ZTE saga being used to draw attention from the real issues – Economist

ZTE saga
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Commenting on President Trump saying that there is no deal to help ZTE, Nick Marro, Analyst at The Economist Intelligence Unit (The EIU), said:

 “The policy confusion we are now seeing is a direct consequence of linking a regulatory issue with the ongoing trade negotiations. Incredibly, the ZTE issue has also completely drawn attention away from the original purpose of the trade negations, which were meant to address China’s intellectual property and technology transfer practices.

Drawing ZTE into the trade dispute has arguably weakened the US trade negotiating position. China now has an opportunity to link its own concessions on US agriculture exports to the easing of US sanctions on ZTE, which–as a matter of US law–should have originally been non-negotiable. In addition, this strategy allows China to sidestep all of the core issues which prompted trade negotiations in the first place, including US demands to stop state-support of its Made in China 2025 program.

Any type of concession on ZTE which allows it to avoid an export ban would be a win for China. Even if the US does not back down on its proposed US$50bn worth of tariffs on Chinese goods, the effects of losing ZTE, in terms of Chinese jobs, company supply chains and China’s 5G development strategy, would have been much, much worse. It would be a Pyrrhic victory, but a victory nonetheless.

The US trade team is now facing pressure from three sides: one, from US farmers who are looking for relief from the Chinese agriculture tariffs; two, from the US congress, which has strongly opposed any concessions on ZTE; and three, from China itself, which should have been the main “and the only” source of pressure from the start. One could argue that this was due to an ingenious Chinese strategy to divide-and-conquer, but it was President Trump who allowed this situation to materialize.

While it’s tempting to draw link between ZTE and China’s announcement yesterday to lower its automotive import tax, that was more a coincidence of timing than anything else. President Xi announced those plans back in April, before the ZTE issue even emerged.

In addition, most American automakers, aside from Tesla, sell their vehicles via their local operations in China, not through imports. That means that any real impact on US-China trade flows, such as on reducing the US trade deficit, would be extremely limited.”

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