China rejoices as Trump decides to play savior to ZTE

It is very difficult to judge the thinking of President Donald Trump. While both China and the US were bracing for an impact from a trade war spurred by the ban on ZTE last week, a very unusual tweet landed on Trump’s twitter handle yesterday. The president tweeted that he was working with the Chinese counterpart Xi Jinping to revive the troubled smartphone maker and save many jobs.

Now, if you are unfamiliar with the whole story, here it is. ZTE, which is the fourth biggest smartphone maker in the US, was earlier fined $1.1 billion by the US Commerce Department for illegally exporting US technology to North Korea and Iran, breaking strong sanctions. While the Chinese firm settled the fine amount, it ignored the Commerce Department’s demands to take action against those involved in the illegal dealing.

President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!

— Donald J. Trump (@realDonaldTrump) May 13, 2018

With the spat between both the leading economies reaching a boiling point last month, the Commerce Department decided to slap a harsh seven-year ban on ZTE from procuring components from US firms. This had crippled the tech company, given the fact that over a quarter of the components it uses for its devices came from various US firms including Google (GOOGL), Intel (INTC) and Qualcomm (QCOM). The company halted its operations last week, with nothing but uncertainty ahead.

Despite the possibility of a trade war, many political and economic observers had expected the action against ZTE to be final, given the laxity the company had shown towards the US regulations. And the latest tweet, which China called “positive,” comes as a surprise to many. Meanwhile, numerous ZTE employees took to social media to thank Trump as well as to express relief.

China and the United States are working well together on trade, but past negotiations have been so one sided in favor of China, for so many years, that it is hard for them to make a deal that benefits both countries. But be cool, it will all work out!

— Donald J. Trump (@realDonaldTrump) May 13, 2018

Second thoughts

So what could have sparked the second thoughts? It is highly unlikely that the jobs of Chinese engineers are on a top priority for the US President. It could be a move to save ZTE suppliers from faltering due to the immediate action. Qualcomm (QCOM), which supplies chips to ZTE, was looking at a loss of half a billion dollars in annual revenues due to the action on ZTE. Apart from suppliers, telecom companies, which had often relied on ZTE to make tantalizing offers alongside Apple (AAPL) and Samsung devices, are also feeling the heat. T-Mobile (TMUS) has taken off ZTE smartphones from its website.

The tweet could also be a political prelude to Trump’s upcoming meeting with Xi and North Korean Supreme Leader Kim Jong-un in Singapore. China will be unwilling to commit to any broader trade negotiations unless a lenient stand is taken by the US in the ZTE debacle. The president probably wants a silver lining to help direct the talks in his direction. Perhaps, the tweet was a prologue to Trump’s masterplan to win himself a Nobel Prize!