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The US-China Face-off: Is It Trade? Or national security?



Theoretically, the US Department of Commerce's move earlier this week to impose a seven-year ban on selling American products to ZTE Corp., China's second-largest telecommunications equipment manufacturer, was all about national security and had nothing to do with trade. Announcing the ban, Trade Minister Wilbur Ross said his agency is punishing ZTE for violating the terms of an agreement reached last year to clarify allegations that the Chinese company is putting US restrictions on the sale of technology to Iran and North Korea

From a regulatory point of view, sanctioning punishment and lax compliance are very different sins than theft of intellectual property and discriminatory trade policies (which Trump often cites as his main reason for imposing tariffs on Chinese imports). However, in the escalating war of words between the two largest economies in the world on trade issues, it is almost impossible to preserve such subtle distinctions.

The ban immediately provoked nationalist outrage in Chinese media and online forums, with many Beijing commentators pushing for increased government subsidies for China's domestic chip industry. ZTE chairman Yin Yimin called the US fines "unfair and unreasonable" and accused the Ministry of Commerce of "playing over subtle issues and politicizing trade disputes." Beijing reiterated these denunciations and warned that China was prepared to take action to protect the interests of

On Thursday, a spokesman for the Chinese Ministry of Commerce announced that Beijing was concerned about the $ 44 billion purchase by Qualcomm Inc. at NXP Semiconductors, A Dutch company interpreting trade experts on both sides of the Pacific fears being a direct response to the ZTE ban. Antitrust authorities in eight other countries have approved the acquisition of Qualcomm; but China is a crucial market for the San Diego-based company. Qualcomm and NXP shares fell 5% due to investor concerns about the business.

At a global financial conference in Washington on Thursday, Heath Tarbert, deputy US Treasury Secretary for International Markets, raised the proposal that the White House might restrict Chinese investment in American companies in sectors such as semiconductors and robotics by announcing a national economic emergency and the appeal to a law to impose sanctions on rogue regimes and terrorist groups. Will Beijing be forced to respond to these statements? Where does this stop?

Commercial histrionics provided ZTE with useful camouflage to disguise what appears to be an outrageous violation of US law. The company paid US $ 1

.19 billion in civil and criminal sanctions last year after it pleaded guilty to illegally shipping telecommunications equipment to Iran and North Korea and making false statements to US investigators and the Hamper justice. Under the agreement, ZTE agreed to fire four senior executives and discipline 35 others, either by reducing their bonuses or by reprimanding them. The trade has put ZTE on probation and warned that it would impose the seven-year export ban if the company would step out of line again. Reuters reports that ZTE fired the four executives but did not take action against the other employees, and Ross says the company continues to lie to government investigators after the agreement.

These have proven to be costly mistakes. ZTE was the only Chinese smartphone maker to conquer the US market and thrive there. Last year, the company sold nearly 19 million cell phones in the US and became America's fourth largest mobile phone seller. This created the largest US market for ZTE. However, ZTE is heavily dependent on suppliers in the US. According to the New York Times ZTE's telecom infrastructure and smartphone products depend on a variety of American components, including Qualcomm's microprocessors, Corning's glass, and San Francisco sound technology. based on Dolby. Before the ban was announced, ZTE had a market capitalization of about $ 20 billion. Trading in the company's shares was suspended on Tuesday in Hong Kong and Shenzhen. According to ZTE, the ban threatens his survival. [1859002] While a dispute broke out around ZTE, Huawei, China's other telecommunications equipment giant, signaled at its annual meeting for global investment analysts in Shenzhen that it is finally giving up its bid to compete

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Last week's newsletter on Sino Saturday triggered a lively response from readers. Many of you have incited me for denouncing Alaska Senator Dan Sullivan for his ignorance of China while demonstrating my own ignorance of the US Senate by identifying Sen Lindsey Graham as being from Florida. Doh! Many apologies. Senator Graham is of course from the great state of South Carolina.

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