissors, a resident scholar at the American Enterprise Institute, said Trump letting ZTE off the hook after the company violated the Iran sanctions sends the wrong message.
"The president said as recently as last month that trade wars are 'easy to win.' But here he'd be acting as if China has so huge a trade advantage over the US that we're too afraid to even enforce our own laws," Scissors wrote Monday. "It's hard to imagine a more fundamental surrender."
Christine McDaniel, a senior fellow at George Washington University's Mercatus Center, said Trump should focus on rewriting broader rules to ensure that Chinese firms are on a level playing field rather than a single firm.
"There will always be tensions and disagreements between countries on cross border commercial transactions, but history has shown that the United States gets a better outcome for itself and the global economy when it focuses on trade and investment rules instead of particular commercial outcomes," she said.
The decision also drew criticism from the political sphere. Democratic leaders noted that ZTE's sanctions were due to security concerns, specifically the dealings with Iran and North Korea.
"One of the few areas where the president and I agreed, and I was vocally supportive, was his approach towards China. But even here he is backing off, and his policy is now designed to achieve one goal: make China great again," Senate Minority Leader Chuck Schumer said.
Even some Republicans were dubious of Trump's move.
"Problem with ZTE isn't jobs & trade, it's national security & espionage," Sen. Marco Rubio tweeted Monday. "Any telecomm firm in #China can be forced to act as tool of Chinese espionage without any court order or any other review process. We are crazy to allow them to operate in U.S. without tighter restrictions."
The move could be a sign of more to come
Experts said the broader trend, however, is potentially encouraging for the US economy.
Isaac Boltansky, a policy analyst at the research and trading firm Compass Point, noted that the ZTE decision comes days before the US Trade Representative's office holds public hearings on Trump's proposed tariffs on $50 billion worth of Chinese goods.
The president's statement on Sunday may indicate that those tariffs could be delayed while he searches for a broader trade deal with China.
"The USTR hearing will occur in the wake of President Trump's policy reversal on ZTE and an upcoming visit to DC from China's vice-premier, both of which reinforce our belief that there is still the basis and timing necessary for a broader deal," Boltansky wrote in a note to clients.
The move also comes at a critical time: Liu He, China's vice premier and Chinese President Xi Jinping's top economic adviser, is set to meet with Trump administration officials in Washington at some point over the next two weeks.
After tense talks in Beijing earlier this month, Trump's economic team is trying to hash out an agreement to open China up to more US goods.
The ZTE decision could help repair US-Chinese relations. But Chris Krueger, a strategist at Cowen Washington Research Group, was a bit more cautious.
Trump's shoot from the hip style on trade means the ZTE move could be a "bigly olive branch" that sets up a deal with the Chinese - or Trump could reverse course and crack down on trade.
"Just as Trump can zig via Tweet, one should not be surprised when he zags with the same velocity," Kreuger wrote.