May 15, 2018

Axios PM

By Mike Allen
Mike Allen

Situational awareness: North Korea has cancelled talks with South Korea scheduled for Wednesday, and threatened to cancel next month's summit between President Trump and Kim Jong-un over joint U.S.-South Korean military drills. Go deeper.

1 big thing: Trump's ZTE precedent

Photo Illustration: Axios visuals, Photo: Fred Dufor/AFP/Getty Images

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, Axios' Erica Pandey writes.

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.

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.

Why it matters: China could use Trump's apparent pivot on ZTE as a stepping stone to free Huawei. Or the ZTE case could be a lesson for the U.S. in negotiating with China.

How the ZTE deal could fare:

  • "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."

The bottom line: 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.

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

Bonus

A giant panda enjoys a shower to cool off from the heat at Beijing Zoo on Monday. Temperatures were in the 90s. Photo: VCG via Getty Images

2. What you missed

Tom Wolfe, New York, New York, late 1965. (Photo by Jack Robinson/Hulton Archive/Getty Images)

  1. Gaza updates: At least two Palestinians have been killed today by Israeli forces near the Gaza border, the AP reports, citing health officials.
  2. Gina Haspel looks set for confirmation: The CIA director nominee picked up support from several more Democratic senators today. Details.
  3. Facebook says Mark Zuckerberg won't be testifying in the U.K. More.
  4. Scoop: Lime, one of the startups filling sidewalks with electric scooters, is raising up to $500 million in new funding. Go deeper.
  5. RIP: Tom Wolfe, a journalist and novelist who pioneered the "New Journalism" movement in the 1960s, died yesterday, age 88, after being hospitalized for an infection. Go deeper with the N.Y. Times' full obituary.
3. 1 fun thing

"Expect 'Roseanne' to cool it on politics and concentrate on family stories when it returns for the second season of its revival next year," the AP writes.

  • "The show’s return exceeded all expectations this spring, with the support of Roseanne Barr’s character for President Donald Trump attracting attention."
  • "Dungey noted that as the first season went on, the focus shifted from politics to family. She said that direction will continue next season."
Mike Allen