JUNE 7, 2018
QUEBEC CITY — French President Emmanuel Macron on Thursday threatened to join with other world leaders to issue a rare rebuke of the United States at a global summit here this weekend, drawing immediate and sharp replies from President Trump.
Macron threatened to exclude the United States from the joint statement issued every year at the end of the Group of Seven summit of industrial democracies, as part of an international pushback against Trump’s efforts to change trade rules.
“The American President may not mind being isolated, but neither do we mind signing a 6 country agreement if need be,” Macron wrote on Twitter. “Because these 6 countries represent values, they represent an economic market which has the weight of history behind it and which is now a true international force.”
Trump responded by accusing Macron and Canadian Prime Minister Justin Trudeau of hurting the United States with unfair trade practices. Trump also said Trudeau is “being so indignant,” an unusually personal attack aimed at one of the U.S.’s closest allies.
“Please tell Prime Minister Trudeau and President Macron that they are charging the U.S. massive tariffs and create nonmonetary barriers. The EU trade surplus with the U.S. is $151 Billion, and Canada keeps our farmers and others out. Look forward to seeing them tomorrow,” Trump wrote.
He followed it up with another tweet targeting Trudeau. “Prime Minister Trudeau is being so indignant, bringing up the relationship that the U.S. and Canada had over the many years and all sorts of other things . . . but he doesn’t bring up the fact that they charge us up to 300% on dairy — hurting our Farmers, killing our Agriculture!” he wrote.
The exchange highlighted President Trump’s contrasting negotiating approaches to allies and adversaries. The president traded barbs with the French president just hours after his administration relaxed its punishment of the Chinese telecom company ZTE, a concession that could pave the way for a trade deal with China.
Leaders in Europe, Canada and Mexico are furious over Trump’s invocation of national security to justify tariffs on their exports of steel and aluminum to the United States. When the president arrives Friday in Quebec, he will find U.S. alliances badly frayed, turning Trump’s tariffs into the focus of the G-7 summit.
Those tensions boiled over in recent days during testy presidential phone calls with British Prime Minister Theresa May, Trudeau and Macron.
In contrast, Trump has shown a willingness to conciliate China in hopes of a trade deal he can bill as a major achievement.
“The traditional definition of allies is certainly being called into question,” said Douglas Rediker, executive chairman of International Capital Strategies, a financial advisory firm. “If you look at it holistically, then it doesn’t make sense. But it’s consistent with the purely transactional nature of this president and the political imperative of being seen as cutting a big deal on a big issue.”
ZTE will pay a $1 billion fine and agree to fund a new in-house compliance team staffed by U.S. experts, Commerce Secretary Wilbur Ross said.
The move eases a seven-year ban on ZTE buying American parts, which Commerce levied in April. At the time, the Chinese government complained that the action could put the company, a major employer and star of the Chinese technology industry, out of business and make it impossible to conclude a U.S.-China trade deal.
The decision to soften ZTE’s penalty stoked a rebellion among Senate Republicans, who see the company as a national security risk.
After staking out a tough position on trade with China — demanding in March that Beijing enact sweeping changes in its industrial policies — Trump appears to be moving toward a less ambitious deal involving Chinese promises to buy more U.S. products.
Sen. Bob Corker (R-Tenn.) introduced legislation Wednesday that would block the president from imposing tariffs on national security grounds — like those Trump levied on the European Union, Mexico and Canada — without congressional approval. After 17 months of tumult in U.S. trade policy, Corker’s bill represents the most assertive congressional response to date.
Trump began Thursday with a tweet reiterating his long-held view that U.S. trading partners have routinely taken advantage of the world’s largest economy.
“Getting ready to go to the G-7 in Canada to fight for our country on Trade (we have the worst trade deals ever made),” he wrote on Twitter.
The Commerce Department action came after Trump tweeted last month that he planned to help ZTE because “too many jobs in China” would otherwise be lost. The president’s extraordinary intervention in an enforcement matter drew widespread criticism on Capitol Hill from members of both parties.
Reaction Thursday was no warmer.
“China is eating our lunch, and this president is serving it up to them,” House Minority Leader Nancy Pelosi (D-Calif.) said Thursday
Senate Minority Leader Charles E. Schumer (D-N.Y.) called for Congress to reverse the decision, but that would be difficult. Sen. Chris Van Hollen (D-Md.), however, on Thursday announced a bipartisan amendment to the annual defense spending bill — backed by Sens. Tom Cotton (R-Ark.) and Marco Rubio (R-Fla.) — that would reverse Trump’s effort to weaken ZTE’s penalty.
In an early-morning televised interview, Ross announced that the United States and China had reached a 23-page definitive agreement on ZTE.
“We are literally embedding a compliance department of our choosing into the company to monitor it going forward. They will pay for those people, but the people will report to the new chairman,” Ross told CNBC. “This is a pretty strict settlement. The strictest and largest settlement fine that has ever been brought by the Commerce Department against any violator of export controls.”
Under the agreement, ZTE also is required to change its entire board of directors and executive team within 30 days.
The government will hold $400 million of ZTE’s money in escrow as a hedge against future violations by the company, which last year settled criminal and civil charges in connection with violations of U.S. sanctions on Iran and North Korea.
ZTE was found to have shipped its sophisticated telecommunications equipment to both countries, which the State Department lists as supporters of terrorism, and to have repeatedly lied to U.S. investigators about its actions.
The company paid $892 million in fines, with an additional $300 million suspended to encourage compliance with the settlement. The $400 million escrow likely includes those suspended funds, according to Doug Jacobson, a Washington trade attorney.
Jacobson said the new agreement expands provisions in last year’s settlement, which provided for an independent compliance monitor to oversee the company’s activities.
Carlos Gutierrez, who was commerce secretary under President George W. Bush, said the change in the U.S. penalty likely averted a worsening in relations with China. Since the original U.S. action would have put ZTE out of business, Chinese authorities would have retaliated against a prominent U.S. company, he said.
“I think where we ended up on ZTE is in a better place,” said Gutierrez, who has been critical of other Trump administration trade policies. “The Chinese public was up in arms because they believed the U.S. was destroying ZTE.”
But Jacobson questioned the president’s decision to intervene. “This is an extremely dangerous precedent to intertwine law enforcement matters with other trade and foreign policy issues,” he said. “This is unprecedented — to have another government go to the U.S. government and have the president agree to make a change in exchange for something else.”
Ross insisted Thursday that the ZTE matter was “quite separate and apart” from ongoing trade talks with China. But the president has repeatedly spoken of the enforcement matter as part of efforts to overhaul the U.S. commercial relationship with China. To satisfy Trump’s demand for a reduction in the $375 billion in goods U.S. trade deficit with China, the government in Beijing has reportedly offered to buy up to $70 billion more each year in U.S. products.
That offer is conditioned on the president dropping his threat to impose tariffs on up to $150 billion in Chinese imports.
Scott Kennedy, an expert on Chinese business at the Center for Strategic and International Studies, called the emerging deal “a very thin result to get out of all this trade angst with China” and said that the president had “frittered away” his negotiating leverage.
Other analysts said that trading leniency on ZTE for China’s agreement to buy more U.S. products would leave major issues unresolved. The Trump administration has complained about a range of Chinese industrial policies that it says disadvantages U.S. companies, including compulsory licensing arrangements and rampant theft of trade secrets.
“It doesn’t really move the ball forward on the deeper structural issues in U.S.-China technology and trade,” said Samm Sacks, a senior fellow in the CSIS technology program.
Eric Altbach, a former deputy assistant U.S. trade representative who spent years negotiating with the Chinese, said the United States may have agreed to go easier on ZTE in exchange for China approving an American company’s acquisition of a Chinese firm.
U.S. chipmaker Qualcomm has been trying to buy NXP Semiconductors of the Netherlands, but given the company’s global reach, the deal had to be approved by numerous countries’ antitrust regulators, including China’s. The Chinese government has delayed the deal as trade frictions intensified.
With the ZTE matter resolved, the deal may advance. Both companies’ share prices rose Thursday, with NXP up nearly 5 percent.
“The hope is accommodating China’s concerns on ZTE will open the door to favorable decisions on Qualcomm and other deals,” said Altbach.
Amid mounting trade tension between the United States and China, lawmakers have grown increasingly critical of the national security threat from telecom companies such as ZTE and Huawei. The Pentagon in May ordered retail outlets on U.S. military bases to remove from the shelves smartphones made by the two companies.
There was no immediate comment from the Chinese government on the ZTE agreement. Mei Xinyu, a researcher with a Chinese Commerce Ministry think tank, said a deal would ease tensions. But the Chinese worry that Trump will not stick to any agreement.
“How can the United States convince China that a trade agreement with them is of value, rather than a waste of paper that the Americans can scrap unilaterally?” Mei said. “Personally, I hope the trade war ends well, but I can’t help but worry about the U.S. changeable mind.”