Trump's trade war: the ZTE precedent

President Trump's desire to help save ZTE could set the tone for the treatment of another Chinese telecom company that's under investigation for sanctions violations.

Why it matters: China could use Trump's apparent pivot on ZTE as a stepping stone to free Huawei, the other, bigger Chinese phone maker. Or the ZTE case could be a lesson for the U.S. in negotiating with China that taking the toughest possible approach to China might not be the smartest when the Asian power is stronger than ever and prepared to fight back.

Between the lines: "Ross had a color wheel of approaches [on ZTE] ranging from a handslap to breaking them as a company," says Chris Johnson, a former CIA China analyst who's now at the Center for Strategic and International Studies.

• The Chinese might have stomached a slap on the wrist, but by banning American companies from selling parts to ZTE, Ross served up a punishment harsh enough to halt operations. China in turn made ZTE a top trade priority and used its massive leverage to potentially sway the president.

The backdrop...

• ZTE has been found guilty of breaking U.S. law three times, including violating sanctions by selling equipment with American parts to Iran and North Korea.
• The Pentagon has banned the sale of ZTE and Huawei phones at retail stores on military bases, citing concerns that the companies are using their devices to spy on military personnel.
• ZTE and Huawei are both key players in China's race to dominate 5G and the future of mobile communication. The Chinese Communist Party is painting U.S. moves against the Chinese phone makers as efforts to knock China out of the 5G race.

The deal...

• "The U.S. and China are closing in on a deal that would give China’s ZTE Corp. a reprieve from potentially crippling U.S. sanctions in exchange for Beijing removing tariffs on billions of dollars of U.S. agricultural products, said people in both countries briefed on the deal," the Wall Street Journal's Lingling Wei and Bob Davis report.

• Steven Mnuchin is leading the U.S. in negotiating a deal that puts the brakes on actions against ZTE in exchange for China buying down its trade surplus, reports Axios' Jonathan Swan.
• China's trade negotiator, Liu He, is in DC today. Axios contributor Bill Bishop hears that Liu will arrive "with an open checkbook to buy down the deficit but that progress on anything structural will be much harder,” per his Sinocism newsletter.

Go deeper: Trump's grand bargain on China... What Larry Kudlow told Axios earlier today.