The United States implemented $34 billion in tariffs on Chinese imports Friday (July 6, 2018), escalating a probable trade war with no perceptible outcome. China immediately responded with “retaliatory tariffs on $34 billion list of goods issued last month, including soybeans, pork and electric vehicles.” In addition, China lodged a complaint with the World Trade Organization while Russia, responding to tariffs on aluminum and steel, imposed “extra duties” on items such “road-building equipment, products for the oil and gas industry, and tools used in mining.” This tit-for-tat, starting with a 25% tariff on $50 billion worth of Chinese goods earlier in 2018, could go on for some time writes Bloomberg:
Neither side shows any signs of backing down. Trump is already eyeing another $16 billion of Chinese goods, and he indicated to reporters Thursday on Air Force One that the final tariff total could exceed $500 billion, almost the same amount that the U.S. imported in 2017.
Boasting that trade wars are good and easy to win, Trump’s frustration is centered around the United State’s trade deficit with China. The President says, Beijing “has used unfair and predatory tactics such as requiring U.S. companies to hand over technology in exchange for access to China’s market.”
This antagonistic view dates back to 2015 (as a Presidential candidate), when he said at a South Carolina rally: “I beat the people from China. I win against China. You can win against China if you’re smart. But our people don’t have a clue. We give state dinners to the heads of China. I said why are you doing state dinners for them? They’re ripping us left and right. Just take them to McDonald’s and go back to the negotiating table.”
- Good Morning America (Nov. 3, 2015): “(China is) an economic enemy, because they have taken advantage of us like nobody in history. They have; it’s the greatest theft in the history of the world what they’ve done to the United States. They’ve taken our jobs.”
- Campaign rally in Indiana (May 2, 2016): “We can’t continue to allow China to rape our country and that’s what they’re doing. It’s the greatest theft in the history of the world.”
- Campaign rally in Manchester (June 20, 2016): “The single biggest weapon used against us and to destroy our companies is devaluation of currencies, and the greatest ever at that is China. Very smart, they are like grand chess masters. And we are like checkers players. But bad ones.”
China isn’t Trump’s sole proprietor on trade deficits. The United States has already increased tariffs on our neighbors in Canada and Mexico and allies in the European Union. All have retaliated with their own tariffs on U.S. goods. It should be noted that Trump erroneously cited a trade deficit with Canada, which he admitted that he made up.
Isn’t Congress responsible for tariffs? Trump cited a “threat to national security”, which has allowed him to bypass Congress by citing “Section 232 of the Trade Expansion Act of 1962.” Long story short: The Secretary of Commerce has the authority to “investigate and determine the impacts of any import on the national security of the United States — and the president the power to adjust tariffs accordingly.”
In addition, the Trump administration began crafting the United States Fair and Reciprocal Tariff Act (that’s right, it’s literal acronym is the FART act). Among other objectives, the FART act would ignore the World Trade Organization’s “most favored nation” principle, allow for reciprocal tariffs, and allow the Administration to increase tariffs without Congressional approval. As of this writing, the FART act is a mass of hot air with no meaningful attempt at legislation.
Regardless, the trade war has established a foothold with neither side backing down.
Part of the United States v China narrative features one company: ZTE Corporation.
ZTE is a Chinese-based telecommunications equipment manufacturer. While they dabble in many hardware products, their primary focus is on smartphones, such as Axon, Blade, and ZMAX. ZTE’s competitors include well-known mobile manufacturers like Samsung, HTC, Apple, Nokia, LG, Sony, among others.
Over the past six years, ZTE has run into trouble with the United States, beginning around 2012 when the FBI investigated allegations that ZTE sold Iran US-made “hardware and software, including a powerful surveillance system, in violation of federal laws and a trade embargo.” Reuters reported that ZTE sold TCI (Telecommunications Company of Iran) a “powerful surveillance system” in a 2010 contract that totaled $130 million.
This act set the stage for an ongoing conflict between the United States and the ZTE corporation.
Four years later, the U.S. Department of Commerce imposed special restrictions on ZTE, preventing the company from buying any technology in the United States without a special license. “China expresses its strong dissatisfaction and resolute opposition”, the Chinese Ministry of Commerce said on its website. “The U.S. move will severely affect normal operations of Chinese companies. China will continue negotiating with the U.S. side on this issue.”
ZTE received multiple reprieves over the ensuing 24 months after the company made efforts to replace their leadership, purging their company President, Chairman of the Board, and appointed nine new members to its 14-member board of directors. They also created the position of “Chief Export Compliance Officer.” In March 2017, ZTE was fined $1.2 billion for violating sanctions by illegally selling US-made goods to Iran and North Korea.
That’s that, right?
“According to the United States Department of Commerce, from 2010 to 2016 ZTE ‘conspired to evade’ America’s embargo against Iran,” writes James Vincent of the Verge. “The Chinese firm sold US-made hardware and software to the country to supply its telecommunications infrastructure. ZTE is also charged with making 283 shipments of equipment (including servers and routers) to North Korea, which is also under US trade embargoes. The US government says ZTE officials repeatedly lied to and misled federal investigators over the course of a five-year investigation. A break came when the US seized a laptop belonging to a ZTE lawyer that contained a trove of documents outlining the company’s illegal sales.”
According to the Department of Commerce, ZTE lied to American “officials about punishing employees who violated US sanctions against North Korea and Iran.” In response, the United States placed a seven-year ban on ZTE, preventing the company from purchasing American goods. The ban was devastating. Within a month, ZTE announced that all “major operating activities” in the United States would cease.
“We are putting the world on notice: the games are over,” said secretary of commerce Wilbur Ross in a statement. “Those who flout our economic sanctions and export control laws will not go unpunished — they will suffer the harshest of consequences.”
National Security Threat?
One significant reason Congress objects to any deal allowing ZTE to do business in the United States relates to national security. The FBI, CIA, and NSA all testified to the Senate Intelligence Committee that Americans should not purchase phones made by ZTE, or Huawei, another major Chinese-based phone-maker. The United States military won’t sell them on military bases, with one presumed threat being the possibility that the Chinese government could track their movements.
“Huawei and ZTE devices may pose an unacceptable risk to the department’s personnel, information and mission,” a Pentagon spokesperson said in a statement to The Wall Street Journal. “In light of this information, it was not prudent for the department’s exchanges to continue selling them.”
That’s that, right?
The involvement of the United States President
President Donald Trump started using ZTE to leverage China into a favorable agreement with North Korea and their nuclear weapons development.
President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!
— Donald J. Trump (@realDonaldTrump) May 13, 2018
By late May, Trump “told lawmakers it had reached a deal that would keep the Chinese telecom firm ZTE alive.”
Under the agreement brokered by the Commerce Department, ZTE would pay a substantial fine, hire American compliance officers to be placed at the firm and make changes to its current management team. In return, the Commerce Department would lift a so-called denial order that is preventing the company from buying American products, the person said.
Congress attempted to block the move, with Democratic and Republican reaching an agreement by reinstating the ban on ZTE from conducting business with U.S suppliers. The agreement, added to the National Defense Authorization Act, was passed by the Senate in mid-June (the House passed a similar measure in May).
On July 5, 2018, Trump “directed Secretary Wilbur Ross and the U.S. Department of Commerce to grant a temporary, 30-day reprieve for ZTE, enabling it to procure vital American parts and software so it may resume its operations.” The agreement, while not technically a violation of the ban, allows ZTE to “continue operating existing networks and equipment and provide handset customer support for contracts signed before April 15.”
Whether or not it began that way, all threads lead to Donald Trump. Many wanted this. Others recognize the threat he poses: He’s offered no coherent plan, imposes childish responses to slights, too strong-headed to admit when he’s wrong, questionable aides and trade hawks working for him. From initiating a trade war, to the reprieve of ZTE, who is cited by our intelligence community as a security threat — an argument Trump hypocritically makes when issuing tariffs against our neighbors and allies — the United States is in the middle of a turbulent era on global trade.