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The art of the backflip

Posted By on May 17, 2018 @ 14:30


Donald J. Trump‏Verified account @realDonaldTrump [1] May 13 [2]

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!

US allies and grassroots Trump supporters had another head-scratching moment this week. After the US and UK had just ratcheted up pressure [3] on the Chinese tech company ZTE and President Trump had launched a trade war with China, the Commerce Department had suddenly been ordered to save a giant Chinese company and thousands of Chinese jobs. Is MAGA (‘make America great again’) becoming MCGA?

As recently as February, Prime Minister Malcolm Turnbull was reported to be discussing with US officials the national security risks [4] of a telecommunications market dominated by Chinese firms under the de facto control of the Chinese Communist Party.

Last month, the UK’s National Cyber Security Centre (NCSC) warned companies about using ZTE products [3] because ‘the national security risks arising from the use of ZTE equipment or services within the context of the existing UK telecommunications infrastructure cannot be mitigated’. Also last month, the US Commerce Department imposed a seven-year ban on US companies selling products and services to ZTE in response to a raft of bad behaviour, including breaking sanctions against North Korea and Iran.

There has been no shortage of commentary on why the decision to save ZTE is unusual even by Trump standards. ‘Just about everything is odd about Trump’s support of Chinese firm ZTE’, wrote [5] Heather Long in the Washington Post, listing a half dozen contradictions in the announcement.

Among them:

  • The rescue ignores a US House Intelligence Committee report from 2012 that concluded that ZTE ‘cannot be trusted to be free of foreign state influence and thus [poses] a security threat to the United States and to our systems’.
  • The incongruence of Trump ratcheting up pressure on Iran and North Korea while simultaneously forgiving ZTE, ‘a company that admitted it illegally shipped telecom equipment to Iran and North Korea’. As Long noted, ‘Trump’s own Commerce Department punished ZTE in April for “egregious behavior,” including repeatedly lying to the U.S. government’.

This creates an arbitrary standard for sanction-breaking companies, at a time when the US is trying to increase pressure on foreign firms doing business in Iran.

So why the backflip? Trump’s subsequent tweets about ZTE give a clue. A few hours later came this missive [6] on the wider China–US trade dispute:

China and the United States are working well together on trade, but past negotiations have been so one sided in favor of China, for so many years, that it is hard for them to make a deal that benefits both countries. But be cool, it will all work out!

A day later this tweet [7] hinted at pressure Trump was getting from home:

ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.

And finally, this classic Trump message [8] created a diversionary scapegoat and jumbled all the confused messages back into one incoherent package:

The Washington Post and CNN have typically written false stories about our trade negotiations with China. Nothing has happened with ZTE except as it pertains to the larger trade deal. Our country has been losing hundreds of billions of dollars a year with China…

As the tweets suggest, there are a couple of likely pressure points on President Trump that explain his U-turn.

The first, obvious one is the trade dispute with China. A recent Josh Rogin article [9] in the Washington Post carried the title, ‘China gave Trump a list of crazy demands, and he caved to one of them’. Item five on the list: ‘Appropriately handling the ZTE case to secure global supply chain’.

Trump also appears to be taking heat from US farmers, upset at how the trade war is undermining their livelihoods. As the Post reported [10]:

Polling by the trade group Agri-Pulse found that 67 percent of farmers said they voted for Trump, but in early March of this year, only 45 percent said they would vote for him again (and that was before much of the rising U.S.-China trade tensions).

A second pressure point could be Qualcomm, which supplies chips for ZTE phones. As Reuters noted [11], the ban forbidding US firms selling to ZTE could cost Qualcomm ‘close to half a billion dollars in revenue’. In addition, Qualcomm needs Chinese regulatory approval for its acquisition of Dutch semiconductor maker NXP. And the ban would have meant more than lost revenue. It would have encouraged China to build alternative domestic suppliers. It’s hard to imagine that Trump’s backflip on the ban will do anything to slow China down on this front, but China may resume its review [12] of Qualcomm’s acquisition of NXP.

Either way, the backflip looks like bad deal-making on multiple fronts. It undermines Western efforts to isolate badly behaving companies and those that pose national security risks. It cuts across the new US approach on Iran. It erodes [9] the US negotiating position with China for both a ‘mini deal’ and for a wider strategic deal on trade.

Finally, it has spurred China [13] to accelerate its own chipmaking capability.

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URLs in this post:

[1] Donald J. Trump‏Verified account @realDonaldTrump: https://twitter.com/realDonaldTrump

[2] May 13: https://twitter.com/realDonaldTrump/status/995680316458262533

[3] ratcheted up pressure: https://www.theguardian.com/technology/2018/apr/17/chinas-zte-a-national-security-risk-to-uk-warns-watchdog

[4] national security risks: http://www.afr.com/news/economy/trade/us-warns-turnbull-not-to-use-china-for-5g-network-20180223-h0wkcl

[5] wrote: https://www.washingtonpost.com/news/wonk/wp/2018/05/15/just-about-everything-is-odd-about-trumps-support-of-chinese-firm-zte/?noredirect=on&utm_term=.bda3e0b471b2

[6] came this missive: https://twitter.com/realDonaldTrump/status/995746011321597953?ref_src=twsrc%5Etfw&ref_url=https%3A%2F%2Ftwitter.com%2Frealdonaldtrump

[7] this tweet: https://twitter.com/realDonaldTrump/status/996119678551552000

[8] this classic Trump message: https://twitter.com/realDonaldTrump/status/996739372723638272

[9] article: https://www.washingtonpost.com/news/josh-rogin/wp/2018/05/15/china-gave-trump-a-list-of-crazy-demands-and-he-caved-to-one-of-them/?utm_term=.533ccb3f973f&wpisrc=nl_todayworld&wpmm=1

[10] reported: https://www.washingtonpost.com/news/wonk/wp/2018/05/15/just-about-everything-is-odd-about-trumps-support-of-chinese-firm-zte/?noredirect=on&utm_term=.60995496c108

[11] noted: https://www.reuters.com/article/us-china-zte-qualcomm-analysis/u-s-strike-on-chinas-zte-another-blow-for-qualcomm-idUSKBN1HO0XT

[12] may resume its review: https://www.ft.com/content/cbb67f96-574e-11e8-bdb7-f6677d2e1ce8?list=intlhomepage

[13] spurred China: https://www.reuters.com/article/us-usa-trade-china-chips-exclusive/exclusive-china-looks-to-speed-up-chip-plans-as-u-s-trade-tensions-boil-sources-idUSKBN1HQ1QP

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