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Trade War

Trump justifies ZTE reversal saying company 'buys American parts'

Beijing may offer relief to US farmers in return for easing of sanctions

ZTE, one of the world's top 10 smartphone makers, has put production on hold after U.S. sanctions cut off its access to key technology.

WASHINGTON -- U.S. President Donald Trump posted a new tweet about Chinese smartphone maker ZTE on Monday, saying that the company procures American parts. The president seemed to be justifying his 180-degree turn on a previous decision to ban the company from acquiring U.S. parts, as lawmakers on both sides of the aisle voiced criticism on the about-face.

"ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies," Trump tweeted on Monday afternoon.

In an apparent attempt to quell the uproar in Congress, the president added: "This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi [Jinping]."

The president's initial tweet on Sunday raised eyebrows when he said that he and China's Xi were working to give the smartphone maker "a way to get back into business, fast."

Chinese Foreign Ministry spokesperson Lu Kang welcomed the decision saying on Monday: "We highly appreciate these positive remarks on the ZTE issue." Vice-Premier Liu He will visit Washington for trade talks from Tuesday to Saturday, he confirmed.

The Wall Street Journal reported that Beijing is considering concessions to allow completion of Qualcomm's takeover of NXP Semiconductors of the Netherlands in exchange for Washington easing the ZTE ban. The takeover bid has been delayed by an antitrust review by Chinese regulators.

According to the Journal, the move appeared to be part of a broader bargain under which China would drop its plan to impose tariffs on U.S. agricultural exports. Trump will be seeking concessions at this week's trade talks to relieve pressure on U.S. farmers, who are a key part of his voter base.

White House principal deputy press secretary Raj Shah said on Monday that Trump has been tough on Beijing regarding trade issues, but that ZTE "is part of a very complex relationship the U.S. has with China."

The U.S. Department of Commerce last month banned ZTE from buying U.S. technology for seven years on charges of illegally exporting such tech to Iran and North Korea and misleading the U.S. government. Backed into a corner, the company was forced to freeze production and sales of smartphones and other mainstay products. Beijing worried that the damage could spread to other companies in ZTE's orbit, including subcontractors.

After the U.S. introduced steep import tariffs on Chinese goods in March, Beijing struck back with a list of possible duties on major U.S. imports ranging from aircraft to soybeans -- a major threat to the agricultural sector, which is a key source of Trump support. China has refrained from official action, but appears to be quietly targeting U.S. exports in general, as well as squeezing soybean imports, which fell year-on-year for three straight months through April.

Tom Sleight, president and CEO of the U.S. Grains Council told the Nikkei Asian Review: "We are confident the negotiators understand the issues at hand between the U.S. and China, and we are glad the two countries are talking."

In the initial talks, Beijing appealed to the U.S. to ease up on ZTE, while U.S. negotiators asked China to narrow its trade surplus by $200 billion. This week, in return for lenience, the Chinese side may offer some concrete concessions -- possibly including easing tariffs or taking other steps to lighten up on U.S. farmers, as well as buying more crude oil or natural gas, or lowering automobile duties.

But any move to ease up on ZTE would likely face strong internal opposition. U.S. commerce officials have said the sanctions were not directly related to trade matters. Some in the government and Congress also strongly suspect that companies like ZTE and larger rival Huawei Technologies -- which may face similar punishment -- are connected to Chinese government spying activities.

Past trade negotiations "have been so one sided in favor of China, for so many years, that it is hard for them to make a deal that benefits both countries," Trump said in a separate tweet Sunday. "But be cool, it will all work out!" he added.

Nikkei staff writer Issaku Harada in Beijing contributed to this report.

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