U.S. lawmakers will allow President Trump’s deal with China’s ZTE Corp. to remain in place, agreeing to a key Chinese demand in the broader trade dispute between the two largest economies, three sources familiar with the matter said.

Negotiators from the Senate and House of Representatives agreed late Thursday to abandon efforts to reinstate harsher sanctions against the Chinese telecommunications-equipment maker as part of the defense policy bill, the people said. Both chambers are expected to vote on the National Defense Authorization Act next week.

Draft language advanced in the House this year focused on a procurement ban for ZTE products, whereas the Senate approved language that would reinstate the ban on U.S. companies selling to ZTE. The White House strongly opposed any efforts by Congress to block its deal for ZTE to resume business.

In April, the Trump administration announced a seven-year ban on U.S. exports to ZTE after it said the company violated sanctions agreements by selling American technology to Iran and North Korea. The move led ZTE to announce it was shutting down.


Trump reversed course in May, saying he was reconsidering penalties on ZTE as a personal favor to Chinese President Xi Jinping. Later that month, his administration announced it would allow the company to stay in business if it paid a new fine, changed its management and provided “high-level security guarantees.”

Following through on the promise, the Commerce Department last week lifted a ban on American firms selling products to ZTE after the company paid the final tranche of a $1.4-billion penalty by placing $400 million in escrow at a U.S. bank. Members of Congress from both parties had blasted the Trump administration for helping ZTE.

Republican Sen. Marco Rubio of Florida, a national security hawk who was pushing for the sales ban to remain in place, said a congressional deal on legislation to tighten restrictions on foreign investment into the United States came at the cost of backing down on ZTE.

Late Tuesday, Treasury Secretary Steven T. Mnuchin and Republican lawmakers reached a deal to bolster the existing review process for the Committee on Foreign Investment in the United States, or CFIUS, an interagency panel that examines foreign investment for security concerns. If the agreement holds, the legislation may be attached to the defense bill.


“This deal on #CFIUS is good news. The bad news? They had to cave on #ZTE in order to get it,” Rubio said Friday on Twitter. “So chances that a #China controlled telecomm will not just stay in business, but do so here inside the U.S. sadly just went up. #BadTradeoff.”

Sen. Chris Van Hollen, a Maryland Democrat who sponsored the original language to reinstate the sales ban on ZTE, called the final outcome “weak and shameful.”

“Despite bipartisan support to put American national security before jobs in China, the Republican leadership refused to take any real, substantive action on ZTE,” Van Hollen said in a statement. “Instead, they joined President Trump in bowing to Beijing. It’s weak and shameful.”

China had demanded the ZTE issue be addressed by the Trump administration during high-level trade talks in May and June to avert a trade war. Those talks have broken down, and the conflict since has escalated as the Trump administration slapped tariffs on $34 billion worth of Chinese goods, inviting retaliation from China. In an interview aired Friday, Trump threatened to impose duties on all Chinese imports to the United States, which were valued at about $500 billion last year.


Leonard and Wasson write for Bloomberg.