Editorial Board

Keep ZTE Out of China Trade Talks

The company needs to be punished, not used as a bargaining chip.

ZTE is a double offender.

Photographer: Wang Zhao/AFP/Getty Images

President Donald Trump has indicated, via Twitter, that he’s prepared to make an enormous concession to smooth trade talks with China, offering upfront to ease sanctions on ZTE Corp., the country’s second-largest telecom equipment maker. But ZTE is being punished for deliberately violating U.S. sanctions — twice. The company’s punishment needs to be enforced, not used as a bargaining chip. If Trump goes ahead anyway, he stands to have a very hard time making sure the U.S. gets its money’s worth.

The American case against ZTE isn’t in dispute. The company was singled out in 2016 for doing business with Iran in violation of U.S. sanctions. A $1.2 billion settlement last year was supposed to include internal punishment for the ZTE officials involved. Instead, according to the U.S. Commerce Department, the firm paid those executives bonuses. The U.S. then banned ZTE from buying irreplaceable U.S. components for seven years, effectively killing its business.

It is possible to conceive of different punishments for ZTE that would cause the company material pain without destroying its ability to operate. Commerce Secretary Wilbur Ross is said to be exploring such options.

But if Trump were to soften the blow now, the cost to U.S. credibility would be substantial, weakening the effect of its sanctions on Iran, North Korea and others. That cost would hardly be reduced if the U.S. were able to improve its position in trade talks with China.

After all, the greatest threat the U.S. has to address in those talks is China’s use of unfair means to pursue technological superiority over the U.S. If anything, the ZTE case has made Chinese officials more determined to achieve self-sufficiency in key high-tech sectors. Lightening ZTE’s punishment would only encourage Chinese companies to continue cheating, and not only on sanctions.

Trump’s injudicious tweeting may have already diminished U.S. bargaining power. But it’s not too late to take ZTE off the table.

    —Nisid Hajari, Mary Duenwald.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

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