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Trump administration will let ZTE reopen in exchange of fine and security guarantees

President Donald Trump announced plans to lift the seven-year sales ban that crippled ZTE, forcing it to cease major operations earlier this month.

Published onMay 26, 2018

  • President Trump said on Twitter it would allow ZTE to reopen.
  • ZTE will need to pay a $1.3 billion fine and offer security guarantees.
  • The announcement drew ire from U.S. politicians from both sides of the aisle.

President Donald Trump announced plans to lift the seven-year sales ban that crippled ZTE, forcing it to cease major operations earlier this month.

It’s the latest twist in a saga of geopolitics and high technology that has its roots in ZTE’s violations of U.S. sanctions against Iran back in 2010. On the backdrop of a looming U.S.-China trade war and increased tension between the two powers, the ZTE ban is also a bargaining chip for the Trump administration’s disputes with China.

Reiterating previous comments, Trump tweeted on Friday afternoon that it “let [ZTE] reopen”, signaling that U.S. has reached a deal with the Chinese telecom giant.

Senator Schumer and Obama Administration let phone company ZTE flourish with no security checks. I closed it down then let it reopen with high level security guarantees, change of management and board, must purchase U.S. parts and pay a $1.3 Billion fine. Dems do nothing….
— Donald J. Trump (@realDonaldTrump) May 25, 2018

Trump said ZTE would have to pay a $1.3 billion fine and commit to offering “high level security guarantees” and “a change of management and board”. ZTE would also have to purchase a majority of its components from U.S. companies, which is slightly ironic, considering ZTE’s reliance on U.S.-made components got it into this situation in the first place.

…but complain and obstruct. They made only bad deals (Iran) and their so-called Trade Deals are the laughing stock of the world!
— Donald J. Trump (@realDonaldTrump) May 25, 2018

Sources told Bloomberg that ZTE would also have to give American “compliance officers” access to its operations. It remains to be seen whether the Chinese government will agree to this demand, considering the sensitive nature of ZTE’s business dealings.

Trump did not reveal more details about the agreement with ZTE, but used the opportunity to give flak to the Democrats over “bad deals” and “Trade Deals [that] are the laughing stock of the world”.

The announcement was met with criticism from both sides of Congress. A bill that would prevent the Department of Commerce to walk back the ZTE sanctions could still stop the deal in its tracks.

US, China, and the smartphone in your pocket

ZTE, China’s second largest telecom company after Huawei, is currently on life support. Without crucial hardware components, ZTE’s factories and most of its 75,000 employees are sitting idle. The ban stops U.S. companies like Google, Qualcomm, and Intel from doing any kind of business with ZTE. By some estimates, ZTE uses components from American suppliers in up to 90 percent of its products.

As Donald Trump signaled he would allow ZTE to survive, the company has been making plans to resume operations within hours from the official lift of the sales ban.

ZTE’s nightmare is not over until the official end of the ban. The eventual fine, lost sales, and suspended operations will amount to at least $3 billions in losses. Still, it’s a better outcome than the sure death the company was facing.

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