Trump Says U.S. Reconsidering ZTE Penalties as `Favor' to Xi

(Bloomberg) -- President Donald Trump said his administration is reconsidering penalties on Chinese telecommunications maker ZTE Corp (HK:0763). as a personal favor to the country’s president, Xi Jinping.

“The president asked me to look into that,” Trump told reporters at the White House on Tuesday. He said there is no deal yet to reduce U.S. penalties that have caused the company to suspend its business, but that “you’re really hurting American companies also” by shutting down ZTE and the review is “a favor” to Xi.

Treasury Secretary Steven Mnuchin said earlier that the U.S. didn’t mean to “put ZTE out of business” by penalizing the company for violating U.S. sanctions against Iran and North Korea.

The U.S. Commerce Department’s review of penalties against ZTE Corp. for the violations will bear in mind any threats to American security, Mnuchin said Tuesday during a hearing before a Senate Appropriations subcommittee in Washington.

“Anything that they consider will take into account the very important national security issues, and those will be addressed,” he said.

The U.S. ban on ZTE for breaching terms of a settlement over sanction-breaking sales to Iran and North Korea has become entwined in the trade dispute between the U.S. and China. The countries announced at least a temporary trade truce and dropped their tariff threats on Saturday after setting up a framework for addressing trade imbalances.

The Shenzhen, China-based company depends on U.S. components, such as chips from Qualcomm (NASDAQ:QCOM) Inc., to build its smartphones and networking gear. ZTE suspended all major operations because of the ban and is relying on its cash reserves for daily expenses, including salaries of its 75,000 employees.

Senate Democratic Leader Chuck Schumer on Tuesday castigated the Trump administration’s plan to review penalties on ZTE, saying on the Senate floor that the action signals to China that “they can roll over us on issue after issue.” He added that on Friday he spoke directly to Trump for half an hour about the matter, and also to other administration officials.

“The president and Secretary Mnuchin, what they are doing sends a dangerous signal to businesses around the world that the United States is willing to forgive sanction violations or reduce penalties,” Schumer said. “It emboldens foreign companies to play fast and loose with U.S. sanctions when we should be putting the fear of God into these companies, especially one that was as brazen as ZTE.”

Trump said May 13 on Twitter that he would seek to get ZTE back into business after discussing the issue with Xi. The president said “too many jobs in China” had been lost, marking an about-face in his criticism of China’s trade practices.

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Larry Kudlow, Trump’s top economic adviser, said on Sunday that management changes at ZTE would be among remedies needed before the U.S. would consider a reprieve.

Export Controls

The Trump administration isn’t willing to loosen exports controls on sensitive technology, said Mnuchin on Tuesday.

China has frequently argued that the trade imbalance can be fixed by the U.S. lifting strict export curbs on high-technology goods. One of China’s trade demands in talks with the U.S. this month included removing a ban on selling integrated circuits to the Asian nation.

“Export control items are absolutely not on the table for discussions,” said Mnuchin. “We would in no way look to loosen that.”

To the contrary, the U.S. is “aggressively” examining ways to protect U.S. technology through an inter-agency panel that reviews foreign acquisitions in the U.S., known as Cfius, Mnuchin said. The Trump administration proposed legislation to expand that panel’s powers, known as the Foreign Investment Risk Review Modernization Act, or Firrma.

“I can assure you this president is very focused on protecting American technology,” said Mnuchin.