Well folks, it’s been one weird ride.
Commerce Secretary Wilbur Ross announced Thursday that the U.S. is ending the sanctions it imposed on Chinese handset maker ZTE only two months ago.
The U.S. imposed the sanctions in the first place because ZTE had failed to comply with an original round of punishment for doing business with Iran and North Korea, and then misled the commerce department about their actions…but more on that later.
The U.S. had revoked export privileges, meaning that ZTE couldn’t get parts manufactured in the U.S. that it needed to make its handsets. That caused the business to end its operations.
Now, in exchange for reinstating U.S. exports, ZTE will pay a $1 billion fine. It also has to change its board within 30 days, and the U.S. will embed a compliance team of its choosing inside ZTE.
ZTE will also give the U.S. an additional $400 million as insurance for compliance; if ZTE makes good on its promises, it will get that money back. So that serves as incentive to actually make the changes this time.
But U.S. politicians on both sides of the aisle are still flummoxed by the decision to throw ZTE a bone.
If these reports are true, @realDonaldTrump has put China, not the United States, first. By letting ZTE off the hook, the president who roared like a lion is governing like a lamb when it comes to China. Congress should move in a bipartisan fashion to block this deal right away. https://t.co/ehRxD8b8bl
— Chuck Schumer (@SenSchumer) June 5, 2018
If all this seems like a whirlwind of weirdness, that’s because…it is. Here’s how we got here.
March 2017: The fight begins
The U.S. discovers that ZTE has been doing business with Iran and North Korea. This violates a trade agreement — the U.S. doesn’t want foreign companies that we do business with selling products that contain US-manufactured components to our enemies.
So, the U.S. Department of Commerce punishes ZTE. ZTE pays a fine of nearly $2 billion. It also promises to issue formal reprimands to its board, and revoke their bonuses. Burn.
February 2018: China is maybe spying on us, U.S. throws shade
The U.S. intelligence community issues a statement that they do not recommend U.S. citizens use ZTE or Huawei phones. The two Chinese companies failed to convince U.S. officials that they weren’t using their hardware to spy on U.S. citizens.
“We’re deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments (…) to gain positions of power inside our telecommunications networks,” said FBI Director Christopher Wray. “It provides the capacity to maliciously modify or steal information. And it provides the capacity to conduct undetected espionage.”
This does not have to do with this trade issue specifically, but tensions heightened.
April 2018: ZTE gets greedy, U.S. gets mad
The U.S. discovers that ZTE never issued those reprimand letters. And that ZTE board members still got their bonuses. Gasp!
ZTE relies on several components manufactured in the U.S. for their handsets, and the U.S. knows it. So the U.S. imposes sanctions to hit them where it hurts. It revokes export privileges, meaning that ZTE won’t have access to the parts that it needs to manufacture its products.
May 2018: The sanctions are crippling
ZTE stops operations because it runs out of the crucial U.S. parts it needs.
May 2018: Trump gets involved
Trump tweets his support for ZTE, and insists he is working towards a deal to get ZTE back in business, and reinstate lost Chinese jobs.
President Xi of China, and I, 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!
— Donald J. Trump (@realDonaldTrump) May 13, 2018
The world is extremely confused. It’s not clear why Trump wants to support Chinese jobs, given his past posturing against the country. Nor why he is ready to forgive a company for doing business with North Korea and Iran — especially having just imposed new sanctions on Iran.
Meanwhile, three days after the tweet, a Chinese developer announces the completion of a deal to build a new theme park with Trump brand licensing.
June 2018: Sayonara sanctions!
This takes us to the present. Secretary Ross traveled to Beijing for high-level trade talks during the first weekend of June. Days later, he announces the lifting of sanctions, and the new financial penalties. The fine is significant — ZTE’s annual revenue is 108 billion in Chinese Yuan, which comes out to about 17 billion U.S. dollars. So a $1 billion fine is about six percent of its annual revenue.
The deal is said to be part of a larger renegotiation of Chinese and American trade relations.
Whew, so now, ZTE can continue making its nonsense phones.