The message of the Tea Party to the swamp of Washington was to not use the power of government to hurt the American people.
President Trump promised to renegotiate trade agreements to bring jobs back home and to make the trade relationships between countries fair. The end goal is more jobs for Americans and access to foreign markets for U.S. goods. The problem is that during a war, there is something called collateral damage that impacts those not involved in the war fighting.
There is a situation brewing right now where government has made a bad decision that will not make America great again.
In the past few weeks, the Department of Commerce hit a Chinese telecommunications company that provides smartphones to American consumers in a way that hurts both American companies and the end users of these phone in the U.S. President Donald Trump has announced tariffs on imported aluminum and steel that have kicked off a trade war that may end up allowing a renegotiation of some bad agreements, yet the collateral damage of that trade war is hitting this one company. The actions taken to sanction this company, in the form of a “Denial Order,” as part of a comprehensive trade war makes no legal nor economic sense.
Commerce’s Bureau of Industry and Security (BIS) has imposed a denial of export privileges to the Chinese telecommunications company (ZTE) that stopped the company from doing any business in the United States. According to CNN Tech on April 20, 2018, “ZTE, which sells smartphones and other telecommunications equipment around the world, said Friday that the ban imposed this week by the US Commerce Department was ‘extremely unfair’ and that the company ‘cannot accept it.’ It warned in a statement that the move ‘not only endangers ZTE, but also hurts ZTE’s cooperative partners, including many American companies.’” The American companies are Google, Texas Instruments, Corning and Qualcomm to name a few. The company also serves about 10% of the American consumer market for smartphones.
According to another CNN piece, the allegation is that “ZTE lied to American officials about punishing employees who violated US sanctions against North Korea and Iran. The Chinese company agreed to pay a $1.2 billion fine last year after a US investigation found it had illegally shipped telecommunications equipment to Iran and North Korea.” The company then agreed to punish those involved after they had self-reported to the Department of Commerce that they had in fact paid full bonuses to some of the employees involved in violating the sanctions. Even though the company had reported themselves, the Department of Commerce’s BIS decided to impose the toughest penalty on the company.
The problem with the order that banned ZTE from doing business for seven years in the U.S. is that the company had reported the violation themselves and had taken corrective action to fix the problem. The order came without warning to the company and after the company had terminated and demoted the offending employees. Furthermore, the company had invested $50 million in to remedy the violation last year to improve export compliance efforts and was scheduled to spend more this year.
This action was an over-reaction by the BIS at Commerce. This decision will hurt American companies that provide parts to ZTE and hurt consumers of the company’s products who reside in the U.S. The bottom line is that this recent action seems to be a heated response to a growing trade war with China that has little to do with steel and aluminum tariffs, but more to do with a growing multi-front trade war between the countries.
It appears that one company has been caught up in trade wars in a way that is harmful to American interests. As usual, Washington got it wrong and used the power to impose import restrictions in a way that will harm the American economy. Hopefully, the government will reconsider this action and find a suitable solution that does not make ZTE a permanent casualty of the heated trade war between the U.S. and China.