Bad news for ZTE: US Senate plots to crush Trump’s deal as Republican Senator Bob Corker rails against trade action

The US senate took a successful step towards reversing Trump’s ZTE deal on Tuesday, while an attempt to help Congress block his trade actions failed. Meanwhile, ZTE is to start trading stocks again on Wednesday

PUBLISHED : Tuesday, 12 June, 2018, 11:40pm
UPDATED : Wednesday, 13 June, 2018, 10:13am

A bipartisan group of US senators is trying to reverse the Trump administration deal that saved Chinese telecommunications giant ZTE Corp from the brink of collapse, by using an amendment in the annual defence bill.

The amendment will appear in the 2019 National Defence Authorisation Act, which is expected to go to the Senate for a vote this week. The Senate’s bill will have to be reconciled with the US House version of the defence bill that passed in May.

ZTE to replace board, fire senior management under US deal

The measure would reinstate the punishment that the Commerce Department originally imposed against ZTE, which crippled the company.

ZTE was banned in April from purchasing any US components for seven years after broke a 2017 penalty agreement that came after it was caught illegally trading with Iran and North Korea.

And in a separate but similar move on Tuesday, Senator Bob Corker made a passionate but doomed attempt to give Congress the power to block any of Donald Trump’s tariffs, telling his peers that they were weak for not standing up to the president.

Corker, a Republican who is not running for re-election, was also trying to amend the defence bill so that Congress would have the authority to stop the tariffs on steel and aluminium that Trump placed on a number of allies, including Canada and the European Union this month.

Republican Senator James Inhofe, the defence bill’s manager, objected to Corker’s bid to attach his amendment to the bill, dooming the effort.

Lifting of US export ban brings relief to ZTE staff, who had feared for jobs

Corker excoriated his colleagues in an impassioned speech on the Senate floor.

“We might poke the bear!” said Corker, parodying his fellow Republicans’ deference to Trump. “But my gosh, if the president gets upset with us, then we might not be in the majority! And so let’s don’t do anything that might upset the president.”

While Corker’s attempt to quash a brewing trade war with US allies failed, the attempt to stymie Trump’s aid for ZTE succeeded - and will now move on in the legislative process.

“Last night was a bad night for ZTE supporters,” analysts with Veda Partners, an investment advisory firm based in Bethesda, Maryland, wrote in a research report.

“It appears that there was a massive breakdown in communication between Treasury/Commerce/White House staff and US senators and their staff.”

Lifting of ZTE ban safeguards thousands of China jobs

Senate staff members “insist they need to be better informed about the how’s and why’s of the ZTE deal.”

The amendment is spearheaded by Senators Chris Van Hollen, Democrat of Maryland, and Tom Cotton, Republican of Arkansas.

Its Democratic co-sponsors are Senators Chuck Schumer of New York, Richard Blumenthal of Connecticut and Bill Nelson of Florida. The Republican co-sponsors are Senators Marco Rubio of Florida and Susan Collins of Maine.

The action adds to the uncertainty over whether the US on Friday will move to implement its announced US$50 billion tariffs on Chinese goods.

Trump had said the ZTE deal was a precursor to any broader US-China trade negotiations.

Lawmakers’ objections to Trump’s softening on ZTE have escalated in recent weeks.

A number of senators took to Twitter to rebuff Trump’s decision to save ZTE. Senator Jeff Merkley, an Oregon Democrat, said on Sunday that “once again I ask: Who is @realDonaldTrump working for? Helping ZTE”.

Amid the US political backlash, ZTE announced on Tuesday that it would resume trading on the Hong Kong stock exchange on Wednesday, ending a two-month suspension of its shares.

With a market value of around US$19.28 billion, ZTE is the world’s fourth-largest telecom equipment maker after Huawei Technologies, Ericsson and Nokia.

The company also said in filings on Tuesday that it would work to resume operations as soon as possible after the ban is lifted, and would republish its first-quarter results after assessing the impact of the ban and the settlement agreement on its financial condition.

“It is unclear if the [Trump] administration is keeping their Chinese counterparts up to speed with the nuances of Senate procedure and domestic politics,” Cowen Washington Research Group said in a report on Tuesday.

Last week, ZTE agreed to pay up to US$1.4 billion in penalties to the US government and said it would drastically overhaul its management and open its site to a US-appointed compliance team. It also issued a public apology.

The settlement included paying a US$1 billion fine and putting US$400 million into escrow to cover any future violations.

“It is possible for last night's action to be undone but a serious coordinated effort between House Republicans, the pro-Trump faction of the Senate and the departments of Commerce and Treasury is mandatory at this time,” Veda Partner’s analysts wrote in their report.