Jul 20, 2018

Congress drops plan to block Trump's ZTE deal

ZTE"s research institute in Tianjin, China. Photo: Zhang Peng/LightRocket via Getty Images

Congress will not push to reinstate a Trump administration ban against Chinese phone maker ZTE, which President Xi Jinping successfully lobbied President Trump to lift, reports Bloomberg, citing sources familiar with the matter.

Why it matters: Lawmakers' initial effort to block Trump's ZTE deal was the last obstacle the Chinese company — a repeat violator of U.S. sanctions and considered a national security threat by the Pentagon — faced before returning to business as usual.

Timeline:

  • In April, the Commerce Department issued a 7-year ban on American companies selling parts to ZTE because the Chinese firm was found guilty of repeatedly skirting U.S. sanctions by selling phones with U.S. parts to Iran and North Korea. The Pentagon also banned ZTE phones from military bases due to concerns about espionage.
  • The ban led to the effective shutdown of ZTE — revealing the company's reliance on U.S. tech.
  • In May, Xi approached Trump, and Trump directed the Commerce Department to re-examine ZTE's case.
  • In June, the Trump administration struck a deal with the company: It would be allowed to buy from American companies if it switched up leadership, paid hefty fines and allowed U.S. watchdogs inside to company to ensure compliance.
  • When the deal was announced, lawmakers pushed legislation to reinstate Commerce's original ban by attaching it to a must-pass defense bill. But that part of the bill has been dropped, per Bloomberg.
  • ZTE has executed on the Trump administration's demands, and in July, was back in business.

The bottom line: ZTE's fate was a clear example of the leverage the U.S. has over Chinese tech, and the company's resurrection sets a dangerous precedent for U.S.–China negotiations amid an escalating trade war.

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