Trump's talk signals shift in China strategy; U.S. looks for deal to avoid trade war

FILE - In this Oct. 8, 2012, file photo, a salesperson stands at counters selling mobile phones produced by ZTE Corp. at an appliance store in Wuhan in central China's Hubei province. (Chinatopix Via AP, File)
FILE - In this Oct. 8, 2012, file photo, a salesperson stands at counters selling mobile phones produced by ZTE Corp. at an appliance store in Wuhan in central China's Hubei province. (Chinatopix Via AP, File)

WASHINGTON -- After weeks of threatening China with punitive restrictions and stiff tariffs, President Donald Trump is now siding with his more moderate economic advisers and looking to strike a deal to avert a trade war.

The administration is considering whether to ease up on one of China's largest telecommunications companies, ZTE, in exchange for China agreeing to buy more U.S. products and lift its own restrictions on U.S. agriculture, people familiar with the deliberations said.

Trump defended the shift in a tweet Monday, saying that ZTE "buys a big percentage of individual parts from U.S. companies" and that the new stance was "reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi" Jinping of China.

The move is a sharp reversal from just two weeks ago, when the views of advisers supporting punitive measures appeared ascendant.

Trump now appears, at least for the moment, to be walking back from that tougher stance and seeking a quicker resolution of trade conflicts with the Chinese.

The U.S. Commerce Department last month blocked ZTE from importing American components for seven years. The U.S. accused ZTE of misleading American regulators after it settled charges of violating sanctions against North Korea and Iran.

The president's reconsideration of sanctions imposed on ZTE stems in part from Beijing's demand that the United States consider lifting the penalties before a visit by Liu He, a Chinese vice premier, who is expected to arrive in Washington this week for negotiations aimed at resolving the simmering trade conflict.

But the more moderate approach also stems from the more market-friendly views of two of Trump's trusted advisers, Treasury Secretary Steven Mnuchin and Larry Kudlow, who heads the National Economic Council.

A senior Treasury Department official said Mnuchin has had conversations with Trump and Commerce Secretary Wilbur Ross in recent days about China's ZTE concerns.

The Trump administration threatened ZTE's existence as a business last month, when the Commerce Department ordered the seven-year halt in U.S. shipments of computer microchips and software at the heart of most of ZTE's gear.

But in a surprise tweet Sunday, the president held out the possibility of a reversal for the company.

"It's a significant issue of concern to the Chinese government, you know, and in our bilateral relationship there's a give and take and we discuss these issues," said White House spokesman Raj Shah.

"Obviously this is part of a very complex relationship between the United States and China that involves economic issues, national security issues and the like," he said.

The dispute predates Trump's arrival in the Oval Office, but the Commerce Department sanction was issued amid worsening trade tensions between the U.S. and China.

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"A reversal of the ZTE decision could temporarily tamp down trade tensions by allowing the Chinese to make concessions to the U.S. without losing face," said Eswar Prasad, a professor of trade policy at Cornell University. "Trump may have recognized that backing off on ZTE clears the path for him to claim at least a partial victory in the U.S.-China trade dispute based on the concessions the Chinese seem prepared to offer."

The United States also needs China's support as it prepares for talks with North Korea that are intended to persuade the Pyongyang regime to abandon nuclear weapons.

But both Republican and Democratic lawmakers have expressed concerns that Chinese telecom companies such as ZTE have ties to the Chinese government and pose a cyberespionage threat as they move into the U.S. market.

Sen. Marco Rubio, R-Fla., tweeted Monday that the U.S. would be "crazy" to allow ZTE to operate in the U.S. "without tighter restrictions."

"Any telecom firm in #China can be forced to act as a tool of Chinese espionage without a court order or other review process," Rubio said.

Those concerns were echoed by Senate Minority Leader Chuck Schumer, D-N.Y., who said in a statement Monday that the plan was "a bad deal if there ever was one."

"The toughest thing we could do, the thing that will move China the most, is taking tough action against actors like ZTE," Schumer said. "But before it's even implemented, the president backs off. This leads to the greatest worry, which is that the president will back off on what China fears most -- a crackdown on intellectual property theft -- in exchange for buying some goods in the short run."

Rep. Tim Ryan, D-Ohio, noted that Trump's tweets had highlighted layoffs in China even as autoworkers were losing their jobs in his home state.

"On top of that, the NSA, FBI, and CIA all have cybersecurity concerns with ZTE," Ryan said. "The Pentagon even stopped selling its phones in its bases. Your willingness to throw a lifeline to ZTE and China puts our national security at risk. What happened to America First?"

The White House pushed back on the idea that Trump was retreating from his campaign promise to be tough on China, including accusing the country of stealing U.S. jobs.

ZTE, a company with more than 70,000 employees that has supplied some of the world's biggest telecom companies, said last week that it had halted its main operations as a result of the department's "denial order."

Trump tweeted that he and Xi "are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!"

The widening trade dispute between the world's two biggest economies has taken a toll on both sides. U.S. companies that export to China have had goods held up in China's ports. The block on ZTE was a heavy blow for the company but also hurt the U.S. companies it buys from.

According to data from the IDC marketing-insight firm, ZTE sources more than 40 percent of its components from the U.S., creating a multibillion-dollar revenue stream for suppliers like Qualcomm and Intel.

China objected to ZTE's punishment at trade talks in Beijing this month, and the American delegation agreed to report their concerns to Trump. ZTE has asked the department to suspend the seven-year ban on doing business with U.S. exporters. By cutting off access to U.S. suppliers of essential components such as microchips, the ban threatens ZTE's existence, the company has said.

At the Beijing talks, the Trump administration handed China a list of hard-line demands that trade experts said could make it even more difficult to resolve the trade disputes.

But China on Monday welcomed Trump's recent comments.

"We think highly of the U.S. statement regarding ZTE's case," said Lu Kang, a spokesman for China's

Foreign Ministry. "We are currently in close communication over details of the implementation."

Trump is seeking to cut the U.S. trade deficit by $100 billion and to garner new concessions related to sharing technology, a precondition to doing business in China that many companies have complained about.

Information for this article was contributed by Ana Swanson and Keith Bradsher of The New York Times and by staff members of The Associated Press.

A Section on 05/15/2018

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