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A public policy blog from AEI
President Trump’s Sunday ZTE tweet still makes me angry. The one where he said we should save Chinese telecom giant ZTE from US sanctions because “Too many jobs in China lost.” Now Chinese vice-premier Liu He is in DC to make a trade deal. The president’s tweets on the topic this morning were more in character and hopefully signal a shift back.
Why would President Trump, of all people, suddenly be concerned with helping a highly-subsidized Chinese tech competitor that evaded sanctions against Iran and North Korea? He’s been wrongly accused of being paid off, through Chinese financing of a project in Indonesia his business is involved in.
The president and his family, along with most people in international commerce, have had many dealings with Chinese companies. It’s hard to avoid China. He shrugged off those deals pretty easily while attacking the PRC on the campaign trail and while in office.
Moreover, Chinese involvement in this Indonesia project dates back two years, before the election, and it remains unclear that the project will even go forward. It makes for a very unlikely candidate for a (possible) deal that could sharply shift President Trump’s view.
A better explanation is he just listened to the wrong people. It’s been widely speculated that there is a China (trade) dove camp led by Treasury Secretary Mnuchin and a hawk camp led by United States Trade Representative Lighthizer.
When Mnuchin and Lighthizer led a team to Beijing two weeks ago, they were apparently told by the Chinese that ZTE must be spared or no deal was possible. For those afraid of taking on China, helping ZTE therefore immediately became the top priority. This dovish side, probably led by Secretary Mnuchin, had President Trump’s ear before the Sunday tweet.
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That’s a guess as to the why. It requires no guessing to show the president made a (temporary?) mistake. There are many reasons, but two stand out.
First, President Trump is certainly demanding concessions for letting ZTE off the hook, most likely more American exports. But a reduction in the trade deficit is absolutely not worth undermining US law, especially when China is involved. The PRC does not have rule of law and letting them get away with breaking our laws is a recipe for disaster.
We have the obvious problem that the president just ended the Iran deal, where the ZTE case could make it seem Iran sanctions can be broken as long as American exports rise. A more subtle problem is Chinese violations of US law actually hurt our exports and cost jobs. The chief example: When the PRC steals American intellectual property, it makes their companies and workers illegally more competitive, so our companies and workers lose out.
President Trump knows this, and his administration launched an investigation into coercive Chinese acquisition of intellectual property. The outcome was a US threat to impose tariffs which, in turn, reveals an aspect of the first ZTE tweet that most have overlooked. The PRC’s top demand wasn’t us withdrawing the tariff threat; they countered with their own tariff threat. The top demand was relief for ZTE, because that hurt China worse.
ZTE is a central government-controlled state-owned enterprise. These are the companies the Communist Party relies on to dictate the direction of the Chinese economy, and putting them at risk is the best way to pressure the Party. If you want to “beat China,” you don’t rescue ZTE, you target many more Chinese state firms.
You target them for using intellectual property stolen from Americans. You block their access to our market just like our access to the Chinese market is blocked by the subsidies state firms receive. You consider whether their assistance to North Korea, construction activity in the South China Sea, or other international behavior should be sanctioned.
Hurting giant state enterprises hurts the Communist Party. It’s a better tactic than tariffs and much better than rescuing ZTE. President Trump was right to confront predatory Chinese behavior, but then strangely reversed course on Sunday. It’s important he gets back on track.
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