U.S. President Donald Trump has claimed that Chinese telecom firm ZTE will pay a $1.3 billion fine and undergo a significant overhaul of its management team in order to remain operational in North America.
ZTE looked to be in dire straits when it ceased its business in the U.S. earlier this month after a Department of Commerce order banned U.S. partners from selling components to the company in response to it flouting trade bans in Iran and North Korea.
The company has since been reprised — a strategy move within the U.S.-China trade stand-off — but Trump said today that its new life comes at a cost. That’s apparently a $1.3 billion fine, a new management team and board, and “high-level security guarantees.”
Trump previously took to Twitter to break news of ZTE’s reprieve and today, while aiming to score political points, he gave insight into why ZTE is being given another chance.
ZTE has over 70,000 employees, it grossed more than $17 billion in annual revenue and it maintains close ties to the Chinese government. As I wrote earlier this month, a company of its global scale brings significant revenue to U.S. businesses which, beyond more obvious consumer-facing companies, includes component-level partners like Qualcomm, who would be impacted if ZTE were to disappear tomorrow.
Trump’s claim that ZTE “must purchase U.S. parts,” while as yet unconfirmed, suggests the deal is important for ZTE’s U.S. business partners as well as being a key card in working out his administration’s complicated relationship with China.
Still, despite these apparent conditions, the decision to allow ZTE to continue is hugely controversial. Most companies don’t get a second chance for the kind of activities that the Chinese firm has carried out.
The company flouted trade bans to Iran and North Korea, then it lied about them and tried to cover its tracks before finally admitting its guilt. Speaking in April, Trump’s own Commerce Secretary, Wilbur Ross, said:
“ZTE made false statements to the U.S. Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation. ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”
Beyond that, the firm’s close links to the Chinese government have long troubled U.S. security agencies concerned that ZTE equipment was being used by American telecom firms and security agencies.
Here’s what FBI Director Chris Wray told the Senate Intelligence Committee in February:
“We’re deeply concerned about the risks of allowing a company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks.”