Dr. John Rutledge
Summary: Here is a link to a recent CNBC Power Lunch segment on Trump's announcement that he had decided to rescue ZTE, the Chinese telecom equipment company. The video clip is from the May 14 show are from the date of shows but I have updated the written notes to reflect recent events. You can watch the ZTE discussion by clicking here or on the image below.
ZTE and the Case of the Chinese Laundry. This has turned out to be the story that wouldn't die. The morning before the show, President Trump launched a tweet saying he had talked with his buddy Xi Jinping and was instructing the Commerce Department to promptly review the case for dropping sanctions imposed on Chinese telecom equipment maker ZTE 'to save Chinese jobs.'
What?
The sanctions prohibiting U.S. companies like Qualcomm and INTEL from selling components to ZTE had been imposed some weeks before when it was discovered that ZTE had breeched an agreement not to sell products to Iran and North Korea. Without the components, ZTE had to stop production, virtually crippling the company.
Anchor Michelle Caruso-Cabrera asked the question on everyone's minds. Why, on earth, would a U.S. President do this? My answer: we don't have a clue. When rule of (a single) man replaces rule of law, as it certainly has in China and is increasingly the case in the U.S., there is no consensus-building process to ensure that decisions reflect logic and analysis. Or, if you're a math geek, without the benefit of averaging across the views of a large group of people, the central limit Theorem does not hold. They can simply be, well, tweets.
As I told Michelle, this isn't our first rodeo with Chinese telecom companies. Both ZTE and Huawei--favored companies in China's "Going Out" program of doing business abroad--have been under scrutiny for some time. During the last Bush administration, Huawei was prevented from acquiring 3COM through the CFIUS process, citing national security concerns. (3COM was eventually acquired by HP in 2010). And ZTE equipment has recently been removed from military bases for the same reason--the possibility that the equipment could be used to transfer unauthorized information back to the Chinese government.
More puzzling to me was why Trump didn't do the obvious thing and say he was reversing the sanctions to protect American jobs at Qualcomm and INTEL. Or even to say he was doing it to force resolution of Qualcomm's pending acquisition, held up by Chinese antitrust regulators.
After the show I ran across an article uncovered by the French media giant Agence France-Presse (AFP) that I wish had seen before the hit. It seems that a few days before President Trump's spontaneous decision, the Chinese government had loaned $500 million to a Chinese real estate company that had re-lent it to an Indonesian resort developer for a project that had licensed the Trump name from the family business.
But wait, there's more! Last week, a few days after Chinese authorities approved a new batch of trademarks for daughter Ivanka, Trump overrode Congressional concerns and killed the ZTE sanctions. I try hard to keep politics out of this column so you can draw your own conclusions but it's hard to read these stories without thinking of the Emoluments clause of the Constitution. Perry Mason would have simply called it The Case of the Chinese Laundry. Either way, this story is going to be with us for a long time. You can read the AFP story by clicking here.
JR