President Trump indicated in a tweet (explained by Tiff) on Sunday that he was working with President Xi of China to help restore jobs at the Chinese telecom giant ZTE.
ZTE and another Chinese smartphone manufacturer, Huawei, have been the subject of repeated allegations of espionage by the U.S. Congress and a public avowal of distrust by key U.S. intelligence personnel. As noted by Bloomberg, these charge are dubious:
U.S. consumers should treat these warnings more as politicking and thinly veiled protectionism rather than concern for the security of their communications.
The U.S. government has been after Huawei and ZTE since 2011, when the House Intelligence Committee began an investigation of these two firms as telecommunications equipment suppliers. It ultimately found their cooperation with the Chinese authorities suspicious, though no specific backdoors in the equipment were discovered. Since the damaging report came out, however, Lenovo, a Chinese firm, acquired Chicago-based Motorola Mobility from Google — and, despite periodic noises from the Pentagon as well as U.S. and allied intelligence agencies that Lenovo devices pose a security risk, there is no visible pressure on carriers to stop selling Lenovo and Motorola phones.
The espionage allegations did trigger investigations, though, and those investigations revealed the ZTE had purchased restricted parts, incorporated them into their smartphones, and then sold the smartphones with the restricted parts in Iran and North Korea, two state sponsors of terrorism. ZTE pled guilty in early 2018 and was assessed an $892 million fine. (Reuters)
According to Attorney General Jeff Sessions, “ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran’s, they lied … about their illegal acts,” (USA Today)
The lies are the problem. While ZTE was paying the fine from last year, they were continuing to make false statements about their actions. In response, the U.S. Government shut down the Chinese supply of U.S. manufactured parts.
The ban’s devastating impact owes to ZTE’s reliance on U.S. partners for crucial technology. American businesses supply roughly 30% of the parts in ZTE smartphones, and the Chinese company sources the bulk of its processors from American chipmakers such as Intel and Qualcomm.
Software is another issue. The vast majority of smartphones run one of two operating systems: Apple’s proprietary iOS or Google’s Android. ZTE handsets use the latter, but the seven-year ban threatens to cut off access to the operating system.
The general perception is that American companies use foreign manufacturing to produce American goods. As this case demonstrates, the opposite is also true.
This situation has China upset. On May 5, trade talks ended in Bejing with the ban in place. Now, with trade talks due to resume today in Washington D.C., President Trump has signalled in his Tweet that he is willing to have an end to the ban negotiated.
This is a helpful negotiation tactic. It signals the possibility for cooperation with the Chinese leader. Trump is hoping that Chinese President Xi will then act as an ally for the upcoming summit with North Korea.
The problems with the efforts, however are twofold:
- Domestic politics. Working to secure the jobs of Chinese workers may alienate some U.S. workers. In particular, it may alienate people like the Harley Davidson employees who are losing their jobs as the Kansas City plant shuts down, but not regaining the jobs as a new factory is opening n Thailand. (KCTV5)
- International business. Either ZTE is guilty or it is not. If they are guilty, other businesses are watching and recognizing that not even violating sanctions to terrorism-supporting countries will necessarily result in a firm response. If they are not guilty, other businesses are watching as false charges are used to extort money from successful foreign businesses.
Both of those options result in damage to America’s reputation as an honest broker, rather than a bully or a pushover.