The Chinese proposal is entitled, “Framework Arrangement on Promoting Balanced Development on Bilateral Trade,” and I obtained an English version of the document, which is the Chinese government’s negotiating position heading into the next round of talks. That round begins this week when Xi Jinping’s special economic envoy Liu He returns to town.
Bullet point 5 is entitled, “Appropriately handling the ZTE case to secure global supply chain.”
“Having noted China’s great concern about the case of ZTE, the U.S. will listen attentively to ZTE’s plea, consider the progress and efforts ZTE has made in compliance management and announce adjustment to the export ban,” the document states.
Trump took a big step in that direction Sunday when he tweeted that he had instructed the Commerce Department to help get ZTE “back into business, fast,” only weeks after the Commerce Department cut off its supply of American components because it violated U.S. sanctions on sales to North Korea and Iran. Trump’s tweet set off a panic both inside and outside the administration among those who worry that Trump is backing down from his key campaign promise to stand up to China’s unfair trade practices and economic aggression.
As Sen. Marco Rubio (R-Fla.) pointed out Monday, the problems with ZTE go well beyond sanctions-busting. The Federal Communications Commission has proposed cutting ZTE and other Chinese “national champion” companies off from U.S. infrastructure development funds because the U.S. intelligence community views their technology as a national security risk.
White House spokeswoman Lindsay Walters issued a rare tweet clarification, explaining that Trump wanted Commerce Secretary Wilbur Ross to “exercise his independent judgment” to resolve the ZTE case “based on its facts.” Ross told the National Press Club on Monday that the ZTE restrictions are “separate from trade.” Still, Ross added, he is looking at “alternative remedies” for ZTE and expects to find some “very, very promptly.”
What the heck happened here? Some officials believe that the camp of Trump officials trying to avoid a trade war with China — led by Treasury Secretary Steven Mnuchin and National Economic Council Director Larry Kudlow — are winning the never-ending battle for the president’s limited attention. Mnuchin is reportedly trying to control the China negotiations and elbow out U.S. Trade Representative Robert Lighthizer and Office of Trade and Manufacturing Policy Director Peter Navarro.
My Washington Post colleagues reported that Trump may have gotten ahead of a brewing “mini-deal” whereby the United States provides relief for ZTE and, in return, China eases its restrictions on U.S. agricultural imports. If that’s the case, the Trump administration “just got blackmailed,” according to Derek Scissors, resident scholar at the American Enterprise Institute.
“Our actions against ZTE might have been excessive, but what you can’t do is say, ‘Just kidding’ when the Chinese start complaining about it,” he said. “The idea that we did it and then reversed ourselves is awful.”
As I’ve written before, a short-term deal would a penny-wise, pound-foolish approach, because confronting China’s large-scale unfair and illegal practices should be an urgent strategic priority. The United States gets one shot to show China that we are serious about forcing it to change its behavior — and, if it won’t, that we are serious about defending ourselves.
Trump is signaling he’s willing to give up the one piece of leverage that is actually getting the Chinese government’s attention before receiving anything concrete in return. That’s not only bad negotiating. It also sends the message that the United States doesn’t have the stomach for the larger economic battles with China to come.
Nobody knows whether Trump will approve whatever “deal” Mnuchin and company put on his desk after the next round of talks. Trump may change his mind again. But here are some of the other demands in China’s proposal, to watch out for on Trump’s Twitter feed:
- The United States commits to eliminating the sanctions imposed after China’s crackdown on protesters in Tiananmen Square in 1989
- The United States relaxes export restrictions on technology such as integrated circuits
- The United States allows U.S. government agencies to purchase and use Chinese information technology products and services
- The United States agrees to treat Chinese investment and investors equally to those from other countries and place no restrictions on Chinese investment
- The United States agrees to ensure Chinese businesses can participate in U.S. infrastructure projects
- The United States agrees to strengthen protection of Chinese intellectual property. (Seriously!)
- The United States agrees to drop its anti-dumping cases against China at the World Trade Organization
- The United States agrees to terminate its investigations into Chinese intellectual property theft and not impose any of the sanctions Trump already announced
“They expect to be treated the same way our treaty allies are treated, which is ridiculous,” Scissors said. Many of the demands in the document are crazy, he said, “But we actually accepted one of China’s crazy demands.”
If Trump concedes to Beijing’s other demands, he would be declaring the United States’ surrender in the economic struggle against China before the fight really begins. Trump administration officials are now saying that won’t happen. But Trump’s unforced error on ZTE undermines the entire effort.