Last week, smartphone giant ZTE shut down its “major operating activities” after the Trump administration imposed a crippling seven-year export ban on the company. But on Sunday, Donald Trump signaled that ZTE might get a reprieve:
President Xi of China, and I, 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!
— Donald J. Trump (@realDonaldTrump) May 13, 2018
It’s a remarkable change of tone for a president who long railed against China for stealing American jobs.
ZTE is China’s number-two smartphone maker, and as recently as last year it was the number-four smartphone vendor in the US. But the company is facing a de facto corporate death sentence after US officials caught the company covertly sending telecommunications equipment with significant American-made components to Iran and North Korea in violation of US export restrictions.
According to the Trump administration, ZTE had “employed multiple strategies in an attempt to conceal and obscure the true nature and extent of the company’s role” in transactions that moved US-made technology to Iran and North Korea. “As a result of the conspiracy, ZTE was able to obtain hundreds of millions of dollars in contracts with and sales from Iranian entities to ship routers, microprocessors, and servers” that were subject to US export restrictions.
Last year, ZTE reached a deal with the Trump Administration that required the company to pay $890 million in fines and discipline dozens of senior ZTE executives for participating in the scheme. But US officials say ZTE cheated on the deal, giving those executives their full 2016 bonuses, and then lied about it to American officials.
The US responded by imposing a seven-year moratorium on exporting American-made technology to ZTE. That’s a huge problem for the company because its smartphones are heavily reliant on American technology.
Many of ZTE’s phones are built around Qualcomm chips, and its phones run Android. While the underlying Android operating system is open source, key Google-made apps and Google’s app store are not. It’s difficult to sell an Android phone anywhere outside of China without the software.
So the seven-year ban on access to American technology made it almost impossible for ZTE to continue in business.
Unsurprisingly, having the US government shut down a major Chinese technology company angered Chinese President Xi Jinping. And Jinping has some leverage here. China is one of the world’s largest economies and has been hitting back against American trade restrictions with new trade barriers against American exporters. On top of that, Trump is hoping China will pressure North Korea to make concessions at next month’s summit between Trump and North Korean leader Kim Jong Un.
It’s unclear what concessions Trump is seeking—or what China might be willing to offer—in exchange for relaxing sanctions against ZTE. But with China’s powerful president going to bat for ZTE, the Chinese phone giant may not be dead yet.