In recent months President Trump launched a trade war with China, a nation he’s accused, in vivid terms, of stealing American jobs, wealth, and intellectual property. “We can’t continue to allow China to rape our country, and that’s what they’re doing,” he said during one campaign rally.
Then on Sunday, Trump suddenly became very concerned about protecting Chinese jobs:
Last year the Chinese telecommunications giant, which makes inexpensive smartphones, admitted in U.S. federal court that it violated U.S. sanctions by selling to Iran and North Korea. ZTE agreed to a plea deal involving as much as $1.2 billion in fines, but last month the U.S. Department of Commerce said it didn’t follow through on the agreement, and banned American firms from selling to ZTE for seven years.
The 75,000-employee business was unable to find alternative suppliers and began shutting down its operations last week — but now ZTE might be saved, thanks to Trump. The exact reason for Trump’s abrupt turn around remains a mystery; there are reports suggesting it’s about the midterms, the upcoming negotiations with North Korea, Trump Organization business, or maybe all of the above. Here are the leading theories on why the president developed a soft spot for a sanctions-defying Chinese tech company.
This Is the Only Way to Get a Trade Deal With China
Trump is looking to strike a trade deal with China and avoid the massive tariffs threatened by both sides. High-level talks have made little progress in recent weeks, and according to the Washington Post Trump recently asked his advisers what China wants. He was told that relaxing ZTE’s punishment was a “prerequisite” to substantive discussions with the Chinese.
Chinese officials were furious about the penalties put on ZTE, which they viewed as excessive, but the Trump administration had been resisting their calls to back off. Dennis Wilder, a former China specialist at the CIA who just met with officials in Beijing, said he was told that the Chinese delegation led by Vice-Premier Liu He would not return to Washington for talks without a reprieve for ZTE. Hours after Trump’s tweet it was confirmed that Liu will meet with top administration officials in Washington later this week.
Sources said Trump doesn’t see easing penalties on ZTE as a major concession, though it doesn’t set the best example for other companies that violate U.S. sanctions.
Saving Chinese Jobs Serves Trump’s Larger Goal of Saving U.S. Jobs
ZTE is one of the U.S. telecom company Qualcomm’s biggest customers, so its shuttering would have negative consequences for Americans. In a tweet on Monday afternoon, Trump suggested he was actually focused on helping American companies:
In exchange for backing off of ZTE, U.S. officials are reportedly pushing Beijing to let Qualcomm’s proposed acquisition of NXP Semiconductors move forward (they also want China to relax tariffs on U.S. agricultural products, but more on that later). Qualcomm’s effort had been effectively blocked by a Chinese antitrust review, which was seen as payback for aggressive trade moves by the U.S.
The U.S. investment firm Rangeley Capital noticed that Chinese regulators just changed their view of the merger. “All of a sudden it was a tweet the president put out on ZTE,” Rangeley partner Chris DeMuth Jr. told the Wall Street Journal. “And then [the Chinese regulator] started up the review again.”
The Trump Administration’s Economic Nationalists Are Losing
It appears that Trump’s whims are dictating U.S.-China trade policy, as the White House seemed caught off guard by his tweets and struggled to put out a coherent message. The Post summed up the mixed messages from Commerce Secretary Wilbur Ross:
After Trump’s Sunday tweet, White House officials spent much of the next 24 hours attempting to walk back his statement, saying ZTE’s fate would ultimately be left up to a review by Ross. And Monday afternoon, Ross insisted in a speech at the National Press Club that ZTE would not be a factor in the trade talks, saying, “Our position has been that that’s an enforcement action separate from trade.”
Just three hours later, Trump tweeted again, contradicting Ross’s statement that the issues would be kept apart.
The New York Times suggests that Trump’s abrupt shift is a sign that he’s once again caught between his administration’s “America First” adherents and his more mainstream advisers — and now the economic nationalists are losing out to the squares worried about what a massive trade war will do to the U.S. economy.
The nationalists took their shot when they handed the Chinese a long list of extreme demands during a trip to Beijing last month. Unsurprisingly, the Chinese were not receptive, and now Trump appears to be embracing Treasury Secretary Steven Mnuchin’s efforts to quickly resolve trade tensions before a trade war ravages the economy.
Trump Is Thinking About Other International Problems
Another possible reason for Trump’s shift: he just realized he needs to resolve economic tensions with China before he meets with North Korea’s Kim Jong-un on June 12. As North Korea’s closest ally and biggest trading partner, China will likely play a big role in any deal to end Pyongyang’s nuclear-weapons program. Trump has repeatedly said that he would cut Beijing some slack on trade if they help with North Korea.
Trump Is Thinking About Domestic Problems
Trump sabotaging the economy right before the midterm elections has always sounded like a good way to ensure that Republicans suffer massive losses in November. In practice Trump’s trade dispute with China has already irritated a key Republican constituency: farmers.
In April China retaliated against Trump’s new tariffs by announcing its own tariffs on some U.S. agricultural commodities. Last month Trump floated the idea of solving the problem with new subsidy payments to farmers, but that idea was quickly shot down by fellow Republican lawmakers.
Now, according to the Journal, the Trump administration is worried that the backlash from farmers could further endanger Republican efforts to hold on to the House and Senate in the midterms. China has reportedly suggested it will hold off on the agricultural tariffs if the U.S. goes easy on ZTE.
Trump Is Thinking About How He Can Enrich Himself
About 72 hours before Trump developed a friendlier attitude toward Beijing, the Chinese government agreed to pump $500 million into an Indonesian theme park that will benefit the Trump Organization — and thus the president himself, since he refused to divest from his company when he took office.
The Chinese government just extended a loan to the state-owned construction firm Metallurgical Corporation of China. That company inked a deal with the Indonesian firm MNC Land last week to build a theme park outside Jakarta that will feature several Trump-branded properties. Chinese companies will not be directly financing the Trump properties, but the theme park is a key part of the project. AFP reported last week:
… marketing materials for MNC Lido City refer to the theme park and Trump properties as flagship elements of the development, and corporate filings and internal documents show the Trump Organisation and the president’s sons have been directly involved in various stages of its planning.
“Even if this deal is completely and entirely above board, it simply furthers the perception of impropriety” surrounding Trump’s businesses, Christopher Balding, an economics professor at Shenzhen’s HSBC Business School, told AFP. “Especially with the potential trade war, this is not a good look … Critics will be entirely right to demand answers.”
That may be true, but it doesn’t look like they’re going to get them. When asked to explain how this doesn’t violate the Constitution’s emoluments clause, Deputy Press Secretary Raj Shah referred questions to the Trump Organization — though as Noah Bierman of the Los Angeles Times pointed out, the company can’t speak on behalf of the president.
“You’re asking about a private organization’s dealings that may have to do with a foreign government. It’s not something I can speak to,” Shah said, moving on to the next question.