Why the U.S.-China trade talks could hinge on ZTE

Chinese phone maker ZTE may emerge as a decisive piece in the tense game of chess between the U.S. and China on trade. 

The sides are reportedly zeroing in on an agreement that would remove U.S. sanctions on the Chinese telecommunications giant, which is at risk of shutting down after the Trump administration barred domestic components manufacturers from selling to the company because it violated sanctions on doing business with Iran and North Korea. President Trump surprised observers on Sunday when he opened the door to a deal by pledging to reverse that ban, saying the sanctions destroyed too many Chinese jobs. 

In return for rescuing ZTE, Mr. Trump may be hoping to persuade China to drop proposed tariffs on U.S. agricultural and other products. The prospect of a deal seemed to stem fears in soybean and other agricultural markets. Reuters reported China is "willing in principle" to import more U.S. agricultural products in return for easing penalties on ZTE.   

Beijing's chief economic negotiator, Vice-Premier Liu He, was headed to Washington on Tuesday for more talks with his U.S. counterparts.

Another factor that could help pick the lock on the trade negotiations is Mr. Trump's relationship with Chinese president Xi Jinping, suggested White House economic adviser Larry Kudlow. He told Axios there's a "little bit of a bromance" between the two, reiterating that the Trump administration wants to avoid a full-fledged trade war with China. 

"The time is right for China to make changes they should have been making for the past 15-20 years," Kudlow said. "Everyone around the world agrees with the president that China's unfair and often illegal trade practices have to be changed... I call it a trade coalition of the willing."

Mr. Trump's move to rescue ZTE, even as a step toward winning concessions from China on other trade issues, has drawn fire both among Democrats and Republicans in Congress. Media reports also describe tension within the administration, with White House trade adviser Peter Navarro and United States Trade Representative Robert Lighthizer -- hawks on trade -- reportedly questioning the need for a softer line.

"Problem with ZTE isn't jobs & trade, it's national security & espionage," Florida senator Marco Rubio tweeted. "Any telecomm firm in #China can be forced to act as tool of Chinese espionage without any court order or any other review process. We are crazy to allow them to operate in U.S. without tighter restrictions."

Derek Scissors, a resident scholar at the American Enterprise Institute, a right-leaning think tank, wrote in a blog post that proposing to lift sanctions on ZTE raises concerns that "President Trump will be guilty of what he correctly accused his predecessors of -- letting China harm the United States."

"The president said as recently as last month that trade wars are 'easy to win.' But here he'd be acting as if China has so huge a trade advantage over the U.S. that we're too afraid to even enforce our own laws. It's hard to imagine a more fundamental surrender," he said. "Let's give President Trump credit and assume he has demanded more." 

Clock is ticking

As the trade talks continue, the U.S. faces what could be a critical juncture over the next several weeks. Here are some key deadlines to watch: 

• The Office of the U.S. Trade Representative will hear testimony from 130 companies and industry groups this week in hearings to discuss proposed tariffs on China. They include the National Association of Manufacturers, Farmers for Free Trade to the U.S. Fashion Industry Association and ITI, which represents the technology industry. Mr. Trump has asked the Treasury Department to offer recommendations on tariffs by May 21. 

• Speaker Paul Ryan has set a May 17 deadline for a final deal on the North American Free Trade Agreement, or NAFTA. That means time is quickly running out to clinch an agreement so Congress can vote on it later this year.

• Europe is preparing retaliatory measures as its exemption from steel and aluminum tariffs imposed in March expire June 1.  The EU wants to improve trade relations with the U.S., but won't make concessions to solidify the exemption because it needs to consult with its 28 members, European Commission Vice-President Jyrki Katainen told a news conference, according to Reuters. 

• Congress is drafting legislation to more stringently regulate foreign investment in U.S. companies, including from China. The Senate Committee on Banking, Housing and Urban Affairs will mark up its version of the bill, known as Foreign Investment Risk Review Modernization Act, or FIRRMA, on May 22, a step to hone the legislation before it moves to the full Senate for a vote. The measures aim to strengthen the Committee on Foreign Investment in the United States, or CFIUS, a panel that reviews cross-border mergers for their impact on U.S. national security.

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