Trump proposes heavy fine and management change at ZTE rather than impose sanctions on it

With U.S. lawmakers crystallizing their stance on ZTE, which they describe as a “serial and pre-meditated violators” of U.S. law, and given the national security implications surrounding the case, it would be interesting to see the results of the U.S. China trade negotiations, which centers around ZTE.

U.S. President Donald Trump has floated a plan that involves fining ZTE Corp and shaking up its management rather than impose crippling penalties in the Chinese telecom firm.

The proposal however faced a wall of resistance in the U.S. Congress with Democrats and Republican lawmakers accusing the president of giving way to Chinese pressure to ease up on ZTE – a company that has admitted to violating sanctions on Iran.

While the U.S. President’s efforts are aimed at narrowing down the $335 billion annual trade deficit between the United States and China, for Beijing ZTE is a key player, if not a vehicle, in its strategic Made in China 2025 policy.

While speaking at the White House, Trump stated U.S. technology companies have been hurt by the U.S. ban on ZTE.

“They can pay a big price without necessarily damaging all of these American companies,” said Trump.

Instead, his proposal includes fining ZTE up to $1.3 billion and shake up of its board.

It is not clear whether Trump has the legal authority to impose new financial penalties.

Sticking to their stand, 26 senators, which include John Cornyn, the No. 2 Republican and the chamber’s top Democrat, Chuck Schumer, have urged the U.S. administration, in a letter, to keep penalties in place for a “serial and pre-meditated violators of U.S. law, such as ZTE.”

Furthermore, the Senate Banking Committee also voted 23-2, which makes it harder for Trump to modify existing penalties on Chinese telecommunications firms. The move has also drawn the support of Republicans including Tom Cotton and Democrats like Chris Van Hollen.

The House of Representatives, controlled by the Republicans, is weighing a proposal aimed at blocking the sale of ZTE and Huawei technologies products in the U.S., until officials from the national security certify that they are safe to use in the country.

As per several sources familiar with the discussions at hand, the U.S. administration is weighing a proposed trade deal aimed at lifting the U.S. imposed 7-year ban on ZTE, which prevents U.S. chipmakers and other companies from selling components to ZTE. In return, China would eliminate tariffs on U.S. agriculture or agree to buy more farm products from the U.S.

The U.S. Department of Defense (DOD) has also stopped selling ZTE’s handsets and smartphones in stores on its military bases, citing potential security risks.

“I can assure you that whatever changes or decisions that are made in Commerce will deal with the national security issues,” said Mnuchin to a U.S. Senate appropriations subcommittee.

As per Marco Rubio, a Republican Senator, China has received the upper hand in recent negotiations on trade and North Korea denuclearization.

“China knows there are those in the administration that desperately want a deal,” said Rubio.

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