Why you should care
Because nearly everyone loses in a trade war between the world’s two biggest economies.
This is an OZY Special Briefing, an extension of the Presidential Daily Brief. The Special Briefing tells you what you need to know about an important issue, individual or story that is making news. Each one serves up an interesting selection of facts, opinions, images and videos in order to catch you up and vault you ahead.
WHAT TO KNOW
What happened? During his campaign and throughout his presidency, Donald Trump has pledged an “America First” trade policy and criticized China for stealing American jobs through unfair trade practices. But on Sunday, the U.S. president announced by tweet that he and Chinese President Xi Jinping were working together to save Chinese jobs by giving the Chinese telecommunications company ZTE “a way to get back into business, fast.” U.S. Commerce Secretary Wilbur Ross followed up by saying that his department would pursue a potential deal with the company.
Why does it matter? Trump’s surprise move left observers scrambling to figure out what’s behind this administration’s about-face on a Chinese company that has violated U.S. sanctions against Iran and North Korea and been deemed a national security threat by the intelligence community. Many in Trump’s own camp are concerned he is backing down from promises to stand up to China’s economic aggression. Meanwhile, ZTE employees in China are cheering the American president. “Wow! Breaking good news!” one manager wrote on WeChat.
HOW TO THINK ABOUT IT
Everything is connected … Trump says helping ZTE is part of a “larger trade deal,” even though both Ross and Larry Kudlow, his top economic adviser, claim that any decision on ZTE is not linked to broader trade talks. So what’s really going on? Some observers argue that the Trump administration is trying to defuse a potential trade war, or to lighten up on China — North Korea’s main partner — ahead of talks with Kim Jong Un.
… maybe a bit too connected. There’s a darker explanation too: Trump’s reversal came as a Chinese government-backed firm agreed to build a theme park next to a massive Trump Organization-branded development in Indonesia, a likely boon to Trump’s business.
Throwing a lifeline to a shark. FBI Director Christopher Wray said Wednesday he’s “deeply concerned” about foreign companies like ZTE gaining access to the U.S. telecommunications network. The firm, which is closely controlled by the Chinese government, had been struggling financially after paying more than $1.19 billion in fines last year for selling electronics to Iran and North Korea in violation of U.S. sanctions.
The art of the concession? Providing relief to ZTE was one of the top trade demands that the Chinese government gave to U.S. officials last month, and it appears that Trump may have acceded to that demand before extracting anything in return. Some observers argue that Trump’s apparent concession — and his flip-flop on ZTE — will only embolden other U.S. negotiating partners, including North Korea and the much larger Chinese telecommunications giant Huawei.
Room for compromise. The ZTE affair illustrates just how dependent the Chinese and American economies are on one another: While U.S. tech companies need Chinese production, Chinese firms need U.S. technology. The U.S. also wants to reduce its trade deficit, adjust unfavorable tariffs, and win both protections on intellectual property and more access to the Chinese market for American investors. While it’s unlikely any big structural changes will occur in China, it has room to make concessions: China could further open up free-trade zones in Hainan province and reduce tariffs on U.S. cars, high-tech and agriculture.
WHAT TO READ
China Cares a Whole Lot About Pigs in Iowa, by Mara Hvistendahl in The Atlantic
“Fully one in four rows of Iowa soybeans end up in China, meaning that Iowa’s farmers are, essentially, being kept afloat by China’s middle class.”
Why Trump’s Desire to Bail Out Chinese Tech Giant ZTE Is So Alarming, by Mark Sullivan in Fast Company
“ZTE is the closest thing we have to a poster child for the Chinese trade mischief that Donald Trump railed about throughout his 2016 presidential campaign.”
WHAT TO WATCH
How China Became Trump’s Trade Nemesis
“The U.S. and other Western nations kick-started much of China’s rise by opening up trade. What they haven’t figured out is how to get this fundamentally different economic system to play by free-market rules.”
Watch on The New York Times on YouTube
Comedian Stephen Colbert on Why Trump Wants the U.S. to “Be Cool” About China
“As an American, I do not want some Chinese company spying on me — I want Facebook to do it.”
Watch on The Late Show With Stephen Colbert on You Tube
WHAT TO SAY AT THE WATERCOOLER
The Chinese are looking forward to a time in the near future where they don’t need U.S. companies as much. Xi Jinping’s “Made in China 2025” project aims to turn his country into a more self-sufficient technological superpower by focusing $300 billion in investment into 10 areas of Chinese manufacturing, including robotics and electric cars. That’s bad news for those who export high-tech to China.
Correction: The original version of this story incorrectly stated that a Trump-licensed theme park in Indonesia received a $500 million loan from the Chinese government. The Trump Organization licensed a hotel and golf course development, and a Chinese state-owned company is building a theme park next door. The Indonesian owner of the development says he did not sign a loan deal with the Chinese government.