Report

Congress Caves to Trump in Fight Over China’s ZTE

Lawmakers preparing a must-pass defense bill stripped out harsh penalties against the Chinese telecommunications firm after the White House intervened.

U.S. President Donald Trump and China's President Xi Jinping arrive at a state dinner at the Great Hall of the People in Beijing, China. (Photo by Thomas Peter - Pool/Getty Images)
U.S. President Donald Trump and China's President Xi Jinping arrive at a state dinner at the Great Hall of the People in Beijing, China. (Photo by Thomas Peter - Pool/Getty Images)

Lawmakers handed U.S. President Donald Trump a win this week, backing down on threats to reinstate harsh penalties on Chinese telecommunications giant ZTE Corp. for having violated sanctions against Iran and North Korea.

Members of the House and Senate announced Monday the decision to strip from the final version of the must-pass annual defense bill a provision that would have reimposed a seven-year ban on ZTE buying gear in the U.S. market—a move that would have effectively put the Chinese firm out of business.

But after heavy lobbying from the White House, lawmakers took a softer stance, merely preventing the federal government from working with ZTE, China’s Huawei Technologies Co., “or any entity controlled by the government of the People’s Republic of China.”

In April, the Commerce Department slapped a hefty penalty on ZTE, which had evaded U.S. sanctions on Iran and North Korea. But at the time, Trump was trying to secure Chinese cooperation on North Korea and resolve trade tensions.

In an infamous May 13 tweet, Trump said he was working with Chinese President Xi Jinping to prevent the collapse of the company, which employs almost 75,000 people.

“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!”

In May, the administration decided to lift the ban on U.S. firms selling equipment to ZTE but insisted it pay a fine of more than $1 billion, change its management and board, and provide certain security guarantees.

The about-face sparked a wave of criticism from lawmakers following years of warnings about ZTE from the U.S. intelligence community. In the House and Senate, lawmakers looked for ways to reimpose the penalties on the Chinese giant.

But on Monday, it was clear that they’d conceded defeat. Congressional sources told Foreign Policy that members of both chambers agreed to strip the ban out of the defense bill after the Congressional Budget Office (CBO) scored it as a net negative because it would forestall the $1.3 billion the U.S. would otherwise obtain from the ZTE fine. That money would have come straight out of taxpayers pockets—retirement benefits, health benefits, or other mandatory spending accounts, the sources said.

But not everyone buys that excuse.

“I just don’t think the [Democrats] fought that hard and were happy to use CBO as cover. I am not saying CBO didn’t give them a negative score—I believe that,” one congressional source said. “But there are definitely ways to find mandatory money.”

The White House lobbied heavily for lawmakers to strip the provision out of the final conference report, according to multiple congressional sources.

The agreement came as an unpleasant surprise to those who had fought to include harsh penalties against ZTE in the final version of the defense bill. Sen. Marco Rubio (R-Fla.) was one of the authors of the amendment that was passed by the Senate but did not make it into the final version released Monday.

“No nation steals American intellectual property or spies on America more than China, and Chinese telecommunication companies are among the most powerful tools they use to do this,” Rubio said that day in a statement. “That is why I fought so hard last month to put ZTE out of business. And that is why I am so shocked that some of my colleagues decided to let ZTE continue to do business. Once again, China has figured out how to play the United States. We can’t continue to let this happen.”

Other lawmakers accused Trump of caving to pressure from Xi.

Lifting the penalties on ZTE is just another example of Trump “being weak in the face of another nation’s leader while the GOP just follows along,” Senate Minority Leader Chuck Schumer (D-N.Y.) said in a statement last Friday.

“By stripping the Senate’s tough ZTE sanctions provision from the defense bill, [Trump] & the Congressional GOP who acted at his behest have once again made President Xi & the Chinese Govt the big winners & the American worker & our national security the big losers,” Schumer said.

Still, Commerce Secretary Wilbur Ross insisted earlier this month that the U.S. will remain “vigilant” against ZTE.

“While we lifted the ban on ZTE, the Department will remain vigilant as we closely monitor ZTE’s actions to ensure compliance with all U.S. laws and regulations,” he said in a statement.

Of course, it’s worth noting that the original ban was imposed precisely because ZTE misled U.S. authorities about systematically evading export control laws.

“The results of this investigation and the unprecedented penalty reflects ZTE’s egregious scheme to evade U.S. law and systematically mislead investigators,” Ross said in a statement when the penalty was imposed last year. “This penalty is an example of the extraordinary powers the Department of Commerce will use to vigorously protect the interests of the United States.”

Lara Seligman is Foreign Policy's Pentagon correspondent. @laraseligman

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