An Unsteady Hand On the Helm

“Because it’s 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.” — Candidate Donald J. Trump 3 Nov 2015 responding to a question on China.

“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!”  — The President on Twitter on 13 May 2018

To some, developments surrounding the giant Chinese telecommunications firm ZTE may be a little too technical and down in the weeds.  I think it is a perfect example of how erratically and whimsically the current president operates.  It may also demonstrate that the president is primarily interested in policies that benefit him or his company rather than the nation as a whole.

Stick with me while I outline what happened.  It really is not that complicated.  Consider these facts regarding ZTE.

• ZTE is a Chinese government-owned telecommunications company, based in China, that manufactures cellphones and other equipment with clients in 160 countries and research centers around the world.
• ZTE uses U.S. technology and parts that make up nearly half of the materials they use.  They are also the fourth largest seller of smartphones in the U.S.
• In 2012 the U.S. House Intelligence Committee released an in-depth report on ZTE (and another Chinese company named Huawei) saying that the company poses a national security threat because they are stealing U.S. technology.  The report recommends that “U.S. government systems, particularly sensitive systems, should not include Huawei or ZTE equipment, including component parts.” There was, and presumably still is, a concern that ZTE may be using their products to spy on the U.S. or to provide the opportunity to disrupt essential activities.
• In 2016 the Commerce Department found that ZTE was violating sanctions laws by selling devices, that included U.S. made parts, to Iran, North Korea, Sudan, Syria and Cuba — all under embargoes at the time.
• In April, the Commerce Department banned it from buying U.S. technology or products for seven years.
• The Defense Department banned the sale of ZTE and Huawei phones on military bases through the Post Exchange and Navy Exchange systems as they “may pose an unacceptable risk to the department’s personnel, information and mission.”
• Last week ZTE reported that they were stopping all “major operating activities” which was widely understood to mean that they were going out of business because they could no longer get U.S. parts needed to continue their operation.

So, to summarize, the president is helping a Chinese company that is well-known as a sanctions violator and a threat to U.S. national security to get back into business by ordering the U.S. Commerce Department to “get it done!”  Why?

To be blunt, no one is quite sure.  But of course many people are never quite sure why Mr. Trump does many of the things that he does.  There are several theories, however.

The U.S. is about to enter into a major trade war with China if negotiations taking place this week fail.  Chinese President XI was reported to be “furious” about the decision to ban sales of parts to ZTE and threatened to impose harsh sanctions on the U.S. and/or to walk away from the trade negotiations.  So, apparently, the president on Sunday caved to his demands before ever reaching the negotiating table because it was politically more important to him to get a “deal” than to protect national security.  (Some analysts speculate that North Korea’s Kim Jong Un saw how quickly the president gave in to get something he wanted (“better trade deals with China”) and thus, among other reasons, threatened to walk away from talks with the U.S. in order get concessions.  But I digress.)

As part of that political calculation, Mr. Trump may be, rightly or wrongly, putting the interests of his supporters above national security.  When the Trump administration unilaterally imposed tariffs on Chinese imports earlier this year, the Chinese retaliated by refusing to buy U.S. soy beans.  China is the second-largest market for U.S. agricultural exports.  According to the Department of Agriculture, soy beans are the main crop sold to them.  By the beginning of May, China reportedly cancelled all purchases of U.S. soy beans and turned to Canada and Brazil for their supply.  If the ban continues, it will have a major economic impact in farm communities around the country, but especially in the mid-west.  Farmers are rightly worried that once the Chinese shift to other markets, they will never return to buying U.S. soy beans, whether or not tariffs and trade wars are resolved.  To me, this is yet one more example of Mr. Trump making a grand pronouncement and acting tough without consideration, or more accurately without understanding, the ramifications of his actions.  Other nations will not be dictated to by our president, especially other strong countries with their own interests at stake.

Other possible reasons may be that he may wrangle concessions from China as a quid pro quo to helping ZTE, thus helping to avoid a deep and wide-spread trade war.  Mr. Trump may also have done it because he needs China’s help and cooperation in dealing with Kim Jong Un in North Korea.

Whichever reason, or combination of reasons, explains his abrupt about face, Mr. Trump’s action sets a dangerous precedent.  Besides continuing to reinforce the international perception that Mr. Trump is mercurial and cannot be trusted — thus raising questions as to why enter any deal with the U.S. — it violates the long-standing U.S. principle that trade decisions should not be based solely on domestic political reasons.  This is particularly crucial with respect to trade enforcement decisions.  Once other leaders discern that Mr. Trump is willing to cave on issues of trade or national security for purely domestic political reasons, expect more of them to demand concessions for their own issues.

Additionally, putting politics above enforcement weakens our positions on the rule of law and the normal course of interactions between nations.  If  there are no rules, or if the rules can change on Mr. Trump’s whim, we lose all standing to insist that other governments abide by their own agreements.  There appears to be little to no consideration by Mr. Trump as to what happens next when he makes these arbitrary decisions.  As I wrote in my last piece in this space, a prudent decision maker and government leader will consider the consequences of decisions and the subsequent actions that must take place — whether successful, or not successful, or when perverse and unexpected consequences result.

Finally, there are those in and out of government that worry that the Negotiator-in-Chief really is not that good at it.  In this case and others, he demonstrates a propensity to give up leverage (in this case the actions against ZTE) before getting the other side to offer up their own concessions.  In this case China offered nothing in return for the president rescinding the actions against ZTE.  Based on his tweet on Monday, it may be that Mr. Trump’s biggest concern is keeping his good buddy President XI happy.

“ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.”