Trump strikes deal with China's ZTE, imposes $1B fine and installs compliance team

John Fritze | USA TODAY

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WASHINGTON — The Trump administration stuck a deal Thursday with Chinese telecom ZTE to let the company do business in the U.S. even though it previously violated sanctions against Iran.

China’s ZTE will pay a $1 billion penalty and will embed a U.S.-appointed compliance team, terms that are similar to those President Trump discussed last month when he revealed that Chinese leaders had asked him to look into the matter.

"We will closely monitor ZTE’s behavior," Commerce Secretary Wilbur Ross said in a statement. "If they commit any further violations, we would again be able to deny them access to U.S. technology" and levy another $400 million in fines.

Senator Schumer and Obama Administration let phone company ZTE flourish with no security checks. I closed it down then let it reopen with high level security guarantees, change of management and board, must purchase U.S. parts and pay a $1.3 Billion fine. Dems do nothing.... — Donald J. Trump (@realDonaldTrump) May 25, 2018

Trump asked the Commerce Department to investigate the restrictions on ZTE in April following a request from Chinese President Xi Jinping. Commerce had imposed a seven-year ban on ZTE doing business in the U.S. in April as part of a package of penalties levied after the company sold American-made products to Iran, a violation of U.S. sanctions.

Republicans and Democrats have questioned the relaxed penalty, arguing it does not align with Trump’s tough trade stance on China. Trump has countered that U.S. companies were also hurt by the ban because they could no longer sell parts to the firm.

More: Trump's tough talk on China's ZTE little concern for tech giant, experts say

“President Trump should be aiming his trade fire at China, but instead he inexplicably aims it at allies like Canada, Mexico and Europe,” Senate Minority Leader Chuck Schumer, D-N.Y., said in a statement. “When it comes to China, despite his tough talk, this deal with ZTE proves the president just shoots blanks.”

Analysts predict the fine, which is likely to be paid by the Chinese government, will have little impact on the phone maker. The decision to embed a U.S.-appointed compliance team is potentially more stringent than the management purge Trump initially floated.

The Commerce Department said the compliance team will be in place for a decade. The team will monitor ZTE’s adherence to U.S. export control laws — an arrangement the department described as the most stringent requirements it has ever imposed.

Trump has indicated he views the handling of ZTE as part of his administration's broader effort to renegotiate trade conditions with China. His administration has imposed tariffs on steel and aluminum that are targeted at Beijing, and has threatened to raise barriers on other Chinese-made products.

"We executed a definitive agreement with ZTE,” Ross told CNBC Thursday. “And that brings to a conclusion this phase of the development with them."