The US Senate may play a wild card in China’s trade negotiations: It appears likely it will overrule the Trump administration’s deal with Chinese telecom producer ZTE by including a ban on chip sales to the company in the main defense appropriations bill.
The administration of President Donald Trump had penalized ZTE for violations of sanctions against Iran and North Korea by banning the sale of US-made chips that power ZTE’s mobile handsets, in effect shutting down the company’s business. After consultations with Beijing, the administration substituted a US$1.9 billion fine for the absolute ban on chip purchases.
However, Republicans in the Senate have broken with the administration and restored the ban on chip sales to ZTE. According to TheHill.com, the bill is likely to pass, and extracting the provision from the defense appropriations bill would require long and complex negotiations. Some senators claim that Trump will not veto the provision, and let the Senate overturn his negotiation.
If the Trump administration can’t line up a Republican-controlled Senate, then Beijing will consider it an unreliable negotiating partner and respond accordingly
This is far more dangerous than last week’s list of Chinese goods subject to a 25% tariff. It would shut down a major Chinese company, and force China into autarky mode for semiconductors. Huawei already produces a mobile handset chip under the brand name Kirin that powers some of its top-of-the-line handsets, and industry sources believe that with a crash investment program, Huawei could provide an alternative to Qualcomm chips within 18 months. The Chinese government has already told Chinese chip manufacturers that it would provide unlimited funding for such a crash program in the event of an export ban.
From China’s standpoint, the Senate’s action would call into question its entire negotiating position with Washington. If the Trump administration can’t line up a Republican-controlled Senate, then Beijing will consider it an unreliable negotiating partner, and draw appropriate responses.
According to TheHill.com, “Supporters are showing no signs of backing down and allowing the language to be removed from the final bill, which has to pass both the House and Senate. [Senator Tom] Cotton told reporters he thinks the provision will survive a conference with the House. He said he does not believe Trump will issue a veto threat over the trade fight because the [National Defense Authorization Act] includes other key defense priorities.”