Trump Throws Lifeline To Chinese Electronics Firm In Hopes Of Trade Deal

As President Donald Trump and his own intelligence team butt heads over the fate of a troubled Chinese electronics company, questions swirl over why Trump is so focused on a company half a world away.

Industry experts say that in the complex world of modern electronics, the fate of ZTE Corp. could directly or indirectly affect scores of U.S. companies and thousands of American jobs.

Both Democratic and Republican legislators have rained criticism on Trump for saying he was seeking to save Chinese jobs and rescue a company that they believe is a potential national security threat.

Trump tweeted Wednesday that any support by his administration to rescue ZTE Corp. “pertains to the larger trade deal” now on the table with Chinese negotiators. It marked the third time this week that Trump has tweeted about the Shenzhen-based electronics giant, a sign that the company is at the top of his mind.

A giant with some 80,000 employees spread in 160 countries, ZTE Corp. sold 44 million smartphones globally last year, about half of them to American consumers.

Inside those phones are lots of American components and knowhow, including Google’s Android operating system. Last year, ZTE procured components and software from 211 U.S. companies. Those companies span the country from Massachusetts to California.

Trump is not only at loggerheads with intelligence agency chiefs over the threat that ZTE may pose to U.S. national security, he’s also seeking to reverse his own Commerce Department, which last month barred U.S. companies from selling components and software to ZTE for seven years after finding that the firm breached U.S. sanctions on Iran.

For lots of American consumers, ZTE Corp. might be largely unknown.

“They are a low-end provider, $100 to $150 smartphones. They are really under the radar,” said Jeff Fieldhack of Counterpoint Technology Market Research. “People don’t hang onto them long, like (they do) an iPhone or a Galaxy, so they have high churn.”

The company, which is one of the world’s top five biggest electronics manufacturer, sells smartphones, tablets and mini projectors as well as wireless equipment, set-top cable boxes, transmitters and receivers.

In countries like Indonesia, Spain, Austria and India, ZTE is a big, well-known player.

In the United States, though, ZTE Corp. buys more than it sells. Last year, the company bought $2.3 billion worth of components in the United States and sold about $1.7 billion, mostly smartphones through cellular service providers and retailer Best Buy.

Suppliers include titans of U.S. technology, such as Qualcomm, the San Diego mobile technology firm that sold ZTE about $500 million last year in chip sets for smartphones. Fellow chip makers Intel, Texas Instruments and Qorvo, of Greensboro, North Carolina, also are suppliers as is Corning, which provides antimicrobial glass screens to ZTE.

Some smaller suppliers sell less to ZTE but the sales comprise a major portion of their revenue. They include Acacia Communications of Maynard, Massachusetts, and Oclaro Inc.of San Jose, California, both of which provide optical parts for smartphones.

The stock price of both U.S. companies fell off a precipice after the Commerce Department on April 15 issued its ban on U.S. sales to ZTE.

Last week, ZTE announced that it had ceased its main business operations due to the ban, and The Washington Post reported that the Chinese have pleaded for relief during trade talks earlier this month in Beijing. After a two-week break, the talks resume in Washington Thursday between Chinese Vice Premier Liu He and a U.S. team led by Treasury Secretary Steven Mnuchin.

On Sunday, Trump tweeted that he and Chinese President Xi Jinping “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!”

A day later, Trump said in a tweet that ZTE “buys a big percentage of individual parts from U.S. companies.”

The tweets drew howls from some Democratic legislators who said Trump cared more about saving jobs in China than protecting workers at home. “American jobs first, Mr. President,” Senate Minority Leader Chuck Schumer tweeted, mocking Trump’s campaign promise to focus on saving jobs in the United States. Senators from both parties criticized the security dimensions of a potential rescue of ZTE.

“If ZTE is a security threat, then it is a security threat and needs to be dealt with as such – not as a bargaining chip in trade negotiations,” tweeted Sen. Mark Warner, the ranking Democrat on the Senate intelligence committee.

Sen. Marco Rubio, a Florida Republican who is also on the intelligence committee, said China is seeking “to dominate the key industries of the 21^st century. … Why are we helping them achieve this by making a terrible deal on ZTE?” Rubio asked in a tweet.

Trump Wednesday tweeted a denial that his negotiators were seeking to rescue ZTE and “folding as the media would love people to believe.”

A former Commerce Department official who dealt with the security implications of high-technology trade with China, James A. Lewis, said Trump spotted the ZTE issue as a way to get potential leverage with Beijing in broader trade talks.

“The Chinese don’t want to make any concessions. Suddenly, there is something they need. I think (Trump) saw it as a possible chip in the trade talks. And he’s right on that,” said Lewis, who now is senior vice president at the Center for Strategic & International Studies, a Washington think tank.

Placing ZTE on the table for a broader trade deal with China has unsettled national security officials, who repeatedly have warned against purchasing products from ZTE and another Chinese telecom and electronics company, Huawei.

On Tuesday, William Evanina, head of the National Counterintelligence and Security Center, concurred with senators who brought up a 2012 House report that cited ZTE and Huawei as security risks.

At a Senate intelligence committee hearing Feb. 14, Sen. Tom Cotton, an Arkansas Republican, asked six intelligence agency and law enforcement chiefs if they could recommend that U.S. citizens buy ZTE or Huawei products.

“None of you raised your hand,” he said. – McClatchy DC