Trump’s ‘astonishing reversal’ on a Chinese tech giant could signal a big shift in the trade battle

President Donald Trump.

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President Donald Trump.
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Getty Images/Pool

  • President Donald Trump suggested the US would reverse sanctions against the 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 were implemented.
  • The ZTE reversal could be a big clue that Trump may soften his stance on trade with China.

President Donald Trump shocked experts on Sunday when he reversed course and suggested that US sanctions against the Chinese tech giant ZTE would be lifted – 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!”

ZTE announced last week that it had effectively shut down operations because of the US sanctions and warned that the future of China’s second-largest telecom-equipment maker was in jeopardy.

The ZTE move could also be a signal that Trump has softened his stance on trade with China, said Greg Valliere, the 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 on Monday.

‘Make China great again’

The Commerce Department slapped the sanctions on ZTE because its business with Iran and North Korea violated US sanctions against those countries, saying ZTE had continued operations in Iran despite assurances that it halted business there.

The department barred ZTE from using US-made parts in its phones and equipment. But since the company depends heavily on such 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 that Trump’s letting ZTE off the hook after the company violated the Iran sanctions sent 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.”

Trump and Chinese President Xi Jinping.

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Trump and Chinese President Xi Jinping.
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Reuters/Carlos Barria

Christine McDaniel, a senior fellow at George Washington University’s Mercatus Center, said Trump should instead focus on rewriting broader rules to ensure that more Chinese firms are on a level playing field.

“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.

Trump’s decision also drew criticism from the political sphere. Democratic leaders noted that the ZTE sanctions were due to security concerns, specifically the company’s 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,” Senate Minority Leader Chuck Schumer said. “But even here he is backing off, and his policy is now designed to achieve one goal: Make China great again.”

Even some Republicans were dubious about 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 that the broader trend, however, could be encouraging for the US economy.

Isaac Boltansky, a policy analyst at the research-and-trading firm Compass Point, noted that the ZTE decision came days before the US trade representative’s office’s public hearings on Trump’s proposed tariffs on $50 billion worth of Chinese goods, as well as a visit in the next two weeks by Liu He, China’s vice premier and a top economic adviser to President Xi Jinping.

The president’s statement on Sunday may indicate a delay in the tariffs’ implementation 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.

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-China 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, Krueger said – 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,” Krueger wrote.