ZTE is saved by US deal, but should still watch its back

ZTE is saved by US deal, but should still watch its back

ZTE has spent months on the brink of disintegration thanks to a US trade embargo against the Chinese manufacturer. But a freshly-signed deal with the US government has saved the brand by lifting the ban...with strings very, very much attached.

In April of this year the US government issued a trade ban against ZTE. The reason: the company violated US sanctions and did business with North Korea and Iran. As a result, the company had to shut down production. Now it seems that the brand has been brought back from the brink, thanks to the new deal.

Getting back into the US's good graces has been a painful and humiliating road for ZTE. One month ago ZTE paid a fine of 1.3 billion dollars and had to replace its entire senior management board.

Now only one thing stands in the way of ZTE coming back into the fold: the manufacturer has to make an escrow payment of 400 million dollars. According to Bloomberg, the payment is scheduled for this week. From then on, a ten-year agreement between ZTE and the USA comes into force which allows the company to resume the import of goods and the production of equipment.

However, ZTE can consider itself on probation: if the Chinese manufacturer once more violates the sanctions imposed on Iran and North Korea, the escrow will go to the US government and the trade ban will come into force again. The US Department of Commerce issued a statement:

ZTE can breathe, but should look over its shoulder

On a surface reading, it seems simple enough. ZTE did the crime, now they pay the fine and do the time, but as with anything that affects business between US and Chinese companies, there's a long shadow of politics cast over this. 

When President Donald Trump announced in May that he was reconsidering penalties on ZTE, he painted it as a personal favor to Chinese President Xi Jinping. But despite this apparent gesture of friendliness, tit for tat tariffs are kicking in from both nations as Beijing accuses the US of starting the "largest trade war in economic history".

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Who's afraid of Chinese manufacturers? / © NextPit

A trade war in which ZTE can be used as a pawn for leverage between the two great powers. If ZTE thinks it's off the hook, at least temporarily, for violating sanctions, there's another angle that the US can use to pressure the company, and by extension, China. An angle that ZTE compatriots Huawei know only too well.

What happened to "security concerns"?

Astute readers will remember that ZTE has also come under scrutiny for alleged espionage activity in a similar fashion to Huawei. Despite the new agreement, a bipartisan group of US lawmakers remains unconvinced, and are pressing for harsher penalties, citing national security concerns. 

Negotiations are underway on legislation that will try to address national security concerns with regard to ZTE resuming business with US companies, but it's highly unlikely that Congress will defy the president and re-ban ZTE.

Nonetheless, if relations with Beijing go south, don't be surprised if Trump turns a friendlier ear towards the national security worrywarts and ZTE finds itself in the hotseat again.

What do you think about the deal to save ZTE? Was it the right thing to do? 

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  •   46
    Deactivated Account Jul 13, 2018 Link to comment

    Personally I think ZTE was let off the hook to easily. The Chinese government will pay the fine and the new heads will just do the same thing, they will just hide it better than their predecessors. Every phone manufacture has some sort of spyware to collect data, you might as well just accept the fact. I do not buy Chinese product because of spy ware but because I do not like their political and business practices, stealing every bodies else's R&D so they can sell cheaper phones and trying to steal the South China Sea.

  • Yes, ZTE was in the wrong, however, this was politically motivated in the interest of "better trade" - or whatever you want to call that (come on, you don't shut down a Chinese Tech Company, then offer to bring them back from death 2 months later, without looking like you're trying to motivate the outcome of the tariffs / embargoes).

    Having said all of that? I like my ZTE Blade Z Max (from MetroPCS), with the only downside is shutting down ZTE means my device isn't getting an Android OS 8 Oreo update from Nougat 7.2.1 (worst case scenario? I'll look for another smartphone, but American Consumers lose out when less Companies can compete for your dollars).

    I don't have any fear of Chinese Tech spying, or 90% of what's sold at Walmart / Best Buy / Fry's / Amazon wouldn't be purchased (I do feel there should be more respect for patents & copywrites).

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  • Most think of the phones, but ZTE and Huawei are huge players in the infrastructure build-out for 5G and IoT, and a lot of North American contracts turn on whether they will be able to continue in that capacity. Big delays could put the USA (and Canada) even farther behind.

    The Chinese OEMs have certainly implanted advertising spyware in emerging market products, but rarely in North American product lines. BTW, the political turmoil is discounting the price of ZTE consumer devices, and Blade and similar phones are hard to beat on a specifications per dollar measure. My current ZTE phone has worked great for a couple of years and I'd have the brand on a short-list for replacing it.

  • All Chinese phones are suspect. Just because a couple got caught doesn't mean the rest are not guilty.

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