Trump’s ZTE surprise might result in toothless export laws

US China ZTE
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Trump’s ZTE reversal is more about bargaining chips and US protectionism than saving Chinese jobs, but it may also cost the US its ability to enforce its own export laws.

Well, that got weird.

For the last month, the US government has been bashing on China on a number of fronts, from arguments over unfair trade practices to ZTE being banned from buying US components for not taking enough steps to punish the employees responsible for violating US export laws in 2011. And then there’s the old chestnut of Chinese companies like ZTE and Huawei building network gear and smartphones that are clear threats to US national security and (apparently) 5G leadership.

On Sunday, US President Donald Trump essentially turned that narrative on its ear in one tweet by expressing his dismay that ZTE is on the ropes and demanding that the Commerce Department fix it.

What to make of this?

Deal or no deal

Trump has given three reasons for stepping in on the ZTE issue: (1) President Xi Jinping is his close personal friend, (2) the Commerce Department ban also hurts US companies that do a substantial amount of business with ZTE, and (3) the issue is connected with ongoing trade negotiations with China.

Indeed, it may be no coincidence that Trump defended ZTE the same week that Chinese officials are heading back to Washington, DC for another round of trade talks. The stakes are high – Trump has said he’ll slap tariffs on up to $150 billion worth of Chinese imports if an agreement isn’t reached, and China has threatened to respond in kind. Companies in both countries would much rather they didn’t do that. Giving ZTE a break could help butter up China at the bargaining table. If nothing else, it seems to have convinced China to restart its regulatory review of the Qualcomm/NXP merger deal.

Speaking of Qualcomm, the concern over US companies makes sense – it was clear from the start that the Commerce Dept ban would impact ZTE’s partner ecosystem as much as ZTE itself. ZTE said last week it spent $2.3 billion on US exports across 200 companies last year – that’s pretty close to real money. TechRadar reports that Qualcomm alone stands to lose $500 million if the ban is enforced, while smaller companies like Akasha would take an even harder hit. Moreover, for Trump’s stated concern over “too many jobs in China lost”, ZTE “supports thousands of high-tech jobs around the United States”, sources told TechRadar.

Also, as Susan Shirk, chair of the 21st Century China Center at the University of California San Diego told Wired, the ban sent a signal to all Chinese companies that buying US technology isn’t worth the headache and that China is better off building its own tech ecosystem that could then compete against the US – which of course the US doesn’t want.

Law enforcement made (less) easy

However, as a number of experts are now pointing out, one consequence of Trump’s policy reversal is that it undermines his own government’s authority to enforce its export laws.

Economist Intelligence Unit (EIU) analyst Nick Marro noted in an email, “Even the Chinese government appeared to buy the US Commerce department line that the ZTE case was a violation of US export law. In a single tweet, Mr Trump has not only undermined that narrative, but also the credibility of his own department. While this might yield some positive results for the US, it creates longer issues for enforcement of US trade law.”

That matters, because Huawei is currently being investigated for violating the same export law by selling gear with US tech to Iran and North Korea. If the company is found guilty, would the US have any credibility in enforcing the law with ZTE getting off the hook?

Regarding the ongoing kerfluffle over Chinese tech threatening national security, it doesn’t seem to figure into Trump’s ZTE reversal at all. Or at least he hasn’t mentioned it. It’s possible he sees it as an entirely separate issue from the ZTE ban, which is at heart a trade issue.

It’s not, technically. One reason the US has export control laws [PDF] in the first place is to regulate the export of any goods or technologies deemed critical to US national security, particularly technologies that could also potentially be used for military as well as commercial applications – that includes communications tech.

That said, the pontificating over Chinese telecoms espionage in Congress isn’t about that specifically – it’s more about imported Chinese network technology and smartphones serving as sinister trojan horses to enable China to spy on Americans. Still, pundits and politicians could be forgiven for being confused whether saving ZTE is consistent with the US government’s anti-China bluster.

Obviously this story is in progress, and we have no idea where this is going. I’ve written before that the ZTE ban seemed overboard and unfair, so it’s nice that ZTE is getting a second (or really a third) chance here. The question is whether ZTE is getting that third chance at the expense of meaningful rule of law – and whether that trade-off will be worth it in the long run.

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