Trump Weighs Easing ZTE Penalty to Help Xi, as Lawmakers Resist

(Bloomberg) -- President Donald Trump said the U.S. is reconsidering penalties against Chinese telecommunications maker ZTE Corp. as a favor to the country’s president, Xi Jinping, prompting members of Congress to warn him against softening the punishment.

“The president asked me to look into that and I am doing it,” Trump told reporters at the White House on Tuesday. Asked about the company, he said there is no deal yet with China -- but it was not clear whether he was speaking specifically about ZTE or about broader trade disputes.

“You are really hurting American companies also” by shutting down ZTE and the review is “a favor” to Xi, Trump said. He said he would “envision” a revised penalty for the company, over sanctions violations, including a requirement that it appoint a new board of directors and a “very large fine” of perhaps $1.3 billion.

“When I looked at it I said, you know, they could pay a big price without necessarily damaging all of these American companies, which they are because you know you’re talking about tremendous amounts of money and jobs,” Trump said. “By shutting them down, we’re hurting a lot of American companies, really good American companies.”

Trump faces intensifying opposition in Congress to any retreat from the ZTE penalties. Fourteen Republican senators including the party’s second-ranking leader, John Cornyn of Texas joined 13 Democratic and independent senators and wrote a public letter to Trump on Tuesday urging him not to soften the company’s punishment for “serial and pre-meditated” violations of U.S. sanctions against Iran and North Korea.

“Export control and sanctions laws should not be negotiable, because fidelity to the rule of law is a key part of what distinguishes the U.S. from a country like China that is ruled by a Communist dictatorship,” the senators wrote. The signers of the letter spanned the ideological spectrum of the Senate from Republican Tom Cotton of Arkansas to Kamala Harris of California.

Commerce Secretary Wilbur Ross called the company’s behavior “egregious” when he announced the action April 16. Several amendments concerning ZTE have been proposed to a Defense Department bill in the House and may be granted votes this week.

In addition, the House version of a fiscal 2019 spending bill for the Commerce Department contains language that would prohibit the administration from enacting policies in “contravention of the ZTE suspension order.”

Senate Democratic Leader Chuck Schumer on Tuesday castigated the Trump administration’s plan to review penalties on ZTE, saying on the Senate floor that the action signals to China that “they can roll over us on issue after issue.” He added that on Friday he spoke directly to Trump for half an hour about the matter, and also to other administration officials.

“The president and Secretary Mnuchin, what they are doing sends a dangerous signal to businesses around the world that the United States is willing to forgive sanction violations or reduce penalties,” Schumer said. “It emboldens foreign companies to play fast and loose with U.S. sanctions when we should be putting the fear of God into these companies, especially one that was as brazen as ZTE.”

Treasury Secretary Steven Mnuchin said earlier Tuesday that the U.S. didn’t mean to “put ZTE out of business” by penalizing the company for violating U.S. sanctions against North Korea and Iran.

Security Threats

The U.S. Commerce Department’s review of penalties against ZTE Corp. for the violations will bear in mind any threats to American security, Mnuchin said Tuesday during a hearing before a Senate Appropriations subcommittee in Washington.

“Anything that they consider will take into account the very important national security issues, and those will be addressed,” he said.

The U.S. ban on ZTE for breaching terms of a settlement over sanction-breaking sales to Iran and North Korea has become entangled in the trade dispute between the U.S. and China. The countries announced at least a temporary trade truce and dropped their tariff threats on Saturday after setting up a framework for addressing trade imbalances.

The Shenzhen, China-based company depends on U.S. components, such as chips from Qualcomm Inc., to build its smartphones and networking gear. ZTE suspended all major operations because of the ban and is relying on its cash reserves for daily expenses, including salaries of its 75,000 employees.

“I envision a new management, a new board, and very, very strict security rules,” Trump said. “And I also envision that they will have to buy a big percentage of their equipment and parts from American companies.”

Trump said May 13 on Twitter that he would seek to get ZTE back into business after discussing the issue with Xi. The president said “too many jobs in China” had been lost, marking an about-face in his criticism of China’s trade practices.

Larry Kudlow, Trump’s top economic adviser, said on Sunday that management changes at ZTE would be among remedies needed before the U.S. would consider a reprieve.

Export Controls

The Trump administration isn’t willing to loosen exports controls on sensitive technology, Mnuchin said on Tuesday.

China has frequently argued that the trade imbalance can be fixed by the U.S. lifting strict export curbs on high-technology goods. One of China’s trade demands in talks with the U.S. this month included removing a ban on selling integrated circuits to the Asian nation.

“Export control items are absolutely not on the table for discussions,” said Mnuchin. “We would in no way look to loosen that.”

To the contrary, the U.S. is “aggressively” examining ways to protect American technology through an inter-agency panel that reviews foreign acquisitions in the U.S., known as Cfius, Mnuchin said. The Trump administration proposed legislation to expand that panel’s powers, known as the Foreign Investment Risk Review Modernization Act, or Firrma.

“I can assure you this president is very focused on protecting American technology,” Mnuchin said.

--With assistance from Jenny Leonard.

To contact the reporters on this story: Saleha Mohsin in Washington at smohsin2@bloomberg.net;Jennifer Epstein in Washington at jepstein32@bloomberg.net

To contact the editors responsible for this story: Alex Wayne at awayne3@bloomberg.net, Sarah McGregor

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