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President Trump just blinked on China

The president appears to have crawled way out on a limb to make a mediocre deal.

President Trump and Chinese President Xi Jinping shake hands after making joint statements at the Great Hall of the People in Beijing in November 2017. (Reuters)

In the last 48 hours President Trump issued two very bizarre tweets about the Chinese telecommunications firm ZTE:

There are a few bizarre aspects to these tweets. First of all, I am pretty sure that white working-class voters preferred Donald Trump because they were concerned about jobs being lost to China. Indeed, if memory serves, many of these Trump voters were rather irate about China allegedly stealing American jobs. Trump himself got pretty worked up about this during the 2016 campaign.

Second, even ardent free-traders like myself would acknowledge the Trump administration had just cause to crack down on ZTE.  The Chinese firm admitted last year that it had violated U.S. trade sanctions on North Korea and Iran; it reached a settlement in which the firm agreed to pay criminal fines in excess of $800 million. Last month, however, the Commerce Department banned all sales by U.S. firms to ZTE for not complying with the 2017 deal. The Defense Department subsequently banned U.S. military bases from selling any ZTE devices because of the potential security risk they imposed.

ZTE appears to be tailor-made for the Trump approach to China: a bad actor benefiting from national champion status in China but violating U.S. laws and threatening U.S. national security.

Which leads to the easy question: Why is President Trump talking up ZTE? My Washington Post colleagues Damian Paletta, David Lynch, and Josh Dawsey hint at confusion within the Trump administration:

Senior U.S. officials struggled Monday to explain and act on President Trump’s abrupt decision to rescue Chinese telecom giant ZTE — a move that caught many of them by surprise. …
Sunday, in a stunning reversal that officials said came without a formal policy process at the White House, Trump tweeted that he had ordered Commerce Secretary Wilbur Ross to save ZTE from collapse, saying the company’s failure would cost too many jobs in China. …
After Trump’s Sunday tweet, White House officials spent much of the next 24 hours attempting to walk back his statement, saying ZTE’s fate would ultimately be left up to a review by Ross. And Monday afternoon, Ross insisted in a speech at the National Press Club that ZTE would not be a factor in the trade talks, saying, “Our position has been that that’s an enforcement action separate from trade.”
Just three hours later, Trump tweeted again, contradicting Ross’s statement that the issues would be kept apart.

The Wall Street Journal’s Lingling Wei and Bob Davis report that Trump’s volte-face on ZTE is part of a larger deal:

Under the deal being discussed, the U.S. would relax last month’s order banning American companies from selling components to ZTE, which has long been viewed as a Chinese national champion for its effort to take a global lead in establishing 5G mobile Internet networks. That Commerce Department ruling, based on allegations that ZTE didn’t comply with a previous settlement over illicit sales to Iran, would cripple not only the company itself but also other state-controlled Chinese firms including China’s three large telecom carriers, Beijing officials have said. Commerce said last month that it had agreed to give ZTE a chance to present more evidence in the case.
In return for the potential relief on ZTE, the people say, China would agree to hold back tariffs on a variety of U.S. agricultural products it announced in early April as retaliation for U.S. tariffs on Chinese steel and aluminum exports. The U.S. products targeted include ginseng and pork.
China would also ease some nontariff restrictions on American farm products as part of the potential pact, according to the people. For instance, since late last year, China has tightened quality testing for U.S. soybeans, resulting in the crop getting held up at Chinese ports.

This does not seem like a great deal to be honest. AEI scholar Derek Scissors told the WSJ, that, “We are giving up on punishing ZTE for the Chinese restoring the trade status quo.” Kevin Wolf, who oversaw the launch of the ZTE case in the Obama administration, told the Financial Times’s Sam Fleming and Shawn Donnan, “I am speechless. … I’m highly confident that a [U.S.] president has never intervened in a law-enforcement matter like this before.”

So Trump is way, way out on a limb here. Why has he crawled out there?

In March I suggested, after the framework for a renegotiation of the Korea-U.S. trade agreement was announced, that the president was not as tough on trade as conventional wisdom believed.

If this negotiation proves to be the norm, then the administration is more cynical on trade than I previously thought. The Trump team appears comfortable pocketing token concessions and claiming victory rather than implementing tariffs. Like the president, the administration’s trade negotiators are phony-tough. Which is fine by me, because real trade wars are expensive and produce no winners.

Sure enough, there are strong hints that Trump’s preference for a deal, any deal outweighs whatever resolve he has to play brinkmanship. As the Journal story noted, “The Trump administration worries that a backlash among U.S. farmers to tariffs could endanger Republican efforts to keep control of the House and Senate in midterm elections.” The Post story notes:

Talks with China had bogged down in recent days, a potential problem for Trump because he needs Chinese help with the upcoming North Korea summit.
The president has asked several White House advisers recently what the Chinese want and what must be done to advance the trade talks, according to two people briefed on the discussions, who spoke on the condition of anonymity to talk about sensitive matters.
Trump is determined to make a deal with China and has been told in recent days that relaxing restrictions on ZTE was a “prerequisite” to get the Chinese to engage in substantive discussions.

As the Financial Times editorializes, this is a heckuva way to run a railroad:

Mr Trump’s remarkable conversion — he not only lifted the restrictions on ZTE but actively wished for the company’s revival — appears to be entirely due to exchanges with Xi Jinping, China’s president, ahead of a visit from a Chinese delegation to Washington for talks about trade.
In this context, the move fits in all too well with two of Mr Trump’s huge weaknesses as a president. First, he is addicted to making deals with other powerful leaders on the spur of the moment and with barely any thought of the consequences either to the goal he is pursuing, or indeed other interests of the US. Second, he has contempt for the normal functioning of government, and particularly the interagency process that painstakingly works out policy in the US’s complex and multifaceted administration.

All of this is consistent with Monday’s observation that this administration is shorthanded and scrambling when it comes to trade issues.

This is not the worst outcome that the Trump administration could have produced. That would have been an escalating trade war. But as I noted last year, Trump has a “clear preference for cutting any deal at the expense of cutting a good deal.” And this is a pretty mediocre deal.