What is ZTE, what did Trump do, and why might Barr have been so worried?

ZTE is a controversial Chinese company

ZTE is a major Chinese telecommunications manufacturer that has been the object of U.S. suspicion for years. In 2012, the Republican chairman and ranking Democrat of the House Intelligence Committee wrote a highly critical report about ZTE and another Chinese telecommunications company that has also been in the news: Huawei. They noted continuing concerns about ZTE’s ownership structure, relationship to the Chinese Communist Party, and compliance with U.S. export control laws.

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The last of these is what got ZTE into trouble. A U.S. investigation found ZTE had broken U.S. law by exporting U.S. technical equipment to North Korea and Iran. ZTE pleaded guilty to the charges, paid a large fine and agreed to abide by a plea agreement. In addition, ZTE was given a corporate death sentence — a “denial order” that would prevent any U.S. tech company from supplying components to it for seven years. However, the death sentence was suspended as long as ZTE complied with the plea agreement.

The problem — according to the Commerce Department — is that it didn’t live up to its side of the deal. It was supposed to discipline senior employees who were involved in the exports, but it failed to reprimand them, paid them full bonuses and then made “false statements” to U.S. authorities.

This led the United States to activate the denial order so ZTE would not be able to buy the semiconductors it needed for its products. ZTE said this would “severely impact” its survival. No one believed ZTE could survive without access to U.S. suppliers. As the Asia Times noted, the U.S. action can be seen as an example of what Abraham Newman and I have called in our research “weaponized interdependence,” the use of global networks (in this case technology supply networks) for coercive purposes.

Trump saved ZTE from going under

The Bolton-Barr conversation refers to what happened next. After conversations with Chinese President Xi Jinping, Trump announced on Twitter that he was working with Xi to end the ban on “massive Chinese phone company, ZTE,” because, “Too many jobs in China lost. Commerce Department has been instructed to get it done!” The final result was that ZTE paid a $1 billion fine and agreed to extensive internal monitoring — but survived.

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Trump’s willingness to bargain with Xi caused shock and consternation among D.C. foreign policymakers. The Council on Foreign Relations’ Adam Segal, an expert on China and cybersecurity, told The Washington Post he was “flabbergasted.” It is unusual for the United States to negotiate away legal penalties in exchange for political and economic concessions. Of course, the United States pays attention to global strategy and politics when it launches legal investigations, but it does not like it when investigations and penalties appear to be nothing more than bargaining chips.

This doesn’t look like another Ukraine scandal

Despite both Bolton’s and Barr’s unhappiness, no evidence has emerged yet to suggest this resembled the allegations around Trump and Ukraine. Unless something happened that we don’t know about yet, Trump did not swap concessions on ZTE for personal political advantage. Instead, Trump is widely believed to have offered concessions in return for China’s continued involvement in trade negotiations and concessions. The reasons for Barr’s and Bolton’s disquiet are probably more subtle.

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First, they were probably concerned that Trump’s yielding weakened the international force of U.S. law. As a former Obama official described it, “Now we’ve opened up every law enforcement action that the United States takes, where other countries will think, ‘Aha, I can impose this economic pain or this tariff or this market access restriction, and I can use this as a chit to trade off against more favorable treatment with the law enforcement case.’ ” The force of U.S. law depends on its credibility, which can be damaged when major penalties are watered down or waved away.

Second, it is likely they were specifically concerned about ZTE and China. The reason many distrust ZTE is because they think it is overly influenced by the Chinese government and it is possible that China could compromise ZTE equipment to spy on the United States and its allies. It is notable that Republicans as well as Democrats distrust China. Hawks such as Sen. Marco Rubio (R-Fla.) were furious at the ZTE deal and tried to pass legislation to get it overturned so ZTE would be shut down. Bolton, too, was hawkish, leading to fears in China when he was appointed as national security adviser. It is not surprising Bolton would be unhappy at what he probably saw as a sweetheart deal for a Chinese company that posed a security threat to U.S. interests.