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 negotiations would also ease roadblocks in China faced by a U.S.
semiconductor company Qualcomm Inc., whose proposed acquisition of NXP Semiconductors NV
of the Netherlands has been held up by Beijing. China’s Commerce Ministry has
pledged to immediately restart its review of the acquisition, a person close to
the agency said. The ministry has held up a number of multibillion-dollar
cross-border deals being pursued by U.S. companies over the past few months.
ZTE is a Shenzen-based telecommunication-equipment producer that has
been hamstrung by a U.S. ban on component sales to the firm.
A deal isn’t completed and could fall apart as discussions continue, particularly
since the U.S. side is sharply divided over how to deal with China. On Sunday,
President Donald Trump said in a tweet that he was working with Chinese
President Xi Jinping to get ZTE “a way to get back into business, fast. Too
many jobs in China lost.” He said the Commerce Department has been instructed
to “get it done!”
The tweet took many in Mr. Trump’s inner circle by surprise, said people
involved in the discussions, and wasn’t preceded by interagency discussions on
the policy. Treasury Secretary Steven Mnuchin, who has been leading discussions
recently with Chinese officials in Washington, has been the key player in the
ZTE deal discussions, said people involved in U.S. talks with China.
Under the deal being discussed, the U.S. would relax last month’s order banning American companies from
selling components to ZTE, which has long been viewed as a Chinese national
champion for its effort to take a global lead in establishing 5G mobile
internet networks. That Commerce Department ruling, based on allegations that
ZTE didn’t comply with a previous settlement over illicit sates to Iran, would
cripple not only the company itself but also other state-controlled Chinese
firms including China’s three large telecom carriers, Beijing officials have
said.
President Xi of China, and I, are
working together to give massive Chinese phone company, ZTE, a way to get back
into business, fast. Too many jobs in China lost. Commerce Department has been
instructed to get it done!
In return for the potential relief on ZTE, the people say, China would
agree to hold back tariffs on a variety of U.S. agricultural products it
announced in early April as retaliation for U.S. tariffs on Chinese steel and
aluminum exports. The U.S. products targeted include ginseng and pork.
China would also ease some nontariff restrictions on American farm
products as part of the potential pact, according to the people. For instance,
since late last year, China has tightened quality testing for U.S. soybeans,
resulting in the crop getting held up at Chinese ports.
The Trump administration worries that a backlash among U.S. farmers to
tariffs could endanger Republican efforts to keep control of the House and
Senate in midterm elections.
A deal would be a kind of confidence-building exercise as China’s
chief economic envoy, Liu He, is expected to arrive in Washington on
Tuesday for talks through the end of the week. The two sides hope to put
together a preliminary deal resolving their trade fights, which have roiled
world markets.
After Mr. Trump’s tweet on Sunday, U.S. investment firm Rangeley Capital noticed
an almost instantaneous change in Chinese regulators’ attitude about the
proposed merger between Qualcomm and NXP Semiconductors. Chinese regulators
previously had held up approval of the deal in response to growing trade
tensions, including the U.S. action against ZTE.
“All of a sudden it was a tweet the president put out on ZTE,” said
Rangeley partner Chris DeMuth Jr. “And then [the Chinese regulator] started up
the review again.” Rangeley is an investor in NXP.
Disputes between the world’s two largest economies include U.S. tariffs
on Chinese steel and aluminum exports, U.S. allegations that China forces
American companies in China to transfer technology to their Chinese partners
and U.S. accusations that ZTE conducted illicit sales to North Korea and Iran.
More broadly the U.S. wants China to reduce the $375 billion U.S. trade deficit
in goods with China and increase imports of U.S. products.
The negotiations are complicated by mistrust on both sides. The U.S.
wants to make sure that any concessions the Chinese make can be verified and
aren’t followed by new barriers that disadvantage U.S. companies. The Chinese
want to be certain that a settlement with the U.S. won’t be followed in a year or
two by another broad-based attack on Chinese economic practices.
The two sides have been at loggerheads for months, trading threats of
tariffs and other sanctions. One big change has been the prospect of a deal
between the U.S. and North Korea to eliminate North Korea’s nuclear weapons.
China’s aid is crucial for that deal to be successful.
Complicating matters, the U.S. side is bitterly divided between Mr.
Mnuchin and others in the administration. U.S. Trade Representative Robert
Lighthizer and White House trade adviser Peter Navarro want a tougher U.S. line
against China and deep changes in Chinese practices, including the elimination
of subsidies that help Chinese companies compete internationally. Forcing those
changes could require the U.S. to go through with threats and levy tariffs on
as much as $150 billion of Chinese imports, moves that would disrupt the
relationship and could sink markets.
The unfolding deal is already kicking up criticism from trade allies of
the administration. “It’s outrageous,” said American Enterprise Institute China
scholar Derek Scissors. “We are giving up on punishing ZTE for the Chinese
restoring the trade status quo.”
Mr. Scissors, who has consulted with the Trump administration on China
policy said, the prospective deal “shows we have nothing like the resolve
necessary to take on the Chinese.”
The Chinese were more hopeful about the outcome. “The two sides will
work together for positive and constructive outcomes for the upcoming
consultations,” Lu Kang, China’s Foreign Ministry spokesman, said at a regular
briefing Monday. Mr. Lu, who didn’t elaborate, said Mr. Liu will be in
Washington until Saturday.
Click here for the original article from The Wall Street Journal.