The Trump administration has reached a deal that would keep Chinese telecom giant ZTE in business it was announced yesterday. The administration had previously barred it from doing business with American companies, including San-Francisco-based microchip maker Qualcomm, a main ZTE supplier. The decision threatened to put ZTE out of business within weeks.
ZTE employs roughly 75,000 worldwide and had revenues last year of approximately $17 billion. A shutdown of the company would have been an embarrassment for the Chinese government.
A deal was announced that would allow the carrier-network and mobile-phone provider to remain in business and continuing doing business with American companies like Qualcomm. In exchange, ZTE has to pay a substantial fine, hire American compliance officers and make changes to its management team.
The President touted the deal last night.
“Senator Schumer and Obama Administration let phone company ZTE flourish with no security checks. I closed it down then let it reopen with high level security guarantees, change of management and board, must purchase U.S. parts and pay a $1.3 Billion fine,” he wrote on Twitter.
“Dems do nothing but complain and obstruct. They made only bad deals (Iran) and their so-called Trade Deals are the laughing stock of the world!” he added.
ZTE had become the source of some controversy as they had recently been labeled a national security threat by U.S. officials. It had drawn the ire of senior U.S. military leaders for several reasons.
It was recently discovered ZTE had been selling their products to Iran, Syria and North Korea despite U.S. sanctions on those countries. The company blamed bureaucratic failures and said it disciplined the employees who authorized those sales. It was recently revealed however that those employees were actually given bonuses instead.
There is also concern among U.S. national security officials that their products – specifically their mobile phones – could be used to spy on Americans, and American Military Service Members in particular. Earlier this month the Pentagon banned the sale of ZTE phones on U.S. military bases worldwide.
ZTE, which is backed the Chinese government, is also racing to develop the world’s first 5G wireless data network, a superfast network that powers all emerging technologies from self-driving cars to virtual reality. ZTE reaching that goal before the U.S. could mean that technology can be used to put U.S. firms out of business, undermining the U.S. economically as well as from a national security standpoint.
The President however, sees a deal on ZTE as necessary concession in his goal to get a broader trade deal with China accomplished, one that he says will be fairer to American companies and American workers.
Senior administration officials believe balancing keeping ZTE running as a goodwill-gesture to China while navigating the national security risks associated with the firm is a tightrope they can walk.
“We’re developing a matrix of things and while we haven’t come quite to a final decision yet, we think there may very well be an alternative that will be quite punitive to them, but really modify behavior,” Commerce Secretary Wilbur Ross said on CNBC this week.
Photo by John Karakatsanis via Flickr